Amongst various classes of cryptoassets, stablecoins attract most attention by mainstream blockchain projects. Some call them a buffer between crypto and fiat, others state stablecoins constitute the backbone of decentralized finance. Digital Asset Live Editor-in-Chief discusses their role with Alex Melikhov, Equilibrium CEO, the company behind EOSDT, currently the world’s most scalable stablecoin.
Q1: When I try to explain to people why we need stablecoins, many do not get it. “Why can’t you just change crypto to fiat?” they ask. How do you explain the need for a bridge between the two?
Stablecoins serve two major purposes. They help make crypto into a more attractive, stable asset, and they enable novel financial instruments.
Cryptocurrencies like Bitcoin haven’t been adopted as a standard means of payment due to large ﬂuctuations in their prices. But different stablecoin systems have already enabled a number of compelling decentralized use cases, like loans, risk hedging and making online payments. They can even give people protection against notorious crypto volatility, which is regarded as one of the largest hindrances to mainstream adoption.
You can definitely cash out your stablecoins into fiat if your exchange or remittance service offers that option, but this would ignore some of the passive and active income opportunities these coins enable. With our stablecoin EOSDT, for example, you can leverage digital assets like EOS, or automatically gain access to the EOS REX market for passive income opportunities.
Q2: EOS is one of the oldest and most well established blockchain protocols, with big projects now using it. Now Equilibrium has also chosen to build on EOS. Please tell us, how does Equilibrium work? What new functions does it bring to the space?
2019 is shaping up to be a breakthrough year for the EOS blockchain, simple as that. EOS is not only seeing higher trading volumes, but increased dApp usage as well. Equilibrium is a DeFi framework in this landscape that lets the community build products and services that use built-in assets pegged to multiple currencies and backed by liquid crypto collateral.
Q3: Decentralized governance is one of the central concepts behind EOSDT, could you please elaborate on it? Why do you think it is better than a centralized governance model?
Equilibrium operates a decentralized autonomous community inspired by EOS’s blockchain governance, but we have enhanced it significantly. We grant the governance model more power, letting the community set and modify the framework’s key parameters that directly affect risk management and business logic. Anyone holding our NUT governance token will be able to generate a proposal to change platform parameters, like the liquidation penalty, and have the community vote on it. We’ve already implemented an on-chain voting system, which you can now use to vote for block producers.
The initial release of the platform is, of course, the fruit of our labor. The management model is rather centralized right now. We are gradually approaching the full transition to a decentralized governance model, so we’ll have a chance to compare the pros and cons of each approaches.
Centralized leadership might be better in the short-term, but it doesn’t always serve community interests. It’s fair to say that centralized management can be less prone to errors in the short term if the project is managed by an expert team. But there are no guarantees in the long run. Look at it this way: who better knows the most useful tools for the unpredictable crypto market than its own players and participants?
The same thing happened when it came to regulation of the crypto industry – governments had no idea how to manage the crypto market in local jurisdictions until the community took ownership in shaping the legislation through self-governed bodies that helped to elaborate the laws.
Q4: What role for EOSDT do you envisage in the coming world of blockchain-based fintech?
Equilibrium is much more than the framework behind the EOSDT stablecoin. It’s also a powerful tool for DeFi businesses. We are designing the framework as an intuitive environment for creating advanced DeFi products and synthetic assets on top of it, which can ideally be used with out-of-the-box liquid stablecoins like EOSDT. Some applications are already in development, and we will soon share them with the community on a free, open-source basis.
Q5: Stablecoins are supposed to be pegged to a stable, and in many cases, real world asset. So why do their exchange rates change? What about EOSDT, will it fluctuate as well? Why?
Stablecoins can be simultaneously backed (collateralized) by a given asset and pegged to another one. Collateralization is about making a deposit to underpin your stablecoin. Centralized stablecoin architecture relies on fiat money and real word assets, like gold, diamonds, real estate, or even securities.
Decentralized stablecoins are about locking up cryptocurrencies like EOS, Bitcoin, or Ether. But every asset has its own price its own markets, and its own exchanges. This means the price can soar or fall dramatically.
Then we have pegs to a stable fiat currency, like the US dollar or euro. This peg serves two goals: to give a stablecoin owner a familiar currency reference and to tether the value of a stablecoin with something from the fiat world. Simply put, if your stablecoin costs $1 today it will cost $1 tomorrow. But the value of the dollar can increase or decrease depending on the currencies it is traded against.
So every element of a stablecoin as a price that is changing constantly. Moreover, stablecoins themselves do fluctuate just like fiat currencies do – but their amplitude is much more predictable. Nonetheless, the whole framework helps to prevent a stablecoin owner losing value as a result of price volatility through mechanisms which rely on demand and supply incentives.
Q6: Huobi Wallet includes EOSDT now. What does it mean for your project?
Huobi Wallet is one of the first wallets to support all major stablecoins. EOSDT is the eighth one they’ve added, and is their first EOS-based stablecoin. Through this partnership we both gained broader adoption and user base diversification. Huobi Wallet’s users now have access to two interesting assets: EOSDT and NUT. They can generate EOSDT through the Equilibrium widget, and even open and close positions within the wallet’s native interface.
Q7: Who are the major users of EOSDT now? Who are you trying to attract and how?
We have been focusing on large EOS holders and traders so far, offering them a lot of opportunities to get some additional profit on their digital holdings. For example, if they’re very bullish, it might let them purchase more EOS for EOSDT, while still preserving their initial holdings (they don’t have to cash out to create another crypto position). There are a number of internal dynamics that make large EOS holders very receptive to creating EOSDT stablecoins.
Now when the EOSDT stablecoin is well established, we are getting back to an initial contact of the DeFi framework and are focusing more on DeFi businesses, as Equilibrium can provide the right environment to build financial apps that would inherently benefit from its native stablecoins.
We feel we are responsible for helping foster innovation within the DeFi space. For instance, we are now launching a grant program to support developers building DeFi products on top of the Equilibrium framework with grant sizes up to $100,000 worth of NUT. Additionally, we’re offering the crypto trading community access to many interesting wireframed products which may add value to their business to use Equilibrium’s stablecoins in pyramiding, arbitrage, margin trading, and much more.
Q8: Conservatively speaking, how do you see the future of EOSDT and Equilibrium?
We have had solid progress so far. We launched in April 2019 and have reached 4.9 million EOS in collateral, worth roughly $20 million USD. This makes us one of the biggest EOS-based dApps in terms of EOS balance. Since launching, Equilibrium customers have generated over 5.6 million EOSDT stablecoins and accrued over 0.3 percent in profit for their collateral. We expect for this growth dynamic to continue throughout 2020. Next year the full-scale decentralized governance model will also be implemented for the Equilibrium framework.
Quite a few of our products will be open-source for the DeFi developer community, so we expect them to take build their DeFi systems. This will help us establishing ourselves as a prominent DeFi backbone and increasing the number of use cases for our stablecoin within dApps.
Q9: I am about to launch a section with Job ads, hence the interest in recruitment. What skills/talents do you hire? Where do you find them?
Equilibrium is always on the lookout for knowledgeable blockchain engineers.
Right now we are looking for a senior frontend developer (React) and automated QA engineer. We are also looking for creative marketing and PR people for our team.
If you know somebody who would be a good fit (or you’re interested yourself) you can reach out to us.
We otherwise use job portals and LinkedIn, for finding the talented people we use, as well as special community groups and recommendations from fellow dApps projects.