Stablecoins are a prevalent feature in the new decentralised economy powered by digital assets. They are tokenised versions of real-world fiat currencies and are often backed on a 1:1 basis with a state-backed currency like the US greenback.
These fiat alternatives are majorly found in new generation smart contract-powered decentralised platforms. While stablecoins like USDT and USDC have found their way to several smart contract solutions like Ethereum, Solana, and BNB Smart Chain, the two juggernauts have refused to make an entrance into the Cardano blockchain. This all changed in March, 2024 as the Mehen protocol launched a Cardano native fiat-backed stablecoin called USDM.
USDM - The Unhinged Paradox Making A Stand
Peer-reviewed smart contract blockchain Cardano has taken the slow and steady route towards creating a decentralised finance (DeFi) powerhouse. Sticking tenaciously to its roadmap, it has built up its ecosystem brick-by-brick. This meticulous approach has seen newbies like Solana and Avalanche blaze ahead towards mass adoption - at least in the eyes of newbie DeFi users.
While Cardano has shown time and time again its resilience as a hub for decentralised and sanction-free transactions, it has largely been ignored by USDT and USDC - two fiat-backed stablecoins created by the Tether Holdings and Circle Consortium. The two USD-backed tokenised assets with a combined value of $137 billion plus, have largely paid zero attention to the Cardano blockchain.
This hesitancy to launch USDT and USDC have served as a form of chasm as several decentralised applications (dApps) have been unable to access real-world liquidity as their counterparts on Ethereum and Solana. That changed as the first quarter of 2024 wrapped up.
USDM, a product of Mehen blockchain, made its debut on the Cardano blockchain breaking the internet along the way. The fiat-backed stablecoin set out to be backed 1:1 to the USD but it ended up surging above the $1 peg. At one time, USDM went as high as $3 - a misnomer in the stablecoin narrative. This was due to the high demand for the stablecoin that was recorded following its launch.
By their very nature, stablecoins are meant to be permanently pegged to their base currency at a one-to-one ratio. This means 1 $USDM is equivalent to $1. In the event there is a lower value, this could impact the trust the stablecoin holders have. A low trust ratio could lead to a run on the bank scenario as experienced by the UST stablecoin from the stable of the Terra blockchain back in 2022.
In the case of USDM, the entire situation flipped upwards. The surge to $3 showed a strong trust ratio and this is principally due to the dearth of a fiat-backed digital asset on the Cardano blockchain. However, there are other in-built utilities that have pushed up trust and created a positive sentiment around the stablecoin against its contemporaries.
The stablecoin launched on Cardano-based decentralised exchange (DEX) Genius Yield to much aplomb.
Mehen - A Stablecoin Maker With A Difference
Mehen is a by-product of the decentralised crowdfunding protocol Project Catalyst operating on the Cardano blockchain. Given the absence of a stablecoin on the science-based base-layer protocol, bridging capital and enabling on-chain payments on the Cardano blockchain was largely a hit-and-miss situation. Mehen’s USDM changes all that.
USDM is the first US-licensed fiat-backed stablecoin, meaning US residents building on Cardano can both store and move capital seamlessly across the Cardano blockchain. Even better, it is totally decentralised as network power rests in the hands of the community.
This means the Mehen project team cannot censor any transaction validated with USDM on the Cardano blockchain. This means users will not experience fund freeze with their native assets. This is due to the availability of a know-your-customer (KYC) verification process that all users have to go through before accessing the stablecoin. This ensures that bad actors or cyber criminals do not move value using the stablecoin, cutting out the necessity of censoring such transactions.
Even better, it operates seamlessly with all Cardano native assets allowing for capital to move across the 162 blockchain projects operating on the peer-focused platform. It is also fully secure, transparent, and scalable ensuring that value transmission across dApps is as smooth as it should be.
The Mehen team is not stopping here, though. The stablecoin maker is already making moves towards collaborating with payment companies to make debit card swipes, chip-and-PIN, or tap-to-pay capability fully accessible on Cardano while leveraging the tokenised value USDM promises.
All in all, USDM’s emergence on the Cardano is the much-needed jet fuel, the peer-reviewed protocol needed to become the new darling of the DeFi space.
Great article ty!!
Thank you for writing this up. I had seen a news blurb about the USDM, but didn't fully appreciate what it might mean for the ADA ecosystem. I have shared your article here:
https://www.pmbug.com/threads/cardano-ada.7246/post-99598
Cheers!