Smartcoins in Bitshares – price stable coins

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One of the most amazing features of Bitshares is Smartcoins. These are price-stable cryptocurrencies e.g. bitUSD, bitEUR, bitCNY, or even bitGold, bitSilver, bitBTC. The value of these cryptocurrencies can be tied to anything. For example bitUSD is tied to the US Dollar, and bitGold is tied to the price of 1 troy ounce .999 fine gold. You can always convert your cryptocoins into any of these stable valued coins for a safety net or if they’re going through a crash. All of this without having to cash out to fiat, your coins will stay in cryptocurrency in the Bitshares super-fast blockchain.

How do these smartcoins maintain their value?

The price feed for these are provided by the witnesses of Bitshares periodically and these price feeds tell the decentralized exchange the value of the stablecoin. Anyone can borrow or short a bitUSD which will bring that 1 bitUSD into existance. To give it its value, that user will have to set aside at least 1.75 times its value in Bitshares BTS as collateral. At the moment 1 USD is worth 2.22 BTS, in order to borrow 1 USD, you will need to set aside at least 3.89 BTS as collateral, and I’m saying at least. In reality you’ll need to set aside more, because if the collateral reaches 1.75x, it can be in danger of a margin call. If the price of BTS falls, your collateral may get worth less than 1.75 times the USD, and then Bitshares will place an order to buy back those bitUSD. Which is why if I borrow bitUSD into existance, I’ll set at least 3x or 4x worth of collateral in BTS (or more depending on the recent price movements.

Do you have to borrow it to use it?

Nope! Borrowers or shorters bring these coins into existance but they can then sell them. You, the average Joe/Jane, can use it just like any other coin. You can buy them, hoard them, use them to buy your groceries or trade against other cryptocurrencies. They’re on the Bitshares blockchain and they can be sent to the other side of the world in less than 3 seconds for less than a cent!

There’s 64 million dollars worth of bitCNY available and 21 million dollars worth of bitUSD!

What about USDT?

Tether (USDT) on the other hand is an IOU (I Owe You), claiming to have 1:1 ratio with USD. They claim that for every USDT out there, they have a USD. It has its own controversies, but the biggest problem with IOUs is trust. The main purpose of cryptocurrencies is to have a trustless system and to be your own bank. With IOUs, you need to trust the 3rd party, and if they run away or don’t keep the promise, there’s not much you can do. Bitshares smartcoins allows stablecoins to exist and hold value by being backed by collateral which allows for a trustless system.

There are also speculations whether it is a “scam”: What’s the problem with Tether and why do people call it a scam?

How does it work?

On Bitshares, anyone can borrow these smartcoins into existance by setting aside BTS as collateral. You can then sell these on the exchange (short them). You can change the amount of collateral you have set any time you want. Later when you want to close your position and free the BTS from collateral, you can buy these back and close the position. If the price of this smartcoin has gone down compared to the coin you bought, you will have been in profit.

The amazing thing about the smartcoins concept is that not only coins for any government based fiat can be created, but also any formula can be used with a price feed. For example Bitshares already has smartcoins for bitGold, bitSilver, bitOil, as well as innovations such as HERO (whose value grows by 5% every year), BTWTY (a cryptocurrency index fund based on 20 cryptocurrencies), HERTZ (pegged against the USD and modified to oscillate between rising the price feed and decreasing it in a predictable manner, thus we create phases of buying and selling pressure constantly back and forth forever). And the future potential and possibilities? Infinity!

Go on and join Bitshares, its the future! Bitshares

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