The Future of Commerce: Decentralized Stablecoins and Their Role in a Trust-Minimized Economy
This article explores the concept of decentralized stablecoins, their attributes, and their role in a trust-minimized economy. It introduces Silk, the flagship stablecoin of Shade Protocol, as an ideal example of a decentralized stablecoin.
Jun 13, 2023
In the world we inhabit, trust is a fundamental assumption. We trust that the food we eat at a restaurant is fresh, that we can withdraw money from the bank at any time, and that cars will stop at a red light instead of continuing at full speed. Trust is the most crucial attribute of any economy. Without it, commerce is impossible. If no counterparty can be trusted, then the willful exchange of goods and money grinds to a halt.
However, we live in an era increasingly filled with noise, where the very money that represents our time and labor is increasingly out of our control. Banks and governments can freeze money at will, cross-border transactions are fraught with friction, and the barriers to participating in a truly global economy seem to be increasing daily. Enter the world of decentralized stablecoins.
Understanding Decentralized Stablecoins
Decentralized stablecoins hold a simple promise. They propose that minimizing trust assumptions is our best shot at creating both a fair and globally accessible market for commerce. Fundamentally, a decentralized stablecoin is valuable because of the trust minimization introduced by holding the stablecoin versus alternative forms of money.
Decentralized stablecoins, such as DAI, EOSDT, and DeFi Dollar (DUSD), are fully transparent and non-custodial with all collateral backing visible on a publicly verified blockchain. They are contributing to raising trust in the crypto space and boosting mass adoption of digital assets and blockchain technology.
Attributes of Decentralized Stablecoins
The ideal attributes of a decentralized stablecoin include open-source programmatic rules, permissionless accessibility, granular privacy, price stability, censorship resistance, a variety of collateral types, a decentralized peg, and overcollateralization.
Open-source code empowers the rules of the currency to be codified and visible for all to see. You don't have to trust opaque human organizations to know that the money will function the way it should. Permissionless accessibility means that anyone around the world can hold the stablecoin. No one can stop you from acquiring the decentralized stablecoin within decentralized finance. Global accessibility is key for a decentralized stablecoin to succeed.
Granular privacy is important to protect commerce. Balances, receivers, and transactions should not be fully public for the entire world. Simultaneously, users should be able to decrypt their encrypted transactions and share view access to their data as needed with external third parties.
Price stability is the most important promise of any stablecoin. Based on the many economic mechanisms at play, the stablecoin needs to be consistently redeemable for a corresponding amount of stable value. That is to say, a decentralized stablecoin pegged to one USD needs to be able to be sold for $1 of value on any given market over the course of time. The primary value add of a stablecoin is that it doesn't experience volatility. When history proves this to be true, trust required is minimized as many counterparties begin to trust its stability within the digital landscape of Web3.
Censorship resistance is the promise that no one can stop you from making a transaction. Your stablecoin is fungible, and you are free to do with it what you'd like. Censorship resistance is an important attribute of currency that is focused on empowerment and freedom.
Having a variety of collateral types is important for ensuring that the stablecoin doesn't have a single point of failure. Collapses (such as UST) have taught us that relying on only one type of collateral dramatically increases the risk profile of the stablecoin. Too much trust is placed on a single asset, when decentralizing the collateral backing ultimately helps minimize trust.
A decentralized peg is crucial for ensuring that the fate of a stablecoin isn't tied to a single centralized monetary system. If the underlying currency that the stablecoin is pegged to hyper inflates, then so does the digital representations of said stablecoin. A futuristic stablecoin will be capable of slowly evolving as the global economic environment evolves.
Finally, overcollateralization is an important attribute of a stablecoin that can give users the peace of mind that their stablecoin is properly backed with other assets.
Introducing Silk: The Ideal Decentralized Stablecoin
If you hadn't noticed, the above description for the ideal stablecoin describes Silk - the flagship stablecoin of Shade Protocol, an array of connected privacy-preserving DeFi applications.
Silk is a trust-minimized stablecoin focused on delivering attributes that empower users and commerce. Silk isn't pegged to a single sovereign currency. Instead, it tracks a basket of global currencies and commodities - giving holders a natural perpetual hedge against global volatility and inflation.
Silk is private. At Shade Protocol, we believe that privacy is the key to unlocking the full value of a decentralized future. Silk will help prove this thesis. That the world is ready for the future of money.
Decentralized stablecoins are an integral part of the cryptocurrency and Web3 ecosystem and account for a significant portion of its trading volume and underlying economic activity. They offer benefits over traditional counterparts due to blockchains being the underlying mechanism facilitating the transfer of value instead of opaque, outdated, and manual processes. As we move towards a future where trust is minimized and transparency is maximized, decentralized stablecoins like Silk will play a crucial role in shaping the global economy.
Shade Protocol is an ambitious array of application-layer products focused on a simple end user experience that involves the incorporation of privacy by default. These interconnected privacy-preserving DeFi products built on Secret Network will change DeFi as we know it — empowering the next generation of value creation and exchange. Shade Protocol is launching Silk: a privacy-preserving collateralized, reflexive stablecoin built on Secret Network.
Without privacy, DeFi is incomplete. Traditional financial markets offer a degree of privacy for users, and as a result offer up greater protections in some capacity than existing DeFi markets. Shade Protocol will be the world’s first truly cohesive decentralized and privacy-preserving financial applications — ushering in a golden era for Web3. Shade Protocol will always push for privacy by default, privacy as an expectation, and privacy as the key to unlocking the full value of a decentralized future.