A Bitcoin-blockchain based decentralized finance (DeFi) project debuted a stablecoin fully backed by bitcoin BTC tokens as part of its effort to build a financial system centered on the largest and oldest cryptocurrency. Elastos , developer of the BeL2 protocol, unveiled its bitcoin dollar (BTCD) on Wednesday. The project aims to create a digital version of the Bretton Woods system , the post-World War II agreement that pegged the U.S. dollar to gold, making the greenback the world's reserve currency as a means of fostering monetary stability. Elastos said it is "reimagining [Bretton Woods] with Bitcoin at its core." Stablecoins are tokens pegged to the value of a traditional financial asset, such as a fiat currency, usually the dollar. They're an important cog in the cryptocurrency machine because they counter the volatility of cryptocurrencies like bitcoin, allowing users to hold capital in digital assets without having to factor in wild price swings. Dollar-pegged stablecoins are usually backed by short-term U.S. Treasuries that can easily be cashed in or purchased to meet fluctuating demand. BTCD is backed by bitcoin, a counterintuitive choice for a token that's mean to hold a stable value. Elastos deals with this through overcollateralization of 160%-200% of BTCD's value in bitcoin, Ahmed IJ, the head of marketing, told CoinDesk on Telegram. "Oracles feed the BTC-USD rate each block," he said. "If cover falls to 110%, arbitrage may repay the debt, grab the BTC at a small discount, and erase the risk. "When BTCD trades above a dollar, holders burn it to reclaim BTC, supply falls and the price slides. If it dips below a dollar, users mint it with fresh BTC and sell, supply rises, price lifts." The development of a BTC-backed stablecoin forms part of the broader development of bitcoin-powered DeFi , in which the security of the Bitcoin network and the vast reserves of BTC are used to secure and fund decentralized activity elsewhere in the blockchain world. Read more: Stablecoin Market Could Grow to $2T by End-2028: Standard Chartered
