🐛Problem
$BITU is a product of Decentralization, Censorship Resistance, and Stability
BitU Protocol is unique compared to other stablecoins that can only provide market determined stability and a means of transaction. BitU Protocol looks to resolve several core issues with most stablecoins by building a stability primitive with real-yield staking, and providing unrestricted access to an omni-trading hub of diverse assets across numerous markets from a single unified experience.
Stablecoins are one of the most important components in the crypto industry, playing a crucial role in providing investors with a safe haven and liquidity for transactions. The market already offers a wide variety of stablecoins, but each comes with different trade-offs in terms of decentralization, censorship resistance, and stability.
Decentralization
Crypto is a free market, and cryptocurrencies are free assets that anyone can use. Unlike traditional finance, Web3 services should ideally operate without the need for permission or cumbersome authentication processes.
The decentralization and use of blockchain technology for stablecoin issuance and circulation means that stablecoin issuers cannot arbitrarily create stablecoins or manipulate the circulating supply of stablecoins in the market.
Censorship resistance
Censorship resistance refers to a system's ability to resist surveillance and intervention by external entities or third parties. For crypto stablecoins, anyone should be able to freely use stablecoins for transactions and other activities without worrying about the stablecoin issuer or any institution imposing bans or directly disabling a user or address.
Stability
Value stability is the cornerstone of a stablecoin and one of its inherent properties. Common fiat-backed stablecoins in the market are usually supported by the value of the US dollar or US Treasury bonds, ensuring that each stablecoin in circulation has equivalent value backing.
On the other hand, crypto-backed stablecoins derive their value support from crypto assets. Since crypto assets are volatile, the core function of a stablecoin protocol is to ensure that the total value of crypto assets supporting the stablecoin is always greater than the total supply of circulating stablecoins.
Centralized stablecoins: USDT, USDC
Centralized stablecoins face two main issues:
Lack of transparent asset backing
As mentioned earlier, the value backing centralized stablecoins typically comes from traditional assets such as the US dollar or US Treasury bonds. These assets are held by banks or other traditional financial institutions. This data is not visible onchain, and although stablecoin issuers periodically release transparency reports of their asset holdings, users still cannot truly verify whether the stablecoin has sufficient reserves.
Furthermore, banks are not fully secure institutions. In March 2023, Silicon Valley Bank, one of the six banks collaborating with the second-largest centralized stablecoin, USDC, went bankrupt. Circle, the company behind USDC, had approximately $3.3 billion in reserve assets stored in Silicon Valley Bank. This resulted in a significant impact on USDC's trust, as the price depegged significantly, dropping below $0.9 at its lowest point.
Interference by third-party entities/governments with stablecoin users
A major concern with fully centralized stablecoins is their vulnerability to censorship. Stablecoin issuers or certain third parties can freeze funds in specific user addresses, rendering them unusable. While this "super admin" capability can help curb illicit activities, it also poses significant drawbacks.
This power threatens any user's freedom, as a fully decentralized stablecoin would permit unrestricted use. Additionally, the criteria for "illegal activities" are often subjective, influenced by geopolitical dynamics or international relations. Actions considered legal at one moment can be deemed illegal later, complicating the use of such powers.
Algorithmic stablecoins: UST, FEI
Algorithmic stablecoins like UST and FEI primarily struggle with maintaining price stability. Their advantage lies in the fact that their value is determined by algorithms and relies less on the backing of underlying assets, allowing for rapid market scaling.
However, this quick expansion can also lead to a swift decline. With limited asset backing, these stablecoins struggle to withstand significant risks. When these risks materialize, the collapse of algorithmic stablecoins can be rapid and tumultuous, leading to an instant death spiral.
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