The Importance on Understanding Crypto Regulations

When you look at the regulatory climate surrounding the cryptocurrency markets, you would be safe to assume that stablecoin tokens, which are pegged to the value of major fiat currencies such as the United States dollar, will soon be on the radar of financial officials. Tokens such as USD Coin and Tether, which respectively trade under the symbols USDC and USDT, are easy targets for regulators, and this is why decentralized stablecoins are becoming attractive to investors who think regulatory action is just around the corner.

FRAX, Magic Internet Money, and TerraUSD are three decentralized finance (DeFi) projects that aim to compete against the likes of USDC and USDT. Unlike established stablecoin tokens that operate on a centralized blockchain, DeFi stablecoins run as side chains. TerraUSD, for example, is pegged to the greenback, but it requires miners to put up collateral in Ethereum tokens, thus contributing to the liquidity pool. TerraUSD does not make use of an algorithmic ratio as most stablecoin tokens do.

The FRAX token runs on the Maker protocol, and it aims to solve the struggle to secure collateral through a decentralized collateral platform for DeFi protocols developed to peg tokens to fiat currencies. To day that this is an ambitious project would be an understatement.

Magic Internet Money, the world’s first stablecoin launched on the IOTA blockchain, also makes use of DeFi collateral platforms. Unlike stablecoin tokens such as Tether, which pegs their value to fiat money, IOTA-pegged stablecoins are designed to maintain a fixed value to the amount of tokens in circulation. This ensures that the value of IOTAs will stay constant at all times. The stablecoin is designed to run on top of IOTA’s blockchain, and unlike USD Coin, it is able to operate without a centralized counter-party.

FRAX, Magic Internet Money, and TerraUSD projects might not be the first names that come to mind when you think about DeFi protocols, but they will certainly capture the financial news spotlight if financial regulators in the United States decide to expand their oversight to major stablecoins. Even if regulators opt to leave USDT and USDC alone for now, these three DeFi projects are worth looking into.