Why were created Stablecoins?
Stablecoins were created has a solution to the volatility of the crypto market, to protect crypto traders and investors from big swings in prices of these digital assets. The volatility of the crypto market has created a speculative wave around these assets. The prices of Stablecoins are linked to a “real-world” asset in many cases it’s the dollar. There are some that use proof of asset and are backed by gold like DigixDao. Stablecoins are trying to combine the best aspects of cryptocurrencies in transparency and value transfer with stability and trust in the world accepted fiat currencies.
If Bitcoin exists why is there a need for Stablecoins?
Bitcoin is the biggest cryptocurrency the most secure and the most adopted, so why do we need Stablecoins? The best use case for Stablecoins is to provide liquidity to the market and to cryptocurrency exchanges. Crypto exchanges are facing a hard time with banks shutting down their bank accounts, or facing difficulties with audits, deposits and withdraws, a recent example is Bitfinex that had to change banks. Stablecoins are offering a great solution for the crypto market while Bitcoin remains so volatile, maybe in the future when Bitcoin reaches a significant market size Stablecoins no longer remain useful.
The War between Stablecoins
Last year, we witness a war between platforms, which platform was the best for ICOs to raise funds and incubate their project and their digital assets. Many ICOs had a gas war, where investors had to pay a bigger fee just for their transaction go to throw the network and reach the project fast because otherwise investors would miss the opportunity to invest, some ICOs raised funds in less than an hour. In 2018 the story is different; the market is shaped by Stablecoins and which one is more secure and transparent. The biggest one is Tether, it’s the most used and the most adopted by centralized exchanges but there is a lack of trust sentiment ongoing for Tether, most Stablecoins right now have full transparency and are backed by trust worthy entities, for example USDC from Coinbase, GUSD from Gemini and PAX a regulated Stable token. While Tether remains in a cloud of FUD and lack of trust, they faced many problems with Banks and their auditors, although they recently hired a law firm to prove that they held all the backed dollars in June 1st of 2018, some investors are satisfied with this proof although some have the opinion that this proof is not enough, Tether could have just the funds for that day and the rest of the days they could be using Fractional-reserve banking, and that’s exactly what crypto is trying to avoid and become a solution.
Why Stablecoins might not be the ideal asset to be created?
Stablecoins offer a safe heaven for volatility and big swings in prices but they are backed by the same asset that motivated developers or a developer Satoshi Nakamoto to create Bitcoin. The financial system is failing, the fiat currencies are losing value year to year, the debt is rising, the amount of goods and services that we pay with the same amount of money is decreasing at a fast phase due to inflation. Gold has lost more than 50% since 2012, going from a high of 1800 to a low of 1060 in 2015. The markets need a secure and transparent store of value which implies a future value for Bitcoin. Central authorities can no longer continue to print money and boost quantitative easing, it’s just a matter of time until more people realize the value that Bitcoin and decentralized forms of value transfer can bring to the society and evolution of the digital economy.
Stablecoins are going against everything that Bitcoin is trying to build.