Safety of a currency is achieved through liquidity. However, currency has an interesting property as it is money. There will only be one that dominates.
In the wider economy, USD is money, accounting for >70% of global trades. In crypto, Tether is money.
The obvious problem is then, how do you attract exchanges and other institutions to offer your decentralised stablecoin rather than Tether to their customers?
The solution is two-part:
- Back your stablecoin with enough collateral, that is negatively correlated to cryptoto, to guarentee a high floor to the peg (this CGP is key)
- Offer a credit-risk free yield on your stablecoin that comes from block rewards, creating something akin to a demand deposit at a central bank
In this way, exchanges, who hold vast reserves of stablecoins, will be incentivised to hold your stablecoin instead as they can use the yield to attract customers.
This is what Cambridge Cryptographic has been pushing forward with Proof-of-Deposit for Celo and cStables.