Cryptocurrencies have seen a surge in popularity as their utility has grown, and they have garnered mainstream attention from individuals and businesses alike. Cryptocurrencies such as Bitcoin, Ether, Litecoin, and several others have driven the growth of digital assets, NFTs, and Decentralized finance. Stablecoins have also gained significant popularity, safeguarding individuals from the volatility that is inherent in cryptocurrencies.
We have also seen the advent of CBDCs or Central Bank Digital currencies as governments and regulators worldwide race to get ahead of cryptocurrencies.
Before we move to the topic at hand, we must understand what cryptocurrencies are. A cryptocurrency can be defined as a virtual or digital currency secured through cryptography, making it almost impossible to duplicate or double-spend them. The cryptocurrencies are based on decentralized networks known as the blockchain. A blockchain or distributed ledger is a decentralized technology that processes and records every transaction, ensuring the integrity of the network and the transactions that take place on it.
While many experts believe that cryptocurrencies and blockchain technology have the potential to disrupt several industries, including finance, they have come under criticism for a host of reasons. These reasons vary from cryptocurrencies being used for illegal activities, inherent volatility, and known vulnerabilities of their infrastructure. On the other hand, they have also been praised for their transparency, with every transaction traceable and accessible.
Before we get into stablecoins and the different stablecoins in the RSK ecosystem, we need to first understand what RSK is. RSK or Rootstock is a smart contract platform. The platform is connected to the Bitcoin blockchain through the use of sidechain technology. RSK’s official website defines the protocol as “RSK is the most secure smart contract network in the world and enables decentralized applications secured by the Bitcoin Network to empower people and improve the quality of life of millions.”
We can look at RSK as an evolution of Ethereum and QixCoin. QixCoin was created in 2013 and was a Turing-complete cryptocurrency; and was also responsible for the introduction of the concept of pay-per execution, also known as “gas.” RSK also incorporates several concepts from Ethereum, such as web3 interface, VM, and Ethereum’s account format, making it highly compatible with the Ethereum ecosystem.
RSK also provides an improved payment experience compared to Bitcoin, with near-instant confirmation of transactions. As of 2019, RSK has over 40% more than Bitcoin’s hashing rate, making it one of the most secure smart contract platforms.
RSK can provide viable solutions to both Bitcoin and Ethereum, as it has the potential to significantly scale up Bitcoin while also providing solutions for prominent issues faced by Ethereum.
In the case of Bitcoin, RSK acts as a second layer, improving the scalability of Bitcoin significantly. RSK can scale up to 300 transactions per second without compromising on decentralization. Protocols such as GHOST and DECOR bring instant transactions to the ecosystem compared with transaction times on Bitcoin, which are significantly higher.
When it comes to Ethereum, the blockchain faces significant issues regarding the blockchain’s processing power. Ethereum faces significant scalability issues thanks to the Proof-of-Work consensus mechanism. Ethereum also has high gas fees that go up significantly if there are many users conducting transactions. Accessibility is also a significant hindrance as Ethereum is quite expensive to develop on and can be quite intimidating to use if users are not familiar with the technology behind the platform.
As mentioned earlier, Cryptocurrencies have the potential to change the traditional financial system. However, their inherent volatility is a significant hindrance to mainstream adoption. This is where we bring in Stablecoins. Stablecoins can solve the problem of volatility in cryptocurrencies and pave the way for faster mainstream adoption. Stablecoins can help to leverage the benefits of cryptocurrencies while minimizing the risk from volatility.
Stablecoins are different from cryptocurrencies because, as their name suggests, they are incredibly stable. They are also immune to any price manipulation by large investors. Stablecoins can be categorized into two distinct groups. These are Fiat Collateralized Stablecoins and Cryptocurrency-Collateralized Stablecoins. Let’s look at each of them in a little more detail.
- Fiat-Collateralized Stablecoins – As the name suggests, these stablecoins are pegged to a fiat currency such as USD, GBP, JPY, EUR, and several others. Examples of Fiat Collateralized Stablecoins are USDT, USDC, BUSD, GUSD.
- Cryptocurrency-Collateralized Stablecoins – These types of stablecoins are pegged to a particular cryptocurrency or a basket of cryptocurrencies and are also decentralized. An example of this type of stablecoin would be the RDOC by RIF on Chain, which uses the RIF token as collateral.
Let’s now take a look at the utility of stablecoins. We have already established that stablecoins can be pegged against fiat currencies, enabling them to take advantage of the low volatility prevalent in traditional fiat currencies while also being able to take advantage of the technological benefits associated with cryptocurrencies. Let’s look at some of the advantages of stablecoins.
- Stablecoins are economical – Traditional credit card providers charge significant “processing fees” on transactions. These can be detrimental to small businesses, which then pass on the processing fee to the customer or come up with a different method of collecting their money (cash transactions). Stablecoins have significantly lower costs attached to them when compared to traditional methods.
