Blindex, the multi-currency stablecoin DeFi platform, has announced the launch of two new algorithmic stablecoins – $bGBP (Large Pound Sterling) and $bXAU (Gold). It is a very interesting announcement, especially since they are algorithmic, a source of constant discussion in the cryptocurrency world. With the security and sustainability of Terra’s UST stablecoin particularly current in recent times, this announcement by Blindex is of particular interest. Blindex’s protocols have also been integrated into RSK, the smart contract platform that works with decentralized applications secured by the Bitcoin network. This means that stablecoins will be released on Bitcoin, an interesting extra factor that is distinct from almost every other stablecoin on the market. Add this to the fact that one of the stablecoins is pegged to gold, possibly the most polarizing asset when it comes to cryptocurrency enthusiasts, and we were quite determined to find out more. So we sat down with Omar Paz, Core Contributor at Blindex, to get his thoughts on the security of algorithmic stablecoins, RSK, Bitcoin, gold and more.
CoinJournal (CJ): What advantages would you say Rootstock has for DeFi protocols considering the release?
Omar Paz (OP): RSK is the only chain that could give us a decentralized two-way connection in/out of Bitcoin and it was very important not to have centralized points of failure like custodians etc. We also wanted to bring DeFi to Bitcoin users, RSK was the obvious choice here as they are EVM compatible and allow smart contract operation
CJ: What do you think about the security of algorithmic stablecoins, like these new ones from Blindex? Would you be afraid on crisis days that investors might lose confidence in the peg?
OP: Blindex’s stabilization mechanism is a combination of collateral and algorithmic token. This engine was inspired by Frax’s work (with several changes from his original work). This mechanism has proven successful in recent years and has remained one of the most stable mechanisms for stablecoins in existence. The combination of having collateral and algorithmic token together allows Blindex to remain undercollateralized while at the same time having real value that is supporting stablecoins. We also added several incentive mechanisms to encourage users to add more guarantees to the platform in case of market downturns. Two things we did very different from all the others. Firstly, to discourage “bank runs” by making sure that no matter if you are the first to redeem your stablecoins, or the last, you will receive exactly the same proportion of the collateral. And secondly, encouraging users for long (up to 5-10 years) liquidity lockout periods, making the protocol safer and stronger in bear markets. And actually, users love it, as more than 70% of funds wagered on Blindex are locked for 5-10 years. Still, investor confidence always requires proof, and we are confident that Blindex is up to the challenge.
CJ: The Anchor Protocol (within the Terra ecosystem) is currently the most important use of algo-stables, via UST, with TVL now over $16 billion. What do you think about the sustainability of this protocol and do you think any potential issues could have an adverse effect on DeFi as a whole?
OP: Obviously, Anchor is getting a lot of attention now, offering high returns on stablecoins, but that is changing now as they have already announced that the yield will be more dynamic. Which means they also understand that it can’t hold water for very long – not in the same way it worked. I believe DeFi is here to stay, we are just at the beginning of this new area. We believe that we are now seeing the birth of a new financial ecosystem that will work in parallel with the traditional financial system. It will bring a lot of innovation, changes and even cooperation between the two. But until it stabilizes, we will see a lot of movement.
CJ: Speaking of Terra, what do you think of their recent initiative to “support” their algo-stablecoin UST by buying Bitcoin?
OP: I believe this is the right move. Essentially, they’re taking steps to be more like us and Frax. Having guarantees to maintain a non-dependent intrinsic value for stablecoins is very important for the stability of the system. This will strengthen Terra and add more support to its claims.
CJ: What do you think will attract customers to the newly launched Blindex stablecoins, ahead of other options on the market?
OP: Blindex differs from others mainly in three parts: Decentralization – All Blindex stablecoins are 100% decentralized, we are only using decentralized collateral (Bitcoin and Ether), making big decisions with Blindex DAO, and even the cloud provider for our application is decentralized. Multi-asset – We have built a platform that can create stablecoins for all types of assets, currencies, commodities, stocks, bonds, indices and even real estate. Subcollateralization – unlike other platforms and other stablecoins. Blindex stablecoins require collateral value equal to the amount of stablecoins a user wants to mint (the action of creating new stablecoins). For example, if I want to mint 100 BDUS (Blindex USD pegged stablecoin), I will be required to provide $100 in collateral, in the form of a combination of BTC or ETH and BDX (Blindex utility and governance token)
CJ: What does Blindex gain by launching these stablecoins?
OP: Blindex’s goal is to tokenize everything. We wanted to help our users protect themselves from currency risks, help them deal with inflation, boost their savings and have new investment tools in the chain.
CJ: The press releases state that “Fiat currencies are volatile and subject to depreciation, requiring a different approach to the current system. The integration of Blindex protocols with the RSK platform marks a crucial milestone towards achieving this goal” – can you explain what you mean here – would there still be no depreciation with stablecoins as they are pegged to their fiat counterparties?
OP: Essentially, we want to help users protect themselves from the depreciation of their fiat money. This can be done by investing in other currencies that they believe to be more solid and/or diversifying their savings, or investing money with other investment tools like commodities, indices and others. For example, you can choose to put some of your money in gold-pegged stablecoin or S&P 500-pegged stablecoin alongside the DeFi index stablecoin. A step forward would be to allow users to use these stablecoins on other DeFi services, which would further improve their standings.
CJ: Why was gold chosen? And can you detail exactly how BTC and ETH are used to secure the peg?
OP: Gold acts as a store of value, like a “safe haven” from stock market risk. It can also be a good inflation hedge, which could be important in the coming months and years. In recent months, we have received a lot of demand for a decentralized gold stablecoin from our users and we decided to respond to this with bXAU, the first gold-linked stablecoin backed by BTC and ETH. The same stabilization mechanism that we use with other Blindex stablecoins also works here and allows users to create new gold (bXAU) stablecoins by choosing BTC and ETH to be used as collateral along with BDX.
CJ: What is your take on the ongoing debate over the integrity of Tether to USDT reserves and the safety of consumer funds that hold USDT?
OP: I’m a big fan of transparency, and my feeling is that the lack of transparency was the main issue here. If there had been transparency from the start, Tether would not have gotten into this situation, simply because it failed. This is something that decentralized stablecoins are solving very well.
CJ: Algo-stables have a lot of criticism due to what some describe as “being backed by nothing”. What would you say to these people?
OP: I would say they are right. Strictly speaking, the Algo-stables have yet to prove their case. There is something problematic about having all the support of stablecoins dependent on a token that is issued and managed by the issuing platform and derives its value from a symbiotic relationship with the stablecoin and its ecosystem. As we mentioned above, Terra is now making moves to have non-dependent collateral that will also support its stablecoins and provide value that is not dependent on its ecosystem and token.