BitUSD Trades Below Dollar Peg after Global Settlement Event
The algorithmic stablecoin using BitShares as collateral broke its dollar peg in December.
BitUSD, the dollar-pegged asset with an algorithmic approach to settling, entered a “global settlement” event a few days ago and is yet to return to the $1 level. BitUSD is ensuring liquidity on the BitShares Asset Exchange, as well as on the Open Ledger DEX.
This project is unique in that the dollar-pegged coins are created through borrowing, the collateral being BitShares, a special asset based on a delegated proof-of-stake network similar to EOS. BitShares is a relatively old project created by Dan Larimer before he moved on to Steemit and EOS.
BitCNY, the asset pegged to the Chinese yuan, has not seen a similar price change. BitUSD, however, can no longer be created with BitShares used as collateral.
BitUSD has almost no effect on the crypto ecosystem, unlike Tether (USDT), where disturbances in the dollar peg create Bitcoin price anomalies. However, the breakdown of an algorithmic stablecoin speaks of the inherent risks in attempting to regulate an asset by market principles.
BitUSD could still be bought and sold outright, but the global settlement was just for holders of margin trading positions on the exchanges where the asset is active. The coin started to lose its peg a few weeks ago, suddenly breaking down around December 4. The BitShares project, however, still sees blockchain technology as the answer to financial innovation.
Another coin with a mechanism similar to BitUSD is DAI, which is supported by Maker (MKR) trading. However, DAI has managed to keep its dollar peg, and the risk is seen as much lower, at least for now.
The disintegration of the BitUSD peg coincided with the end of the Basis stablecoin project, which did not even launch a dollar-pegged token for fear of being deemed the seller of unregistered securities.
Stablecoins were seen as the answer to cryptocurrency volatility, but so far, preference is given to asset-backed stablecoins, while the algorithmic variety is yet to prove its stability. It has been much easier for asset-backed coins to be accepted on most leading exchanges, while algorithmic stablecoins usually depend on niche marketplaces.