Alchemint, a stablecoin issuance platform, launched its first project in mid-December. The new dollar-pegged token, SDUSD, is the first stablecoin to go live on the NEO public blockchain.
In the future, the project aims to follow up the launch with other tokens, pegged to currencies like the Euro, South Korean Won, and Japanese Yen, as well as commodities such as gold and oil.
Prior to the launch, a security audit of the SDUSD smart contract was conducted by Qihoo 360, a Chinese-based security company that has been branching further into blockchain analysis.
How do SAR’s stabilize a coin?
To maintain stability, Alchemint uses a hybrid collateral model incorporating digital assets, fiat currency, and other real-world assets. To do this, the platform issues a Smart Asset Reserve (SAR), a smart contract that mortgages digital assets onto the NEO blockchain.
In the long term, Alchemint aims to issue two SAR modules, SAR-C and SAR-B. SAR-B contracts will allow major players, like financial institutions, to secure fiat assets as collateral. However, initial efforts will be focused on SAR-C offerings, which allow institutions and individuals to “issue standardized stable coins by digital assets mortgages.” These allow SDUSD to stabilize the token’s value to the dollar in a way similar to how MakerDAO ties the value of the DAI token to the US dollar.
At the moment, digital asset mortgages use the platform’s utility token (SDS) as collateral. The SDS token can also be used to pay for fees associated with the issuance of stable coins, and to participate in the platform’s governance process.
In this model, if the price of the collateral asset rises, the SAR mortgage rate will increase. However, if the price of the debt declines, users will need to either (a) add collateral to match a mortgage rate of 150% or more, or (b) return the tokens to close the SAR smart contract.
If the mortgage rate drops below 150%, the collateral held in the SAR-C module is liquidated and auctioned at a lower price.
How will a stablecoin impact the NEO ecosystem?
As the NEO blockchain’s first stablecoin, Alchemint has already begun to impact the movement of assets within the ecosystem.
Switcheo, a decentralized exchange (DEX) for NEO-based NEP-5 assets and Ethereum-based ERC-20 assets, has announced it will replace trading pairs with SDUSD. With the addition of USD quotes, the exchange has also opted to remove pairings from its native token (SWTH) and the NEO blockchain’s utility token (GAS).
Switcheo expects the inclusion of a stable coin onto its platform to increase liquidity, and the DEX will also begin to quote markets in USD value.
Prerequisites for long-term solvency
Alchemint developers say that the platform’s medium- to long-term success will depend on having enough liquidity to meet market needs and establish long-lasting stability.
Although dollar-backed tokens like Tether have dominated the Ethereum ecosystem, Alchemint believes that financial institutions and regulations can limit the utility of fiat-collateralized tokens, and cause bottlenecks by restricting market space.
However, the SDUSD stablecoin model depends on external market trends and conditions. As the NEO ecosystem develops, Alchemint expects the blockchain to be used as a medium for personal information (ID, credit, etc) as well as ownership of real-world assets and economic activity.
The Alchemint project was launched after an initial coin offering (ICO) that concluded in June of 2018, and raised US $30 million from venture capital firms like Fenbushi Capital, NEO Global Capital, True Blocks, and others.
The platform hopes its hybrid-collateral model will be able to effectively use a combination of fiat currency, commodities, and digital assets to address the market needs of consumers and institutions in a transparent manner.
Through the “traceable and unchangeable feature[s]” built into the SAR smart contracts, Alchemint says that the issuance process is transparent and auditable by the public. The Alchemint Foundation has also promised to develop quarterly financial reports and disclose annual financial audits.
So far, other crypto-collateral stable coins like Maker’s DAI have been able to resist volatility amidst the bear market of 2018, and Tether has been able to survive the lack of an authentic audit. But it’s not clear if the hybrid collateral model will meet the same success on yet another blockchain.
The author is invested in digital assets, including NEO, SDS, and ETH, which are mentioned in this article.