- Stablecoins offer quick transactions – Thanks to their digital nature, transactions using stablecoins are completed in no time. Stablecoins use smart contracts to provide near-instant settlements for transactions.
- Transact anytime – Another advantage of stablecoins is that you can do transactions at any time, unlike centralized options that operate within a specific window.
- Not restricted by borders – Thanks to their digital nature, you can make near-instant transactions to even the remotest corners of the world. This is beneficial for people in areas that do not have access to banking facilities or people living in countries facing hyperinflation (Venezuela).
Stablecoins have several use cases in the real world. Some uses are as follows,
- Stablecoins can be used as a stable medium for trading activities.
- Industries can utilize them for payment purposes.
- Automation of escrow.
- Adoption by governments and central banks as their Central bank Digital Currencies (CBDCs)
- Stablecoins are at the center of the DeFi economy
Stablecoins have found most use cases as CBDCs and in Decentralized Finance (DeFi)
DeFi or Decentralized Finance is an entirely decentralized financial system that leverages blockchain technology and blockchains such as Ethereum. DeFi is made up of several assets such as DeFi protocols, decentralized applications (dApps), smart contracts, and digital assets. DeFi now encompasses an array of financial instruments and financial protocols that function free from the influence of any third party or centralized authority. Thanks to these properties, the DeFi ecosystem has skyrocketed from $7.40 billion on 22nd June 2020 to $97.7 billion as of 7th September 2021.
CBDCs or Central Bank Digital Currencies are stablecoins issued by the central bank of a country. Currently, several central banks around the globe are exploring the use of CBDCs. CBDCs have several benefits over traditional fiat currency, as banks can keep a closer eye on the movement of funds and being able to curb the use of funds for illegal or illicit purposes. China is already studying the feasibility of a digital currency, while several other countries have already launched pilot projects.
Currently, several stablecoins are already present on the RSK ecosystem. Let’s take a look at some of the stablecoins.
Money on Chain offers Dollar on Chain (DOC), a stablecoin that is collateralized with bitcoin itself and carries all the egalitarian ethos of the leading cryptocurrency such as decentralization & user-custody.
Notably, there are 4 major tokens within the Money on Chain ecosystem:
The DOC is an RRC-20 token and is collateralized with the RSK network’s native coin, RBTC. For the uninitiated, RBTC is pegged to BTC at a 1:1 ratio and allows users to seamlessly convert to and from BTC as and when they desire through a token transfer bridge. As DOC is collateralized with a bitcoin-pegged synthetic asset, the risk of counterparty default via smart contracts is minimized.
Notably, DOC is designed to maintain a peg of 1DOC = 1USD. While DOC was not designed to consider the current stablecoins mechanisms, it is however geared towards identifying and aligning the interests of users of three other types of cryptocurrencies, namely BitPro, BTCX and RBTC.
Unlike DOC which is pegged to the value of the USD, BitPro is an RRC-20 token that tracks the price of bitcoin. This might prompt you to ask the question, what is the difference between BitPro and RBTC as both the crypto assets track the price of the same cryptocurrency? To answer this, we must understand the difference in utilities of both RBTC and BitPro.
Unlike RBTC which is the standard BTC-pegged token in the RSK ecosystem, BitPro’s functionality is a bit more specific. BitPro is nothing but the MOC version of RBTC, i.e., whenever any RBTC is sent to MOC, it is automatically converted into BitPro. The transaction occurs instantly, i.e., as soon as RBTC is moved to MOC, the blockchain instantly issues the equivalent amount of BitPro token for the user.
The next token in the MOC ecosystem is BTCX, which is essentially the native token of MOC’s decentralized derivatives exchange (DEX). The non-transferable BTCX token signifies leveraged positions on RBTC’s price. These BTCX positions are automatically created whenever an address sends RBTC to the DEX’s smart contracts.
In a nutshell, traders who are keen to use leverage anticipating the rise in the price of RBTC can tap BTCX that works as a futures contract.
4) Money on Chain Token (MOC)
Last but not least in terms of its significance, the MOC token is quintessential to the growth of the rapidly expanding MOC ecosystem. The MOC token allows its holders to participate in the governance of the platform. In addition, any MOC token holder can also provide a service to the platform and in return be eligible to receive subsidies and a certain proportion of the fees collected by the platform.
The RIF Dollar or the RDOC stablecoin is pegged 1:1 to the US Dollar and is guaranteed through a smart contract. Users on the ecosystem will be able to redeem their RDOC position upon the expiry of the smart contract. They can also redeem them partially during the contract’s lifespan, although this would depend on the availability of RDOC stablecoins to be redeemed. The RDOC stablecoins are fully collateralized by RIF tokens, allowing users to acquire them directly, without any collateral, as would be required on other DeFi platforms.
Users can transfer the RDOC stablecoin between themselves and use it to purchase goods and services from the Rif Marketplace. The token can also be stored on any compatible hardware wallet.
