Stablecoins are cryptocurrencies whose development teams are striving to keep their value at a fixed level. Today these coins are developing rapidly. According to the latest data 48 of them are supported by fiat or any physical asset, and another 23 are backed by other cryptocurrencies. 15 stablecoins try to maintain balance by using an algorithmic mechanism that should regulate the number of coins in circulation based on the state of supply and demand at the current market. Another 24 stablecoins do not belong to any of the listed types, but still claim to maintain value, despite market fluctuations. Thus, now there are 110 different types of stablecoins, and their number is constantly growing.
Tether Maintains Investor Favor
Tether (USDT) remains a key stablecoin tied to the US dollar, which in June raised suspicion among researchers at the University of Texas. They suggested that, in December last year, the influx of such assets into the market led to the emergence of excess liquidity, which pushed most cryptocurrencies to their historical maximums.
The specific gravity of Tether as a means of payment when acquiring Bitcoin, Ether, EOS and Stellar is at its maximum. In the top five cryptocurrencies by capitalization only in XRP, which in mid-November ousted Ether from second place, Bitcoin was considered the primary payment option, and only then USDT. The predominance of Tether in the specific index among the sale and purchase is observed for other assets. Thus, this stablecoin became the cryptocurrency of choice for trading, and this already makes one wonder whether it is good or bad.
Of course, the share of Tether in the category of stablecoins decreased, falling to a three year minimum, but it still has the major share of at least 70%, and in some cases its daily share can reach up to 96%. The other key players in this field are TrueUSD, USD Coin, Paxos, which all account for a total of $170 million of circulating crypto coins, as well as Gemini (GUSD), which accounts for about $85 million. As noted in the Morgan Stanley Research, “Bitcoin trade is rapidly moving in the direction where the influence of stable crypto coins linked to the US dollar, in particular, Tether, will be more considerable.”
And this is even despite the fact that the situation with the backing of each crypto coin by the US dollar is still not fully clarified. In January, the Tether team refused to continue an audit of its finances by Friedman LLP. By June, the company was evaluated by the law firm Freeh Sporkin & Sullivan, LLP (FSS), which was founded by former director of the FBI Louis Freeh. According to the law firm Tether, supposedly, had the money, but the organization’s financial report should not be considered a classic audit document. Same could be said about Bloomberg that joined the whitening efforts of Tether’s image, when it publicly referred to documents showing that in late January the amount of funds in Tether reserves placed in Puerto Rican Noble Bank Ltd ($2.2 billion) corresponded with the number of crypto coins in circulation at that moment (2.195 billion). Meanwhile, Bloomberg did not provide the originals documents, noting that they are not an audit report.
Stablecoins Are Supported By a Significant Number Of Members In The Crypto Community
Despite this, Tether, like other stablecoins, which might be dealing with similar issues (i.e. possible participation in speculative attacks on the crypto market and the availability of reserved funds), have received quite broad support in the crypto community. In September, analyst Joseph Young compared the launch of the Winklevoss brothers’ GUSD (Gemini Dollar) to the launch of exchange traded investment funds (ETF) on Bitcoin. On September 10, when he made this statement, Bitcoin was worth $6,296. Anthony Pompliano enthusiastically met GUSD, while Charlie Shrem also supported this project.
However, the expected positive effect on the market from the launch of GUSD was not felt, and Bitcoin has since lost 43% of its value. Despite the fact that GUSD, as Young emphasized, received a license to operate from the New York Department of Financial Services, unlike the situation with Tether, investors still trusted more the FSS conclusion from the former head of one of the influential US intelligence services.
Stablecoins continue to receive support, although their rapid development not only did not cause the market to grow, as Young thought, but, on the contrary, it goes hand in hand with its descent to negative values, although former US federal prosecutor Kathryn Haun argued that “Stablecoins are a very important factor for the cryptocurrency ecosystem that allows players to hedge the risks of volatility.”
The fact that the development of stablecoins "coincided" with the decline of the cryptocurrency market may not be just a coincidence. Obviously, when Tether can be used to control significant volumes of transactions with cryptocurrencies, then those who are behind this stablecoin can take advantage of this. Neither Bitcoin Cash hard fork, nor Bitcoin’s “bubble” and other cryptocurrencies that Nouriel Roubini wrote about with malicious joy are the reason for the market decline, as said by eToro analyst Matthew Greenspan and Tom Lee from Fundstrat Global Advisors.
