Stablecoins were developed to address high-price fluctuations of unbacked crypto-assets. Their market value is pegged to external currencies like the US dollar or commodities like gold, and they have become a common part of the Web3 space.
These volatility-resistant crypto counterparts rose to such popularity that about 75 per cent of trading across cryptocurrency platforms involved stablecoins in September 2021. However, the sudden crash of the Terra stablecoin, Luna, and UST in mid-May sent the crypto ecosystem spiralling downwards.
The crash reinforced the fact that stablecoins pose several risks to the financial stability of the crypto space. The crypto winter emphasises the importance of reserve asset management by collateralised stablecoin issuers. Stablecoins became a taboo amongst blockchain experts and became ‘the one who must not be named’ these days.
Stablecoins to weather away crypto-winter
Defying the current market conditions with the launch of its mainnet WEMIX 3.0 on October 20, South Korean gaming company Wemade is betting on its newly developed platform-driven and service-oriented mega-ecosystem based on the SpoA (Stake-based Proof-of-Authority) consensus algorithm and EVM-compatible open-source protocol to conquer the blockchain gaming industry.
WEMIX3.0 is designed to embrace DApps and services such as games, DeFi, and DAO-based projects. The company currently services 17 blockchain games on the WEMIX Play platform and is looking to have 100 on-chain games by the end of this year. At the center of this ecosystem are its stablecoin WEMIX$ and WEMIX.Fi, the ecosystem’s decentralised financial service platform, launched on October 22. NILE, a new financial platform that connects NFTs and DAOs is expected to launch in Q4 of 2022. Wemade’s blockchain gaming platform, WEMIX PLAY, will get updated as well.
Wemade’s MIR4 Global, released in August 2021, quickly gathered 20 million gamers, recorded seven million monthly active users, and 160 million dollars in in-game sales within one year of its launch. MIR4 global users mine dark steel while playing the game, which can be traded for the in-game token ‘DRACO’ and then exchanged for WEMIX coin (which is a medium of exchange). Because both DRACO tokens and WEMIX coins suffer from price fluctuations, it becomes difficult to answer the question, “What is the price of DRACO right now,” without a calculator. Through trial and error, Henry Chang, CEO at Wemade recognised the necessity of a stablecoin to determine a fixed price for the coin. For example, when an NFT is said to be worth 0.0135 ether or 0.00867 bitcoin, it is not clear how much it is worth since both cryptocurrencies have constantly changing prices.
Chang delivered a keynote speech titled ‘The Digital Economy and the Stablecoin: WEMIX3.0 and WEMIX$’ at TOKEN2049, held in Singapore, at one of the biggest blockchain conferences in the world. As a leading global gaming platform, Wemix was the title sponsor of the event. He observed, ‘A blockchain economy without a stablecoin can be no more than a cult. In order to be used and survive in the mainstream, services will need to have stablecoins’.
Chang believes stablecoins must have three key elements, ‘stability, stable/native reflexivity, and scalability,’ and proceeds to argue how WEMIX$ checks all the boxes.
Chang’s critical ingredients for a successful stablecoin
Chang asserts that to be stable, stablecoins “must have the same amount of reserve for the fiat currency it is pegged to”. He explains that WEMIX$ is stable because it will be issued 100 per cent reserved by USD Coin.
It is essential to ensure that the native coin captures the demand and trade of the stablecoin. Chang elaborates: “When the demand for WEMIX$ increases, the value of WEMIX, the native coin of the WEMIX3.0, should also rise. That, in return, will expand the WEMIX3.0 ecosystem, and it will increase the volume of trade using WEMIX$.” This reflexive mechanism represents the second requirement of ‘stable/native reflexivity’.
The company plans to achieve this by creating a staking programme that will ensure the allocation of a portion of the fee generated by WEMIX$ and WEMIX$-based trades to the WEMIX Coin holder community. The trade volume will reflect the size and health of the ecosystem.
A crypto ecosystem cannot grow if the issuance of stablecoins is tied down to the amount raised in reserve. Like every other commodity, the price of WEMIX$ will be determined by its demand and supply. Wemade’s DIOS protocol that issues and burns stablecoins tackle this hurdle. The DIOS staking programme will ensure that surplus funds generated through the DIOS staking program returns to the WEMIX Coin holder community as a reward for staking.
Chang explained: “If the utility of WEMIX$ in the ecosystem increases, the demand for WEMIX$ also increases. In this case, WEMIX$ will be traded at more than $1. Technically, the price of WEMIX$ will become 1.1 USDC in the WEMIX$-USDC swap pool, not one USDC.”
Then the DIOS protocol activates and issues one additional WEMIX$, exchanges it for 1.1 USDC in DEX, and puts one USDC in reserve to match the quantity of USDC in reserve and WEMIX$. And it puts the surplus of 0.1 USDC back in reserve and issues an additional 0.1 WEMIX$. This fulfills the third and last requirement scalability argued by Chang.
Chang concluded his keynote speech with complete confidence about the success of the stablecoin. “Good stablecoins are bound to become the key currency. Valuable and sustainable things eventually succeed. Hopefully, WEMIX$ will become a new history of stablecoin, and that history will be the cornerstone of the digital blockchain economy,” he asserted.
Mohammad Mushrraf is the co-founder of Unhashed.io