- RDOC is backed fully by RIF tokens
- Users do not need to provide any collateral
- The RDOC stablecoin is guaranteed through smart contracts
- Users can transfer the stablecoin, use it to purchase services
- Users can redeem the RDOC token every 30 days for RIF tokens.
- Easily stored in compatible hardware wallets.
The RDOC stablecoin is unique due to the mechanism used to issue the coin. The stablecoins are minted. RDOC stablecoins are minted when there is a specific amount of RIFpro staked in the platform. This does not require the user to stake RIFpro themselves, but that RIFpro must be staked in the system before any RDOC are made available.
Babelfish is a cross-chain stablecoin protocol that has recently launched on the RSK Network. Babelfish hopes to ensure that the DeFi ecosystem continues to thrive by facilitating the flow and exchange in DeFi, while also reducing risks for the users engaged in DeFi. Babelfish is helping to improve the use of crypto dollars in different platforms and decentralized applications.
Babelfish’s deployment on RSK will help attract dollar liquidity to RSK, facilitating a 1:1 exchange between different stablecoins. Apart from this, users can earn interest in FISH tokens or rBTC. Babelfish is the largest stablecoin deployed on RSK’s ecosystem, aggregating liquidity from different blockchain networks. The stablecoin allows users to use any stablecoin on a different blockchain network by pairing it with Babelfish, getting a convertible stablecoin in return which they can utilize on the other blockchain.
Babelfish was launched on RSK, keeping in mind the stellar growth experienced by the DeFi ecosystem on RSK. Babelfish will play an extremely influential role as a stablecoin gateway on the RSK ecosystem. Babelfish has experienced significant growth thanks to one of the most popular DeFi projects on RSK, Sovryn. Sovryn was the first project to integrate XUSD successfully.
The DAI stablecoin integration into the RSK ecosystem allows developers to improve DeFi services currently being offered on the network. It will also enable developers to create dApps on RSK and connect them with Ethereum. The DAI stablecoin integration will allow developers to leverage RSK, MakerDAO, the RIF token, and the Bitcoin ecosystem and increase demand for applications and assets without depending on the fees prevailing on Ethereum, especially with the fees on Ethereum growing as a result of the growth of DeFi over the previous months.
As a stablecoin, DAI’s value is pegged to the US Dollar, with the value regulated by MakerDAO, which is its governance community. This helps to maintain its price stability. DAI stablecoins can be produced through the Maker Protocol, which accepts other cryptocurrencies as collateral. However, DAI stablecoins can also be bought directly using fiat currency on exchanges such as Kraken and Coinbase. The DAI stablecoin offers the benefits of a cryptocurrency without volatility as it is pegged against the US Dollar.
The DAI stablecoin has several use cases, some of which are mentioned below
- Non-fungible tokens (NFTs)
- Decentralized Finance (DeFi)
- Earning passive income by staking idle DAI stablecoins
- Can use DAI to make in-game purchases
- Unrestricted access to funds for DAI investors
- Robust and secure.
- Borrowing DAI to buy other cryptocurrencies
On the RSK network, the DAI tokens are known as rDAI, and users can get these tokens on RSK through the Token Bridge dApp through the Defiant Wallet. If you prefer to use other assets such as USDT, you can simply exchange them through the Defiant wallet.
The BRZ stablecoin is backed by the Brazilian Real, unlike most stablecoins that the US Dollar or the Euro back. The Brazilian Real is one of the largest fiat currencies globally and is the largest in South America. BRZ is available on several platforms, working as a bridge between the blockchain market, DeFi, and investors, who don’t have to rely on stablecoins backed by foreign currency thanks to the availability of the BRZ stablecoin.
BRZ claims to be the world’s largest stablecoin pegged to a national currency that isn’t the US dollar. The integration will give BRZ token holders access to lower gas fees and better security. Integrating with RSK will enable the BTZ token to be deployed on several DeFi projects. Additionally, projects on RSK will be able to leverage the BRZ stablecoin.
Some advantages of the BRZ stablecoin are as follows
- BRZ tokens are always entirely backed, with reserve managers keeping full reserves.
- BTZ utilizes blockchain technology, already utilizing Algorand, Solana, and Ethereum blockchains.
- BRZ offers increased market stability
- BRZ uses smart contracts to issue and burn tokens.
BRZ gives Brazilian investors access to international platforms without being exposed to Bitcoin or any other volatile cryptocurrencies. It also enables international exchanges to seamlessly enter the Brazilian market and acquire customers easily. It also acts as a hedge, giving international businesses in Brazil an alternative to hedge their holdings in the native currency.
The RSK ecosystem is seeing significant growth as it sees a stellar growth of the DeFi ecosystem on RSK. There are several running and upcoming projects, and the stablecoins on RSK will enable users to access one of the most secure and efficient solutions in the market for DeFi.
RSK is also the first Bitcoin sidechain offering Turing-complete smart contracts that are compatible with Ethereum and further secured by Bitcoin merge-mining. The ecosystem is also enabling the creation of a secure, decentralized, open, and inexpensive financial system based on the blockchain that promises to be inclusive.