Blindex, the multi-currency stablecoin DeFi platform, have announced the launch of two new algorithmic stablecoins – $bGBP (Great British Pound) and $bXAU (Gold).
It’s a pretty interesting announcement, especially the fact that these are algorithmic, a source of constant discussion in the crypto world. With the safety and sustainability of Terra’s UST stablecoin particularly topical in recent times, this announcement from Blindex is of particular interest.
Blindex’s protocols have also been integrated with RSK, the smart contract platform who work with decentralised applications secured by the Bitcoin network. This means the stablecoins will be launched on Bitcoin, a neat extra factor, and distinct from almost all other stablecoins on the market. Add that to the fact that one of the stablecoins is pegged to Gold, possibly the most polarising asset when it comes to crypto enthusiasts, and we were quite determined to find out more.
So, we sat down with Omar Paz, Core Contributor at Blindex, to get his thoughts on the safety of algorithmic stablecoins, RSK, Bitcoin, gold and more.
CoinJournal (CJ): What advantages would you say Rootstock has for DeFi protocols considering launching?
Omar Paz (OP): RSK is the only chain out there that could give us decentralised bi-directional peg in/out of the Bitcoin and it was very important not to have any centralised points of failure such as custodians etc.
We also wanted to bring DeFi to Bitcoin users, RSK was the obvious choice here as they are EVM compatible and allows smart contracts operation
CJ: What do you think of the safety of algorithmic stablecoins, such as these new ones from Blindex? Would you be fearful on crash days that investors could lose confidence in the peg?
OP: Blindex stabilisation mechanism is a combination of collateral and algorithmic token. This mechanism was inspired by the work of Frax (with multiple changes from their original work). This mechanism was proven successful in the last years and remained one of the most stable mechanisms for stablecoins out there. The combination of having collateral and algorithmic token together allows Blindex to remain undercollateralised and, at the same time, have real value that is backing the stablecoins.
We also added various incentives mechanisms to encourage users to add more collateral to the platform in market falls.
Two things we did very different from all the others. Firstly, to disincentivise “bank runs” by making sure that, no matter if you’re the first one to redeem your stablecoins, or the last one, you will get exactly the same pro-rata of the collateral. And secondly, incentivising users for long (up to 5-10 years) lockup periods of liquidity, making the protocol safer and stronger in bear markets. And actually, the users love it, as more than 70% of the staked funds in Blindex are locked for 5-10 years.
Still, investors’ confidence always demands proof, and we feel confident that Blindex is up for the challenge.
CJ: The Anchor protocol (within the Terra ecosystem) is currently the most high-profile use of algo-stables, via UST, with TVL now over $16 billion. What do you think of the sustainability of this protocol, and do you think any potential trouble could have an adverse effect on DeFi as a whole?
OP: Obviously Anchor is attracting a lot of attention now, offering high returns on stablecoins, but that is changing now, as they already announced that the yield will be more dynamic. Meaning that they also understand that it can’t hold water for long – not in the same way it worked.
I believe that DeFi is here to stay, we’re only at the beginning of this new area. We believe that we are now seeing the birth of a new financial ecosystem that will work in parallel with the traditional financial system. It will bring a lot of innovation, changes, and even cooperation between the two. But until it will stabilise, we will see a lot of movements.
CJ: Staying with Terra, what do you think of their recent initiative to “back” their UST algo-stablecoin by buying Bitcoin?
OP: I believe that this is the right move. Essentially, they’re making steps to be more like us and Frax. Having collateral to keep an intrinsic nondependent value for the stablecoins is very important for the stability of the system. This will strengthen Terra and will add more backing to their claims.
CJ: What do you think will attract customers to the newly launched Blindex stablecoins, ahead of other options on the market?
OP: Blindex differentiates itself from other mainly in three parts:
Decentralisation – All of Blindex stablecoins are 100% decentralized, we are using only decentralised collateral (Bitcoin and Ether), taking big decisions together with the Blindex DAO, and even the cloud provider for our app is decentralised.
Multi-assets – We built a platform that can create stablecoins for all kinds of assets, currencies, commodities, stocks, bonds, indexes and even real estate.
Undercollateralisation – unlike other platforms, and other stablecoins. Blindex stablecoins require equal value of collateral to the amount of stablecoins a user wishes to Mint (the action of creating new stablecoins). For example, if I want to Mint 100 BDUS (Blindex USD pegged stablecoin), I will be required to provide $100 worth of collateral, in the form of a combination of BTC or ETH and BDX (Blindex utility and governance token)
CJ: What do Blindex get out of launching these stablecoins?
OP: Blindex goal is to Tokenise Everything. We wanted to help our users protect themselves from FX risks, help them deal with inflations, empower their savings, and have new investment tools on chain.
CJ: The press releases states that “Fiat currencies are volatile and subject to depreciation, requiring a different approach to the current system. The integration of Blindex protocols with the RSK platform marks a crucial milestone toward achieving that goal” – can you please elaborate on what you mean here – would there not still be depreciation with stablecoins, as they are pegged to their fiat counterparts?
OP: Essentially, we want to help users protect themselves from deprecation of their fiat money. This can be done via investing in other currencies that they believe are more solid and/or diversify their savings or investment money with other investment tools like commodities, indexes and others. For example, you can choose to put some of your money in Gold-pegged stablecoin, or in S&P 500 pegged stablecoin together with DeFi index stablecoin. One step further would be to allow users to use those stablecoins in other DeFi services which will enhance their positions even further.
CJ: Why was a gold stable chosen? And can you please detail exactly how BTC and ETH are used to collateralise the peg?
OP: Gold counts as a “safe haven” store of value and diversifier of stock market risk. It can also be a good inflation hedge, which may be important in the months and years ahead. In the last months, we received a lot of demand for a decentralized gold stablecoin from our users and we decided to answer that with bXAU, the first ever Gold pegged stablecoin that is backed by BTC and ETH.
The same stabilisation mechanism that we utilize with Blindex other stablecoins works here as well, and allows users to Mint new gold stables (bXAU) by choosing either of BTC and ETH to be used as the collateral together with BDX.
CJ: What is your opinion on the constant debate about the integrity of Tether’s reserves for USDT, and the safety of consumer funds who hold USDT?
OP: I’m a big fan of transparency, and my feeling is that the lack of transparency was the main issue here. If there was transparency from the start, then Tether wouldn’t have gotten to that situation, simply because they couldn’t. This is something that decentralised stablecoins are solving pretty nicely.
CJ: Algo-stables have many critics due to what some describe as “being backed by nothing”. What would you say to these people?
OP: I would say they are right. Strictly Algo-stables haven’t proven their case yet. There’s something problematic about having all the backing of the stablecoins dependent on a token that is issued and managed by the issuing platform and derives its value from a symbiotic relationship with the stablecoin and its ecosystem.
Like we mentioned above, Terra are now doing moves in order to have nondependent collateral that will also back their stablecoins and provide value that is not dependent on their ecosystem and token.