Stablecoins Are Coming
The turnover of stablecoins is growing, as in November, the total index of transactions with them reached $2.3 billion, which is 10.3 times more than in September. Centralized cryptocurrency trading platforms have greeted stablecoins with open arms. At the end of November, Binance opened a "new market for stablecoins." And in early December, four stablecoins immediately appeared in the Bitfinex (Ethfinex) listing. These crypto exchanges add to the number of other platforms, including Coinbase, Gemini, Paxos, which also offer pairs with stablecoins, some of which began to appear on a number of crypto exchanges. DAI became the champion, which in November was trading on seven exchanges at once. It can be said that the majority of crypto exchange owners have the same opinion as CoinJar founder Escher Teng, who called stablecoins “the new cool thing in the world of cryptocurrencies”.
Curiously, many projects aimed at launching stablecoins are implemented with the participation of government agencies or large corporations. For example, in Japan, the Financial Markets Authority stated that stablecoins are not digital money and are not subject to the law on financial transactions. In other words it the financial regulator clearly opened way for their development, while at the same time tightening the regulatory bolts in relation to classical crypto coins. In Brazil, where the demand for Bitcoin is growing, the State National Social Development Bank intends to launch the BNDES token in next January, in an attempt to compete with other crypto coins that are not under the control of the local authorities. The launch of the state stablecoin is also being discussed in the State Duma of Russia. Chairman of the Committee of the lower house of the Russian parliament, Anatoly Aksakov, expressed confidence that the government would support the idea of the emergence of a “secured cryptocurrency”, which would work on the blockchain, and its price would be equal to the Russian ruble in a 1:1 ratio.
Will Stablecoins Lead To The Disappearance Of Classical Crypto Coins And The Dominance of "Digitized" Fiat
What does future hold if stablecoins continue to enjoy the unconditional support of a significant part of the cryptocurrency community? BitPay CEO Stephen Pair is confident that in three to five years, most of the payments in the world will take place via distributed registry technology. It seems to be good news, but Pair makes an important clarification, as he expects that digitized dollars and euros will play a major role in this transformation. These stablecoins will challenge the authority of "Bitcoin and other tokens." Such a situation may not be static, but might result in the fact that classical cryptocurrencies will generally be taken out of circulation. Robert Leshner doesn't rule out that the conditional FedCoin, a stablecoin issued by the US Federal Reserve, “sometime, far in the future” will be able to force out all other crypto coins. The fact that the US Securities and Exchange Commission (US SEC) can easily help in this is proven by the fact that in mid-December, the regulator easily forced the Basis stablecoin project to close, even though it had raised $133 million in investor funds.
Crypto analyst Jackson Palmer speaks more specifically: “As institutional involvement in cryptocurrency expands, it will undoubtedly become enticing to the bankers and firms running billion dollar custodial services to issue their own crypto tokens which they can centrally control, collect fees on, and build monopolies around.” It is no coincidence that, for example, the USD Coin was launched by Circle, which is backed by the investments of a major institutional player, the American bank Goldman Sachs. It is worth noting that this is a rare case of criticism of stablecoins, since most of the negativity about them refers to the fact that they fluctuate too little in price to give investors a chance to earn money, as Simon Moore of Forbes says. At the same time, stablecoins “seduce” many by maintaining their values even during a current market crash, as the prices of most of these cryptos fluctuate very little around their fixed levels.
How logical is it to link decentralized cryptos to fiat, thereby de facto abandoning the principle of decentralization? There is no logic in this, since the cryptocurrencies clearly positioned themselves not as a fiat substitute, but as its replacement. It is clear that it will be easier for the digitized dollar to “run operations” on the blockchain rather than use SWIFT. However, this is a benefit for the US Federal Reserve, for bankers, but not for those for whom the Bitcoin White Paper from Satoshi Nakamoto really was meant for in the first place. By the way, the lack of data about him is, in fact, a real sign of decentralization, which the creator of the first cryptocurrency probably wanted to convey to us: “I am disappearing, since my existence alongside Bitcoin could harm the principle of decentralization”.
The pegging of decentralized cryptos to fiat looks illogical, since cryptocurrencies came to the world to replace it, and the confident “flourishing” of stablecoins in the sale of cryptos looks like a threat to the existence of the entire crypto market.