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While the rest of the cryptography market has been stagnant for some time, market analysts are noticing the growing spread and the increase in the number of transactions involving stablecoin in blockchain. The ICOBox experts evaluated the pros and cons of these "stable currencies" and concluded their conclusions on the possibility of replacing bitcoins.
According to the data available for research, in just three months four major stablecoins – USD Coin (USDC), True USD (TUSD), Paxos (PAX) and Gemini Dollar (GUSD) – have exceeded 5 billion dollars in terms of volume of blockchain transactions and between September and November the number of transactions increased by 1.032%. These are colossal figures, especially considering the general downward trend of the market.
The secret of the growing popularity of stablecoin lies in their primary quality built right in their name: these coins are stable. They are linked to the value of a specific tangible asset (such as traditional coins, gold or oil) in the expectation that in turn they will maintain their value over time. This is a useful tool for traders who want to protect their profits from the volatility of other crypto-currencies without having to convert them into fiat. However, the very concept of "stability" here is rather relative, because the rate is linked to the value of some other resource. Which raises a number of important issues.
Today's stablecoins are available in different flavors: coins supported by legal currency, coins supported by cryptocurrencies and unsecured coins.
The first type is the simplest and easiest to understand. A digital currency is linked to a fiat currency at a rate of 1: 1, with the fiat reserve funds held in the bank, and cryptocurrency holders can exchange the encryption in cash at any time. But what about decentralization? Where is transparency? Forget about it! In this model, users must completely trust the central authority that holds the fiat reserves. When dealing with this type of stablecoin, you can sit down at the next cryptocurrency rally, but this is indeed one of its few advantages. Moreover, there is no guarantee that the underlying fiat currency will not diminish in value, and when you surrender your stablecoin you will be left with less than when you first entered – and these are only objective realities of the market.
"Despite this consideration, cryptographic experts see the great potential of euro-based stablecoin," says Dima Zaitsev, