Huobi’s V2.0 ‘Stablecoin for Stablecoins’ Aims to Close Arbitrage Loophole

Huobi’s V2.0 Stablecoin

Stablecoins are increasing their presence within the crypto space as the universe of stablecoins expands and they become much easier to trade. Now, digital exchange Huobi Global provides, as a trial, the HUSD Solution V2.0 to supply traders with support for interchangeability between various stablecoins.

All Stablecoins Seek to Lower Volatility But They are Not 1:1 Interchangeable

Stablecoins’ purpose is to reduce price volatility by being pegged to a fiat currency or an exchange-traded product, such as a valuable or industrial metal.

The HUSD Solution V2.0 uses support for interchangeability in between four stablecoins: Gemini Dollars (GUSD), Paxos Standard (PAX), True USD (TUSD), and USD Coin (USDC). These 4 coins are represented by one token, the HUSD.

Users can transfer any PAX, TUSD, USDC, or GUSD, and after that withdraw any of these 4 tokens, regardless of which token was at first deposited. Neutral’s article entitled “Case Study of Huobi’s HUSD Solution,” describes,

When you deposit any kind of stablecoins, they will be shown as HUSD in your account. You may withdraw any kind of stablecoin; when the balance amount of a certain stablecoin is not sufficient in your account, you may choose any other stablecoin with enough balance amount to withdraw.

When announcing the launch of HUSD (V. 1) in October 2018, Huobi Global claimed that the HUSD aimed to facilitate traders’ decision-making procedures amongst different stablecoins, while saving trading expenses. Nevertheless, design defects were detected in the very first HUSD variation.

According to Neutral, the problem with the original version came from the truth that it enabled 1:1 interchangeability between PAX, TUSD, USDC, and GUSD. That is, any of these coins could be exchanged for USD 1.

However, Neutral notes that Huobi Global ignored the fact that “stablecoins are not interchangeable on a 1:1 basis even though they are equivalent in redeemable value.”

These minor rate discrepancies added to the issuance of various tokens to people at a rebate to increase liquidity. As an outcome …

Traders then took advantage of the scenario, utilizing the HUSD option to redeem and arbitrage for full cost. In this scenario the 1:1 ratio in between stablecoins used by HUSD did not hold, and market makers capitalized to earn a quick revenue.

HUSD Solution V2.0 now gets rid of the set 1:1 exchange rate, basing the worths in between stablecoins not just on pricing but on numerous other elements.

For example, to name a few factors, the underlying stablecoin price is now set by information acquired from various mainstream exchanges. And, “Users have to designate time and quantity individually to interchange stablecoins, going from an automated exchange to a manual one.”

Is There a Stablecoin Craze?

The stablecoins universe is broadening. For example, in October 2019, GMO Internet revealed the launch of a Yen-pegged stablecoin. And, last month, Cryptogarage signed up with forces with Tokyo Tanshi to release the Liquid sidechain based SETTLENET suite, which intends to be the first application Yen-pegged stablecoin.

In January 2019, KRWb also revealed the upcoming launch of the KRWb, which is going to be a 1:1 Korean Won-pegged stablecoin.

This previous week saw JPMorgan unveil its JPM Coin stablecoin that will be used in securities transactions and as part of the bank’s treasury services features.

Moreover, Facebook, according to a Bloomberg report, wishes to provide its own stablecoin to allow WhatsApp users to exchange money.

For lots of, stablecoins represent the future. As CoinJar co-founder Asher Tan put it, “It’s a craze today.”

Do you think stablecoins will become mainstream crypto assets shortly? Let us know your thoughts in the comment section below.

Images courtesy of Shutterstock

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