Strategic Importance of Cryptoeconomics in Stablecoins

by | Jul 30, 2019

Comparison of Price Stability and Consensus

Mechanisms between Terra & Libra

Stable coin is a cryptocurrency that has solved one of the difficulties of utilizing blockchain: price volatility. With stable coin, advantages of using blockchain such as decreasing cost and time for settling financial transactions as well as inclusion of underbanked can be realized.

Decon explored the cryptoeconomic design for price stability and consensus mechanisms of of two stable coin projects: Terra and Libra. Price stability and consensus mechanisms can differentiate stable coin projects by giving each stable coin a characteristic that may have influences in which businesses each stable coin will be used for.

The fintech firm’s stable coin Terra stabilizes its stable coin prices by backing it with transaction fees within its blockchain network, while providing discounts for participants through seigniorage shares. Seigniorage shares allow Terra to correlate network growth with business partners’ incentives.

Facebook’s stable coin Libra backs their stable coin prices with real assets which allows price stability even at times when large amounts of stable coin are exchanged to fiat currency. This characteristic allows Libra to have more advantage when utilized for large volume transactions of stable coins such as global trade.

For further analysis on price stability and consensus mechanisms of Terra and Libra, please see the link below.

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