Cake Wallet Launches dEURO
On Tuesday, Cake Wallet introduced a new addition to its portfolio by launching the decentralized stablecoin dEURO. This move aims to broaden the range of euro-based digital assets available to its users. Distinctive in its structure, dEURO is overcollateralized with various digital currencies, including Bitcoin, Ether, and Monero. To create dEURO, individuals must first deposit other cryptocurrencies as collateral, which creates a safeguard against potential de-pegging incidents, the dEURO development team explained to Cointelegraph.
Key Features of dEURO
A significant feature of the dEURO system is its automatic liquidation process, which activates when the loan-to-value ratio falls below a predefined level. Additionally, users can accumulate a yield of 10% on the assets backing the stablecoin, allowing them to retain control over their funds. This yield arises from the stability fees collected from those who mint the token, reinforcing an equity reserve pool as articulated by a representative of the dEURO team.
This design ensures that the stablecoin remains stable and enhances liquidity for users, enabling them to produce a euro-pegged token without needing to liquidate their cryptocurrencies.
The Landscape of Decentralized Stablecoins
In the evolving landscape of cryptocurrency, decentralized and algorithmic stablecoins have emerged as prominent applications reflecting the foundational principles of the cypherpunk movement. Nevertheless, these types of assets are not without their critics, who highlight the significant risks they entail, citing past incidents of de-pegging and token failures.
A notable example of such a collapse was the failure of the Terra-LUNA ecosystem in May 2022, which witnessed its stablecoin, UST, lose its peg. UST depended on a flawed mint-and-burn mechanism where LUNA tokens were sacrificed to create UST tokens, leading to vulnerabilities in its value. The system became overwhelmed during mass withdrawals from the Anchor Protocol, pushing UST’s value down to $0.67 and eventually to $0.01.
Unlike other decentralized tokens such as DAI, which also require excess collateral, UST was entirely unbacked. Despite overcollateralization offering some assurance against value loss, it has not entirely eliminated the risks of de-pegging. Traditional fiat-backed stablecoins, which utilize US debt and bank deposits for support, have similarly experienced challenges in maintaining their stable value, as evidenced by DAI’s loss of its peg in March 2023 following fluctuations in the value of its collateral, Circle’s USD Coin.
