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Up until now, stable currencies have been used almost exclusively by traders, which has pushed up the volume and market capitalization of the Tether USD (USDT). In the short term it is fair to say that, for traders, it does not seem to matter how stable money is anchored, supported or governed, as long as it reflects $ 1 because, despite its lack of transparency, its centralization and commercial relations, USDT dominates the stable currency market with a market capitalization of more than 30 times that of its closest competitor, TrueUSD (TUSD).
What purposes must serve a stable currency [19659005] With so many different iterations and asset methods used to anchor stable currencies at real world prices we should evaluate each currency on how well they work in the following Roles:
- A stable currency for large hedger
- Safe haven for traders
- Does not fluctuate in volatile times
- Easy to negotiate with businesses / consumers
- Protects against inflation
"idealized perfect stable currency" would serve all the above purposes and combine the benefits of decentralized cryptography with the universality and fungibility of a fiat that can not be undermined and maintains its value during volatility.
Search for the stable coin of the "Holy Grail"
In economics, there is a term known as "impossible trinity" which states that central banks can not fulfill all three of the following functions simultaneously :
- establishes a fixed exchange rate between its currency and another while allowing capital to flow freely across its borders,
- allowing capital to flow freely and set its monetary policy, or [19659005] set up its monetary policy and maintain a fixed exchange rate
There are projects, like Basis, that seek a decentralized central bank that can fulfill all the functions in this trilemma model when traditional central banks fail. such a DAO with its own currency would be something of a holy grail not only in cryptography, but in general in economics
Evolution: from stable currencies to multi-currency economies [19659017] While there are literally dozens of stable coin projects underway and under construction, for the purposes of this discussion we have included only the most salient issues in terms of media coverage / coverage.
In 2014, the first stablecoin, BitUSD, was launched on the decentralized exchange of BitShares purely as a trading tool with a 1: 1 price with the USD but only supported by the native token of the platform. Tether was created shortly thereafter as a digital representation of the USD with "100% reserves" in USD to support the supply.
Tether was criticized for being – among other things – too centralized and in the new stable "third generation" coins there was a tendency towards the creation of multi-currency economies that operate autonomously in the wake of a DAO. MakerDAO with its MKR and DAI currency is an important example of a stable and multi-currency working project and Havven recently launched its stable currency Nomin, nUSD, supported by its HAV token.
The search for this "Holy Grail" of currencies is taken very seriously, as evidenced by high-profile financial backers and by academic advisers behind incoming projects. Saga, the stationary of the fractional reserve, was assisted by JP Morgan Chase president Jacob Frenkel; the co-creator of CME's financial future Leo Melamed; and Dan Galai, the developer of the volatility index CBOE (VIX); and the Stanford economist John Taylor is a consultant for the stablecoin Basis of the central algorithmic bank, former Basecoin
Despite the proliferation of new stablecoin breeds and all the criticism it has received, USD Tether dominates about 90% of the Stableco market. This may suggest that traders and traders have been happy to forgo the decentralization of a cryptocurrency for convenience and cheaper transaction costs.
Different Tokens for Different People
With the year-date volatility of bitcoin (perhaps the less volatile cryptography of non-stablecoins) about 5 times that of Apple based on a real average range, many believe that the lack of a stable currency is the main thing that hinders the generalized adoption of cryptography.
A well-functioning stablecoin would bring in institutional and industrial actors and would incentivize individuals to spend resources instead of holding them.
Following are some of the players who could benefit from a stablecoin and how they could benefit them:
- Employers who pay wages
- Employees who pay rent / sale expenses
- Operators as a shelter, fungibility, global access and for arbitration
- Hedgers as a value reserve eg mining company that protects against fluctuations in oil prices
Where does the USD Tether demand come from?
Outside of the specialized bribery merchants and hedge funds there is no evidence of other industries or institutions making use of stable currencies. In the last year, Tether has seen a 10-fold increase in terms of market capitalization and a 36x increase in the volume traded.
The graphs above and below show a comparison of the trade volume for bitcoins and ether in USD against USDT. The combined market capitalization of both cryptographic assets accounts for over three quarters of the total cryptographic market. These graphs demonstrate a complete turnaround from the USD trade in bitcoins and ether accounting for 90% of the total volume last year, while USDT trading dominates the market up to 90% and USD just 10%.
Tether USD's request does not come from the United States
Tether is by far the most traded stablecoin and has maintained considerable stability compared to the US dollar. ; USD since its inception in 2015 despite volume increases. Despite this, it is not traded on many of the more "official" (and popular) US exchanges – Coinbase, Gemini and Kraken. And its centralization (one company manages all USD reserves to support the currency) and the lack of bank transparency undermine it as a viable alternative alternative for real companies / businesses.
Although Tether is not legally obliged to disclose the position in which he holds billions of dollars in deposit, evidence points for funds held at a Puerto Rican bank, Noble.
The Chinese demand drives the USDT volume
The increase in the volume and market capitalization in USDT against BTC and ETH in particular can be largely attributed to the proliferation of crypto-cryptographic exchanges (C2C) that now they are some of the biggest volume exchanges.
