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The bears took a tight grip on the cryptocurrency market, sending the price of bitcoin falling below $ 5,000 at its lowest price in the year so far. Despite the weakness of the cryptography market, many of the early users remain convinced that blockchain technology is the future of payments. One of the results of this dogmatic vision was the development of the so-called "stablecoins", which are cryptocurrencies whose value was anchored to another resource, such as the US dollar.
However, not all are convinced that the stablecoins will guarantee sufficient stability to avoid the extreme volatility inherent in cryptocurrencies. It is easy to understand why when comparing two known coins: Tether and Dai.
Q3 letters of hedge funds, conferences, palettes, etc.
Stablecoins on the rise
In his recent "Crypto Quarterly" report, Canaccord Genuity analyst Michael Graham highlighted the growing interest in stablecoin as a key development in the second half of the year. So far they represent only a small niche within the broader cryptocurrency market at around $ 2.2 billion.
However, enthusiasts consider them a way to invest in cryptocurrencies avoiding the volatility normally associated with bitcoins, ethereum and other digital currencies. In the future, it also expects to see a series of stablecoin backed by commodities such as gold and oil, although this has not yet happened.
Graham noted that several major cryptology companies have revealed their efforts on stablecoin in recent months. For example, Coinbase and Circle have released their currency in USD, which is pegged to the US dollar and currently has a market capitalization of $ 136 million. This digital currency allows users to deposit dollars from their bank accounts and convert them into fiat tokens.
The Gemini dollar and the Paxos standard were both announced in September, and both were "publicized as the first regulated stabilizer under the supervision of the New York State Department of Financial Services," Graham wrote. It is not clear which of them was actually the first, since they were apparently announced the same day.
Coins with pegging in previous dollars
The USD token, the Gemini Dollar and the Standard Paxos are all linked to the US dollar and follow three other stablecoins that are anchored to the dollar on a 1: 1 basis. The original and best known (and also known) is Tether, which it was released in 2014, according to the company's website (although in its report, Graham dates back to 2015). We should also point out that the company's website states that it also offers Tether coins with the euro and will soon also support the yen.
Dai was launched in December 2017 and has a market capitalization of $ 71 million. Graham sees Dai as unique in the way he is decentralized. Each of these coins "is supported by a precious resource (ETH) held in a decentralized manner in a smart contract with the Maker platform", he explained. These coins are then linked to the US dollar through an automated process that regulates the amount in circulation based on fluctuations in the dollar.
The third dollar 1: 1 coin with a dollar peg is TrueUSD, launched in January and with a capitalization of $ 159. It is used for guarantees and to demonstrate deposit values.
Problems with Tether
One of the reasons why Tether is so widely known is because of all the problems with it. There was a lot of concern for the stablecoins who broke their pegs, and that's exactly what happened with the Tether peg in the US dollar. It sparked a great controversy when the value of a Tether coin fell below 90 cents at the start of this year on the back of concerns about the fact that the company had actually put aside enough US dollars to support the Tether coins in circulation denominated in dollars. At the end of last month, the company also revealed that it had burned $ 500 million in the digital currency, sparking the question of whether a centrally governed stablecoin not managed by a government was a good idea.
Tether has also had its share of other controversies, such as the quotation from the Commission for the Commodity Trade in the United States. Just today, Bloomberg reported that the United States Department of Justice is probing the potential use of Tether coins to manipulate the price of bitcoin last year by sending it through the roof. Quoting three sources familiar with the investigation, the news network reports that officials "have recently come into suspicions suspecting that an intricate network involving Bitcoin, Tether and the cryptographic exchange of Bitfinex may have been used to illegally move prices" .
Because Dai could be better than Tether
So far, the maker's Dai coins have done better than Tether, although it is still too early to assess how likely this stablecoin will break its peg. CoinTelegraph explains that Dai is actually supported by Ether, even though he is pegged to the dollar. This post on Medium suggests that, despite the lack of price stabilization mechanisms and its complexity, Dai may have less risk of volatility than other stablecoins.
According to Graham, Dai has kept his price up to now without going much lower than 94 cents or over $ 1.06 since its inception. The digital currency has even managed to maintain its value despite being supported by Ether, which has fallen by around 80%.
Only time will tell whether stablecoins like Dai will really offer the consistency needed when it comes to currencies. The tether may also have potential – if it can come out unscathed from its potential legal problems. Nevertheless, many well respected investors like Charlie Munger will be difficult to sell for any cryptocurrency.
This article appeared for the first time on ValueWalk Premium
