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Is Cardano A Stablecoin (Explained)

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Cardano is one of the fastest-growing cryptocurrencies in the market today. At the time of writing, it holds 6th place behind Bitcoin, Ethereum, and BNB, with a market capitalization of over $43 Billion.

As it gains popularity among users, is it safe to consider Cardano as a stablecoin?

Let’s find out more about that and more below. 

Is Cardano a Stablecoin?

Cardano (ADA) isn’t itself a stablecoin, but it’s a blockchain platform that can provide the ideal ecosystem for a stablecoin. ADA, Cardano’s cryptocurrency, also isn’t a stablecoin. 

Since 2021 however, several projects have attempted to bring a stablecoin to the Cardano blockchain. They are Ardana, AgeUSD, MELD and Djed.

Let’s explore them all. 

Ardana (DANA)

Ardana is an all-in-one Decentralized Finance platform built on the Cardano network.

It aims to build projects around dUSD, a stablecoin created by Ardana and pegged to the U.S. dollar. 

Ardana offers three services:

DanaSwap

DanaSwap is an Automated Market Maker (AMM) Decentralized exchange that uses invariant equations to determine the price of coins in trading.

It uses StablePools to adjust the number of tokens awarded to someone with the deviation.

Stablecoin dUSD

This coin is Ardana’s primary product. It’s backed by ADA and pegged to the USD 1:1. Users will deposit ADA or other supported tokens to Ardana and borrow these stablecoins. Later, they can repay this debt and interest to redeem their collateral.

AgeUSD

AgeUSD is an algorithmic stablecoin built on the Ergo blockchain in partnership with Emurgo, Input-Output Global, and the Ergo foundation.

However, AgeUSD remains unavailable on Cardano until the blockchain unlocks smart contract functionality. 

Unlike other stablecoins based on Ethereum and backed by crypto, AgeUSD uses a staticoin protocol that doesn’t depend on collateralized debt. Instead, it allows reserve providers to give AgeUSD users stability of value.

MELD

MELD is a gold-backed stablecoin and a Defi protocol that will allow users to borrow, lend or stake capital on the Cardano blockchain. With MELD, you can borrow Fiat currencies by putting up your crypto as collateral while earning on your deposits. The MELD token governs the protocol, and you can stake it.

Djed

Djed, just like AgeUSD, is an algorithmic stablecoin. Djed is also a collaboration between Emurgo, the Ergo Foundation, and Input-Output Global. Djed will buy and sell stablecoins within a price range pegged to its target price like an autonomous bank.

What is Cardano?

Cardano is a unique proof-of-stake blockchain platform. Unlike other cryptos that had white papers published by singular individuals, Cardano uses an evidence-based method and peer-reviewed research.

Its native currency is ADA. 

You can use Cardano to solve a multitude of problems in:

  • Finance
  • Education
  • Healthcare
  • Agriculture
  • Governance
  • Retail

Learn more: Is Cardano Metaverse?

What Type of Crypto is Cardano?

Cardano (ADA) is a decentralized Proof-of-Stake (PoS) cryptocurrency. It’s more efficient than many Proof-of-Work (PoW) blockchains and other PoS networks, including Ethereum.

Also read: Does Cardano Have A Working Product?

Can Cardano replace Ethereum?

In theory, Cardano can replace Ethereum. 

Here are some reasons for that:

  • Transactions on Cardano attract much lower fees than Ethereum. At the time of this writing, gas fees on Ethereum are as high as $70 per transaction, while they’re a measly $0.22 on Cardano.
  • Cardano is much faster than Ethereum. Ethereum only supports 10 Transactions per second(TPS), much lower than market demands. On the other hand, Cardano can process at least 257 Transactions per second.

Although Cardano is one of several possible “Ethereum Killers”, it’s pretty challenging to dethrone Ethereum from its current position in the crypto ecosystem.

What is Considered a Stablecoin?

Stablecoins are cryptocurrencies that attempt to create price stability in the market, backed by a reserve asset or fiat currency. 

What Are The Different Types of Stablecoins?

There are three types of stablecoins:

Crypto-Collateralized Stablecoins

A crypto-collateralized stablecoin often uses backup from other cryptocurrencies to maintain a stable price.

Since a single reserve crypto coin may deal with high volatility, crypto-backed stablecoins will always have excess collateral. The extra crypto coins in the reserve help cushion the stablecoin against wild swings in price, up to a certain percentage.

Often, these types of stablecoins will require frequent audits and monitoring to make their price more stable. 

Fiat-Collateralized Stablecoins

A fiat-collateralized stablecoin maintains a fiat currency (often the U.S. Dollar) as collateral before issuing an appropriate number of coins.

It doesn’t have to be a fiat currency. You can also peg a stablecoin to precious metals like gold and silver or commodities like crude oil.

Independent custodians maintain the reserves for these types of stablecoins. Also, these coins have to adhere to a set of compliance rules and are often audited. 

Algorithmic Stablecoins

Algorithmic Stablecoins don’t use either fiat currency or other crypto as collateral. Instead, they implement smart contracts on the platform that run autonomously.

Which Crypto Stablecoin is Best?

Here are some of the best Stablecoins you can invest your money in at the time of this writing:

  • Dai (DAI)
  • Binance USD (BUSD)
  • Tether (USDT)
  • TerraUSD (UST)
  • TrueUSD (TUSD)
  • USD Coin (USDC)

Can You Lose Money on Stablecoins?

Although you can lose money in stablecoins or any other cryptocurrency, the risk is much lower.

Since the primary function of stablecoins is to facilitate trades on crypto exchange platforms, they’re more than likely to remain stable over time. 

Their fluctuations remain minimal, and volatility doesn’t affect them much. However, since many stablecoins are pegged to fixed price ranges, you may not gain massive returns from investing in them.

Final Thoughts

Cardano is still in development, and there’s more features it can offer now than before. However, it still has a long way to go to compete against the behemoths that are Bitcoin and Ethereum.

To date, only 62 dApps have built their ecosystems on the Cardano network. Compared to Ethereum’s 3000+ dApps, Cardano may have some work to do on its hands.