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What is a Seigniorage StableCoin?

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Esmee
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In this section, we are going to take a look at what is a seigniorage stablecoin. We will take a look at the concept behind seigniorage and how it is used for the cryptocurrency.

Introduction

Recent development into government backed stablecoins have brought the concept of seigniorage into the crypto industry. So we will first take a look at what it is and then we will which cryptocurrency blockchains are adopting this for the stablecoin.

What is a Seigniorage? How does it work?

Seigniorage is basically a difference between the cost to produce a currency and the face value of the currency. This value is being used by many government issued currencies of the world prior to the cryptocurrency.

Let's take an example, when the government issues 10$ bill where as the development of the bill takes only 2$ then the difference of 8$ is the seigniorage. This way the government makes the profit and also this profit is reinvested to earn interest.

What are benefits of the seigniorage stablecoins?

There are many benefits of such stablecoins and they are often preferred by many legal protocols and the financial systems.

  • Ability to adjust as per the smartcontract.
  • Automated value adjustment as per demand and supply.
  • They are not influenced by outside market manipulations.
  • It doesn't require external asset collateral for stability.

These are some of the features that makes the seigniorage stablecoins pretty much important for most of the financial applications and systems out there.

What are issues of the seigniorage stablecoins?

Though such stablecoins are useful they have their own set of the problems for the financial systems who may not always find it useful. Here are some of the issues of such stablecoins.

  • This is pretty much new and complex concept to implement in smart contracts.
  • Long term performance and stability is not yet tested.
  • Regulated and Decentralized stablecoins go through different set of results.
  • A lot of stablecoins of this type rely on future value speculation.

As you can see seignorage has it's flaws and not every type of crypto can benefit from using it's concept in the blockchain.

What are Seigniorage Based Stablecoins?

There are many coins that are being used with Seigniorage concept in mind. Few examples of such coins include - Steem Dollar, Topl, Nubits, Kowala and BitBay. A lot of these stablecoins are now being modified for a specific smart contract for it's pegged value and often coins are burned to adjust the value.

These currencies make use of the smart contracts to adjust the stability of the stablecoin. So the value of stablecoin stays to the specific peg value that is for the Seigniorage based contract.

Conclusion

Among many types of the stablecoins, Seigniorage StableCoin is one promising type of the stablecoin. Though we can't assure of it's scalability and performance over other considering certain type of use case scenario may work for this stablecoin.

Posted Using LeoFinance Beta