Five of the 10 major global exchanges by volume reported are Chinese – OKEx, Huobi, ZB, LBank and BiBox – and make the most of their volume in USDT pairs. However, many of these exchanges are known for making their volumes.
Crypto-to-crypto exchanges have proved extremely popular among retailers as they offer a wider selection of goods, cheaper commissions (some even offer zero) and others offer discounts for trading in USDT pairs. For their part, trading C2C eases the trade of millions of billions of real US dollars and custody problems.
From Fiat-to-Crypto exchanges from 2013 to 2017 flourished in China and at some point the Chinese yuan (CNY ) accounted for more than 90% of global bitcoin trade volume until the government outlawed all crypto trade in September 2017, forcing many to close shops and others to move jurisdiction. Despite the ban, there are still dozens of Chinese stock exchanges operating outside mainland China (mainly in Hong Kong) and others that have settled in Hong Kong after the ban.
BTC / CNY exchanges plummeted in December / January 2016, probably on the back of a government warning for security trade and the subsequent trade ban on all BTC and LTC withdrawals from February to July 2017 while they have updated their systems.
The Chinese ban causes flooding in USD
In At the end of September 2017, the Chinese government ordered all exchanges of fiat-crypto to cease operations and banished all activities of the ICO . This effectively eliminated what was left in the CNY / BTC trading volume when trades closed the store and others moved to continue their operations, followed by many traders. This last drop in CNY / USDT also coincided with the rise in BTC / USDT
Shortly after leaving China, at the end of October 2017, two of the its biggest exchanges OKEx and Huobi have added USDT to their pairs, followed by many other small LBak, ZB.com, etc. During this period, USDT trading volume has begun an exponential rise since November 2017.
It is important to remember with the increase in Volume and capitalization of the USDT market which is mainly traded on Asian stock exchanges, and in particular Chinese , which have become synonymous with volume manipulation, washtrading and, more recently, mining trade. What is clear is that there is little US demand for the USDT since none of the best US stock exchanges offers it (Bitfinex, Gemini, Coinbase Pro, Kraken, BitStamp). Only Bittrex offers USDT trading.
Huobi and OKeX were among the first 5 largest world trade, but both also intervened to scrutinize the volumes reported and accused of faking up to 93% of their daily volumes. Trading in USDT pairs accounts for most of the volume on both exchanges and if they are manufacturing their volumes the "fully backed" USDT does not provide the US 1: 1 digital representation, but is a channel of fraud.
Wash trading is not limited to crypto-crypto (C2C) exchanges and fiat-to-crypto (F2C) exchanges such as Bithumb and Bitfinex have also been accused of volume falsification. When we compare the average trading volumes BTC / USDT on the first five C2C exchanges with the first five fiat-to-crypto (F2C) we could hypothesize that C2C has recently overtaken them in terms of bitcoin trading.
C2C: Binance, OkEx, Huobi, ZB.com, HitBTC F2C: Bitfinex, Kraken, Bithumb, Coinbase, Bitstamp
Trade mining also increases the volume of Tether
"Trade mining" is a more explicit strategy to manipulate trading volumes and has recently become a trend among Asian stock exchanges, many of which are Chinese (Coinegg, FCoin, BitForex). Courageously advertised on their websites, merchants can "earn free tokens" (created by the platform with no other utility than speculation) with every exchange they make on major USDT pairs (BTC, ETH, EOS, etc.). This "discount" had a similar effect for the washing of exchanges and active exchanges in practice were abandoned by the price of the activities of Brave New Coin.
Many USDT requests are driven by manufactured Asian requirements.
The graph above shows the spread of the BTC / USDT trade volume during the "trade mining" offer on the Chinese BigOne exchange. As we can see the volumes were turned on and off as a switch with the suspension and resumption of supply, taking BigOne from the darkness to briefly make more BTC volume than Binance.
Supported for the future?
As we have seen throughout, any subsequent stablecoin will have a long way to go to dethrone Tether as the de facto USD digital. From volume uptake and from its undeniable success in pegging within a very tight band of volatility over the years, a superior stablecoin will have to offer far more transparent banking to take a significant share from Tether.
It is unlikely that the crypto-liberals or those for whom it was created (victims of hyperinflation and constantly devalued currencies) would be enthusiastic about complex projects like Saga or Basis even if they could serve the needs of the finance and asset management industries .
The MakerDAO (Dai) attaches itself to the libertarian cryptographic ethic of being a decentralized asset and an autonomous entity. If a digital dollar had been issued, however, would it make a stable dollar-listed currency obsolete? It could descend to philosophical semantics: would you rather put your faith in a centralized entity (American Federal Reserve) or a decentralized body?
Passing through the real-world precedents, the real-world currency clusters have been notoriously inclined to attack speculators and exogenous shocks: the Mexican peso crisis in 94; The George Soros race on the British pound in 1992 and more recently the Swiss franc that does not differ from the euro in 2015.
Will the coins be just another flash in an accident?
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