The first of its kind, it is a stablecoin backed 100% by bank deposits in dollars. Cardano is a cryptocurrency network that hosts several tokens.
In Short
- There are already token based stablecoins in the Cardano network.
- According to Messari, Cardano can consolidate as a stablecoin ecosystem.
Cardano has taken a significant step by welcoming a new addition: a stablecoin backed 100% by U.S. dollar bank deposits. It is, the first with that feature in the ecosystem. USDM, the name of the new coin, U.S. dollars deposited with a U.S.-based bank back, according to the stablecoin’s website.
This dollar-backed guarantee seeks to build confidence for users wishing to purchase or redeem USDM, as each USDM token directly represents one dollar in reserve. USDM is available to both individuals and institutions. You can freely use and transfer the USDM token within the Cardano network like other native tokens. To issue and burn USDM themselves, users must pass standard Know Your Customer (KYC) and Anti-Money Laundering (AML) identity verification.
Cardano Stablecoins
Analyst firm Messari has noted that stablecoins on Cardano offer many options for users to transact and participate in various decentralized financial protocols (DeFi.) The new Cardano asset strengthens that thesis. Competition in the stablecoin market is fierce, with giants such as Tether (USDT) and USDC leading regarding capitalization and use cases. USDM’s arrival on Cardano seeks to compete in this space and offer a solid alternative backed by dollars, providing more choice and diversity to network users.
However, USDT and USDC are also available on Cardano, thanks to the Wanchain network. Tether access allows Cardano to connect to Bitcoin, Ethereum, TRON, and other networks. In addition to USDM, other stablecoins like iUSD and DJED are also part of the Cardano ecosystem. However, it is essential to note that these stablecoins are different in their design and operation because they are algorithmic and synthetic.
In the case of iUSD, even though its developers designed it to maintain its value at $1, it has been six months below the $1 mark, as seen below.
Price of iUSD. Source: CoinMarketCap.
Investors use iUSD strategically, borrowing these stablecoins and selling them for less than $1 to buy other cryptocurrencies like ADA. They expect making profits through the increase in ADA’s price. iUSD is a token collateralized by other crypto assets. It has a functionality similar to DAI (a stablecoin of the Ethereum network). Users of iUSD can deposit tokens into a Smart Contract, pledged or collateralized, to receive a loan in iUSD.
In contrast, USDM offers direct stability backed by dollars in a bank account, making it a solid option for those looking for a stablecoin in the Cardano ecosystem.