The value of stablecoins such as Tether (USDT), and USD Coin (USDC), is intended to be pegged with another asset like the U.S. Dollar. However, the crypto industry has been worried for years about the possibility that there could be a significant depegging, especially in the face of the U.S. Tether has a market capitalization of more than $63 billion and regulatory concerns.
One company now plans to offer discretionary protection for investors in such a scenario. Tether is backing this play.
Bridge Mutual is committed to reducing the risk of losing funds due to hacks or exploited smart contract, exchange hacks, theft, price crashes for stablecoins and other digital asset vulnerability.
Stablecoin Insurance is simple in principle. A policyholder can file a claim if a stablecoin falls below its peg within a specified time period. The current price of the stablecoin is checked by Oracles. Investors are then paid back the difference in price and peg, but in a different stablecoin.
Tether's CTO Paolo Ardoino stated that smart contract vulnerabilities are now a major risk in decentralized finance and that they are leading causes in the loss in millions of dollars in consumer fund," Paolo Ardoino. "With Bridge Mutual, we hope that future hacks will be prevented and more trust can be built in DeFi products."
Tether is supporting Bridge Mutual's move towards decentralized governance. Tether Limited has allocated $500,000 to token acquisition. Bitfinex is also part of the stablecoin issuer. These tokens will ensure that both companies are able to participate in Bridge Mutual's governance.
Mike Miglio (Founder of Bridge Mutual) explained that Bitfinex and Tether have already shown great support for the project by connecting it with many esteemed projects, which have now become our partner. They have also committed to helping Bridge Mutual market Bridge Mutual, improve its design, and integrate the product into other platforms and systems.
Miglio reports that policyholders can deposit their tethers in pools to serve as collateral. In return for their stakes, they can also earn yield and share in the profits of the platform.
Miglio stated that stablecoins are used to move billions of dollars per day, and people and institutions implicitly trust that stablecoins will be stable. If stablecoin coverage was easily available and accessible, everyone could increase their exposure to cryptocurrency markets without worrying about whether the value of all the stablecoins they own could fall to zero overnight.