Stablecoins and Interoperability Projects Offer Huge Upside
The Intelligent Insurer #59: Spotlight on two innovative projects adding tremendous investor value
As the digital asset industry evolves, projects rise to improve on existing structures and solve some of the biggest problems facing the entire industry. These projects offer use cases that drive the development of the systems powering the industry as it moves to become a key player in the global economic ecosystem.
In this week's edition of the Intelligent Insurer, we will analyze two projects that are changing the stablecoin space and bridging the gap between blockchain and real-world applications. We will also consider how investors can protect themselves while benefiting from the use cases these protocols have to offer. Before that, we will bring you some exciting updates from our development team as always.
Insured Finance software development update
Over the past week, we reviewed and sent our proposal to handle smart contract failure to top management and conducted a thorough code audit in preparation of our mainnet launch. We completed testing of our codebase for an elevator attack scenario and are happy to report that we discovered zero vulnerabilities.
We also tested our platform by subjecting it to a timestamp dependence attack and discovered no vulnerabilities. We researched tools such as Aragon and Tally that might help us handle smart contract failure and are excited to review these options internally. Here are some of the other tasks we’re currently executing:
Continued research of smart contract failure coverage tools
Wireframing functionality connected to smart contract failure coverage
Continued code audits prior to mainnet release
Testing smart contract vulnerabilities via 12 classic attack vectors
Testing gas limit and loops
Code audits are our primary focus as we move into next week. Specifically, we’re focused on auditing our React app, Coin API, and unit testing smart contract functionality. We’re confident and positive that our rigorous testing will benefit our users and provide them with a secure digital asset insurance experience!
Truly "stable" stablecoins via Terra (LUNA)
Contrary to their original aims, many stablecoins in the market are volatile and although they claim to be backed 1:1 to leading fiat currencies, their claims are not always true. Additionally, these stablecoins are controlled by centralized entities, undermining the central pillars that DeFi and crypto are associated with.
To solve these problems, Terra network is rethinking stablecoins. Investors experience fully stable prices thanks to the unique relationship between Terra's native token, LUNA, and one of the most popular stablecoins on the Terra ecosystem, UST. Rather than depending on reserve assets to maintain its pegs, UST relies on a smart contract-based algorithm that maintains price stability for LUNA. The algorithm relies on arbitrage trading to maintain prices. Users can seamlessly swap LUNA for UST on a 1:1 ratio, no matter the market price of either token.
Hence, when the demand for UST increases and pushes its price above the $1 mark, LUNA holders can quickly swap their tokens to mint one UST and pocket the extra profit. While swapping the tokens, a percentage of LUNA is burned and the remainder is deposited to the ecosystem's treasury. This burning mechanism is important since it reduces the demand for UST while increasing its supply. Thus, UST's market price goes back to the $1 level.
On the flip side, when UST demand is low and prices fall below $1, holders can quickly swap their UST for LUNA, which will be worth more than UST. LUNA has experienced a meteoric rise in its price over the past year and has managed to fare better than most top cryptos during bear markets. For instance, when the global cryptocurrency market was falling in tandem with the traditional stocks market due to the sell-off induced by the Russia-Ukraine crisis, LUNA struck a new all-time high (ATH) of over $105. The digital asset is currently trading at $92.56.
Bridging blockchain networks and real-world applications via Chainlink (LINK)
Blockchain networks often rely on real-world data to carry out their operations. However, bridging data from the real world to the blockchain has always been an issue. To retrieve data, these blockchain networks need to trust the external source to deliver uncompromised data. It’s safe to say these conditions might not always be satisfied.
To solve this problem, Chainlink devised a means to bridge data to and from blockchain networks without compromising security, trust, and decentralization. The protocol introduced Oracles to provide reliable information to blockchains and traditional payment systems. This innovative solution ensures that data sources between the blockchain and the real world no longer create a single point of failure for smart contracts.
The decentralized oracle network comprises data providers and purchasers. To participate in the Chainlink ecosystem, data purchasers select the data they want and the providers bid to supply the data. However, to ensure that the data provided is reliable and not compromised in any way, data providers must commit to a stake of LINK, the protocol's native token, when submitting their bid.
The higher the LINK stake, the higher the chances of getting selected. Therefore, once a data provider is selected by the purchaser, it will be in their best interest to deliver accurate data on-chain. Fail to do so, and their staked LINK tokens will be taxed for poor service.
Chainlink’s Aggregating Contract examines and reconciles the data provided. If the data is correct and the purchaser is satisfied, providers get paid in LINK. Due to its unique use cases, Chainlink has a long list of high-profile partners in both the digital asset industry and the traditional business world, including Polkadot, Synthetix, SWIFT, and Google. LINK's tokenomics is designed to make the token a measure of value of the data transferred to the ecosystem. The digital asset is currently trading at $15.41.
Security is still paramount
While these projects offer interesting use cases that benefit both individual and institutional investors, they pose risks that investors should be wary of. Recently, rug pulls have become commonplace within the digital asset industry, with investors losing billions of dollars each year.
Due to the extreme technicality involved in using these protocols, investors fail to determine areas where there are vulnerabilities. Since not everyone possesses the ability to read codes and smart contracts, investors are often left in the dark about what is going on within these protocols.
Therefore, investors must take necessary steps to secure their investments. It is crucial that investors learn as much as possible about a particular protocol before investing in it. They should also ensure that they take extra effort to protect their digital wallets as crypto-related hacks and scams become more widespread.
Above all, investors should add digital asset insurance products to their list. Insurance solutions, such as Insured Finance protect investor assets when unexpected incidents occur and prevent them from suffering massive losses.
About Insured Finance
Insured Finance is a decentralized, peer-to-peer insurance marketplace. Users can request customized insurance on a wide variety of digital assets, thereby ensuring full protection. Those fulfilling requests can earn premiums and earn a competitive return on their capital. Claims are fully collateralized and settled instantly.