Stablecoin Issuance Explained: What Makes TrueUSD a Better Choice?
Over the past few years, the stablecoin sphere has broken up the market monopoly to embrace diversity. It has been growing more mature, going through a phase of decentralization with continuously enhancing compliance and transparency. The market has seen a competition among more than 70 stablecoins take shape, which, in turn, drives these competitors to grow further and develop multitudes of use cases. In the following passage, we will walk you through the major stablecoins in the market from the perspective of issuance mechanisms.
USDT
Issued by Tether Limited in 2014, USDT is the first and largest stablecoin by market cap at present. It is pegged to the U.S. dollar at 1:1 by means of Proof of Reserves. Such crypto assets issued with fiat currencies as the backing reserve are known as fiat-backed stablecoins.
Issuance and circulation of USDT
Here’s how USDT is issued and the way it circulates: when a user deposits USD into Tether Limited’s bank account, the company will create a Tether account with an equivalent value of the USDT asset for the user; and when the user redeems USDT for fiat currency by returning USDT to Tether Limited, the company will burn the token and return USD to the user’s bank account.
USDT can also be traded on exchanges or in OTC markets. Any investor can buy the circulating USDT from other investors or platforms and trade with them, thus closing a loop of token issuance, trading, circulation, and recycling. However, as the market continues to see soaring USDT supply, this stablecoin suffers a loss of trust in its issuance mechanism and fiat reserve. The credibility of its issuer has also been called into question due to a disclaimer that exempts the company from liability to cash out fiat currency under all circumstances including insolvent liquidation.
USDC
USDC was launched in September 2018 by the Circle Group in partnership with Coinbase, a U.S.-based crypto asset trading platform. It is also a fiat-backed stablecoin. The issuance and circulation of USDC break down to the steps below: first, users apply for KYC verification, and they will receive a bank account to which they send USD; the issuer then uses USDC’s smart contract to create an equivalent amount of USDC; finally, the newly minted USDC is delivered to the user, while the substituted dollars are held in reserve. Redeeming USDC for USD requires a reversed process: the issuer will process users’ redemption requests with the USDC smart contract again.
Before August 2020, users who wanted to mint Ethereum-based USDC had to keep ETH in their account to cover the handling fee incurred during the process, which resulted in higher operational cost for them. The escalating gas fee in the Ethereum network may push the minting cost even higher.
DAI
DAI, the first decentralized stablecoin, is issued through Maker’s smart contracts on Ethereum. DAI is fully collateralized by digital assets including Ethereum. Its goal is to maintain a value of US$1 ever since its debut in 2017.
Creating DAI requires the following steps. To begin with, there is a collateralized debt position (CDP), a smart contract in which users lock ETH to generate and borrow DAI. When they stake ETH in (or send ETH to) this smart contract, it will issue a corresponding amount of DAI according to the real-time ETH price and staking rate. DAI will be over-collateralized when the price trends up. If ETH’s price drops below a certain level (due to the CDP initiator’s failure to increase margin or repay DAI), the CDP will trigger liquidation automatically. In a nutshell, DAI features a smart contract design that does not guarantee a 1:1 peg to USD; instead, it drives arbitrage seekers through an incentive mechanism to keep the DAI value at around $1.
Mechanism of Maker Protocol
In cases of drastic price fluctuations in ETH and ERC20 assets used as collateral, the stability of DAI will be seriously compromised. In this regard, DAI intrinsically contains certain risks due to its CDP contract mechanism, which requires stabler collateral. To tackle this, MakerDao adds USD-pegged stablecoins such as USDC to the list of collateral, which, however, has stirred up controversy because of the centralized risks that come with them.
TUSD
Launched in 2018, TrueUSD is a USD-pegged stablecoin that maintains its credibility by establishing partnerships with banks and trust companies for custody of assets. The team of TrueUSD has no access to funds in custody.
Issuance and circulation of TUSD work in the following way: users need to have their assets hosted by a trust company in order to buy or sell TUSD. For TUSD purchases, the buyer sends USD to the trust company for verification, and then obtains the approval of TrueUSD’s smart contract. After it is completed, TUSD will be sent to the buyer’s public account. For TUSD sells, the seller burns TUSD and notifies the trust company of the transaction via the smart contract, after which the corresponding USD will be returned to the user’s account. TrueUSD also provides regular audit reports, stays compliant by means of KYC and AML, among others, and even reviews users’ individual transactions to minimize risk.
Minting of TrueUSD
It is self-evident that the issuer of TrueUSD has no access to users’ funds, which are kept by trust companies for custody from beginning to end. This marks a clear breakaway from Tether, which is not open to full audit reports. Available sources reveal that Tether had previously inked a deal with Friedman LLP on balance sheet audit procedures, but the two dissolved their relationship even before the audit was completed. In stark contrast, TrueUSD has actively invited Armanino, one of the largest U.S.-based accounting firms, to perform real-time audits so as to ensure the 1:1 ratio of USD reserves to circulating token supply and the 100% collateral rate. Users can access the publicly available audit results via the official website trueusd.com at any time.
About TrueUSD
TrueUSD is the first digital asset with live on-chain attestations by independent third-party institutions and is backed 1:1 with the U.S. dollar. So far, it has been listed on more than 100 trading platforms such as Binance, Huobi, and Poloniex. It is also live on well-known public chains such as TRON, Avalanche, BSC, and HECO, providing them with a great deal of liquidity to catalyze the growth of their DeFi ecosystem. It is audited real-time by Armanino, one of the largest U.S.-based accounting firms, to ensure the 1:1 ratio of USD reserves to circulating token supply and the 100% collateral rate. Users can access the publicly available audit results via the official website at any time.
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