While Tether is the most known example of a stable token with centralized collateral, it is also a good example of risk this type of architecture poses. To enhance the trust in such systems, strict legal compliance and updated regulatory guidelines are required.

While a lot of risk factors can be eliminated by decentralized proxy collateralization, there still remains one point of centralization – the oracle, or the price feed mechanism connecting the architecture to the outside information. Which implies the need for a trusted third party guaranteeing the correctness of the data feed.

Another risk of decentralization is the possibility that the price of the collateral is the function of the future value of the stable token itself.  The strategy of margin calls must assume that the collateral markets will be liquid enough to absorb the needed collateral, while currency interventions beg the question of susceptibility to speculative attacks in a fully transparent system with predictable measures. Currency interventions depend on the amount of the available reserves which determine the time the stable token managers have to stall off the markets from setting the price.

Open market operations that tend to be similar to central banks’ operations sell special tokens against the stable token to manipulate its price instead of reserves. An incentive is provided which pays out when and if the stable price is achieved and is delivered in the form of new stable token supply. The question is, are there any checks to prevent the uncontrolled growth of promises of the future remuneration of the token supply. Also, the supply of the token is decreased only until the incentive is not redeemed.



The great majority of stable tokens declare commitment to targeting a 1:1 peg. Projects like Tether implement a hard peg policy, meaning the token should be 100% backed by the reserve currency. Alternatively, a soft peg means no 100% backing and can be implemented in a variety of ways.

The authors point out the interesting fact that the usefulness of soft pegs is a moot point in economics. The reason is that soft pegs are perceived as indefensible in the long term, which is the experience in traditional finance. One example was the notorious speculative attack on the GBP in 1992 when the central bank capitulated after spending $12 billion USD reserves in a single day trying to maintain the exchange rate.

It is not hard to imagine a similar speculative attack in the crypto landscape, especially as blockchain transparency can provide the information of the immediate effects of such strategies, while reserves are usually much smaller than in traditional finance due to smaller market capitalizations.

In the case of short selling a stable coin, speculators can buy tokens back with little to no loss if the peg holds or make a profit if it breaks. This means that even for holders observing an attack, a rational strategy would be to sell their tokens to avoid loss in the latter case.

The conclusion would be that a hard peg is safer than the soft version, with the caveat that the projects relying on full proxy collateralization or limitless issuance within their own closed system can buy back their supply indefinitely.

However, the authors conclude that 38% of the researched projects implement a potentially unsafe mechanism of exchange rate targeting combined with either limited reserves or a potentially limitless supply of self-issued tokens.



While the above analysis of stable tokens is incisive and brings fresh insight, we need to have a look at how X8Currency was classified. The authors describe it as exchange rate targeting, having a hard peg and directly collateralized.

It is correct to claim X8Currency is 100% backed by cash and gold coins. However, its unique concept does not pursue an exchange rate, a peg to fiat currency or any other asset. X8Currency is operated by AI called Automatic Reserves Management (ARM) transacting capital between global currencies comprising the X8Currency’s basket.

ARM executes its decisions based on market spread and risk evaluation far more efficiently and faster than any board of managers could adapt the basket ratios. Besides, the worst case scenario for a stable token is the reduction the value of the peg to zero. Not a very likely scenario, but with X8Currency, for this scenario to take place, not only would the 8 major global fiat currencies and gold have to plunge to zero – they would have to do so at the same time.

Consequently, X8Currency is a hyper liquid currency that can appreciate without an increase in demand. ARM is present on the markets 24/7 operating the reserves backing the X8Currency. Its activity is, therefore, a unique advantage in the field of financial stability, supportive of the mandate of central banks which do not want to see money hoarded in safe haven assets, or stable tokens in our case, because this can exacerbate a financial crisis.

X8Currency’s friendly nature toward traditional finance and strict compliance it will observe, make it a safe gateway to the latest fintech achievements, while this product lends a new dimension to the ideas of value preservation and financial stability.

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David Prezelj
David Prezelj

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