How to create a stablecoin?

post by Mkousaki on Feb 6, 2022

Hi guys. Me and my cousin have a specific project in my country (in Africa). People don’t trust PayPal and all that, they trust the bank and mobile payments. But the banks don’t have API’s to connect to an online store, that would work as a bank transfer (offline payment), only one accepts payment with API but to get it, you need to be a business and it takes more than 2/3 Months, Algorand might be the solution so we want to create a stablecoin pegged to our currency. Is asset management on myalgo able to create one? If not, how to? We want to avoid volatility. Sorry for the journal.

post by javier0rosas on Feb 6, 2022

You could do it like Circle does with USDC. Basically have a bank account with x amount of whatever currency your country has, and then mint x amount of an ASA on Algorand. This way, the ASA is redeemable 1:1 with your currency and in theory, if there is enough liquidity, the market should peg the ASA 1:1. Check out Circle’s website: USD Coin (USDC) | Fully Reserved Fiat-Backed Stablecoin

post by Mkousaki on Feb 8, 2022

That would require a lot of money wouldn’t it? Now it’s a two men project, people don’t tend to finance projects unless they see that is working (is making money).

Q1- So the money need to be on a bank account not on an Algo Wallet?
Q2- And how can I link the two?
Q3- What about algorithmic pegging? Needs a lot of monetary investment also?

post by javier0rosas on Feb 8, 2022

1. Say you have $1,000 in a bank account. You could then mint an ASA with a total of 1,000. In theory, users could redeem their ASA for the actual currency in the bank account. So you would need to have money in a bank account and also an Algorand account with the same amount of the ASA (1,000).

Side note: companies like Circle actually hold very safe 10 year Treasury Notes paid by the US government. They do this to earn some yield on their fiat balances instead of having the money sit there losing its value due to inflation.

post by javier0rosas on Feb 8, 2022

2. How do you link the two?

Good question. Recently, there have been reports that the US government wants to treat stable coins like banks so that the stable coin providers cannot cheat on their accounting. Currently, it's very difficult to be transparent on how much money stable coin providers actually have in their bank account balances (since these are closed systems, unlike blockchains which are fully transparent ledgers).

post by javier0rosas on Feb 8, 2022

3. Algorithmic pegging generally requires the use of Oracles. Check out DAI, a decentralized stable coin on Ethereum. It relies on loans against ETH and some other assets to peg the price 1:1 with USD.

post by Mkousaki on Feb 8, 2022

Make sense for people to be suspicious about it… Because it’s a bit hard to really just believe that they have all the money they say they have but the users can’t actually see the bank account.

post by Mkousaki on Feb 8, 2022

I’ll check it… But I would like to see a token contract of the stablecoin to see how is written.

post by scholtz on Feb 9, 2022

ETH guys has assumption that there is a token contract… No, there is no contract. ASA is level 1 algorand feature… You submit a simple form, and you have your token issued. (In eth vocabulary you can mint once at the start) This "contract" allows you to interact with the algo network the same way as each other token… You can submit note fields in transactions, you can use it in logic signatures in TEAL, or you can query public APIs (indexers) to search for note field prefix for example.

post by Mkousaki on Feb 9, 2022

My bad… It’s a habit