Exploring synthetic lightning-native StableCoins
As you may (or may not) have noticed, we're obsessed with creating a lightning-native stablecoin, powered by Discreet Log Contracts (DLC)
That means : No issuer, no token, no counterparty risk
Oh, and we announced our participation in Legends of Lightning yesterday : https://bolt.fun/story/10101-is-back--1085 so get on board and join the adventure!
And if you want to support us, follow us on X too : https://x.com/get10101
A counter-intuitive solution for better adoption
Stablecoins have played a key role in the development of "cryptocurrency" usage. In fact, they are the ones that have enabled deeper usage over the years for one crucial reason: they allow you to escape short-term volatility
For example, as a trader needing to secure gains by protecting them from volatility, without needing to go through an on/off-ramp which is less comfortable that won't offer the same flexibility
Another example: we're seeing Bitcoin being used in certain countries that are experiencing uncontrollable inflation of their national currencies, among other problems such as restrictions on bank accounts, or daily limits...
However, we can also see that Bitcoin's inherent volatility can be frightening and can be a brake on its adoption for day-to-day use, so we're seeing tokens such as USDT being used for day-to-day transactions...
A StableCoin only shifts the problem
While stablecoins offer various advantages, they also come with significant concerns. One major issue is transparency and accountability.
Since centralized entities typically control stablecoins, users must trust these entities to ensure that the coin's value is backed by enough reserves or managed according to stated algorithms.
Moreover, the concentration of power within these issuers can be risky, as their decisions directly affect the coin's stability and value.
Liquidity risks may arise if the reserves supporting the stablecoin fall short during periods of high market activity.
Lastly, the persistent threat of security vulnerabilities and hacks can result in financial losses for stablecoin users.
Trust is the weak link in this equation
a stable token may be self-custodial, but its underlying is not.
Our solution? USDP - PEGZ, a self-custodial synthetic currency
A synthetic asset, is like a digital mimic of a real-world asset, but it doesn't rely on a traditional issuer or a stash of regular cash to keep its value steady.
Instead, it harnesses the power of financial derivatives to tether Bitcoin to another asset, like the US dollar, for example. The magic happens by using a financial tool that mirrors the value of the chosen asset and tweaking the supply of the stablecoin to keep its value steady as a rock.
To maintain a stable value in relation to the USD, we employ a Bitcoin derivative known as a perpetual inverse future.
Here's how it works: Users seeking to hold a synthetic stablecoin opt for a short position in a perpetual inverse future with a 1x leverage. On the flip side, someone looking to go long enters the opposite end of the trade with an equal 1x leverage.
This approach makes it possible to hold a stable balance on a Lightning wallet, making it entirely self-custodial, just like the Bitcoin used to create it.
If you want to learn more, we have an article on explaining it : https://10101.finance/blog/synthetic-stable
Challenges to overcome
Although we have proved theoretically that this is possible, and have actually implemented the first version of a stable self-custodial balance on the 10101 app, we still have many challenges to meet with you for this second edition of Legends of Lightning.
For us to be able to deploy the solution effectively, and for its use to challenge existing solutions, we need the user experience to be as simple and clear as possible.
We'll need to collaborate with a strong focus on user interface and experience (UI/UX) to ensure that USDP - PEGZ becomes a user-friendly and practical tool.
Our goals include making it effortless for users to switch between their sats balance and a stable balance, ensuring that the stable balance can be easily transferred, and enabling seamless in-store payments with this synthetic currency, free from any hassles.
Ready to join the fun?
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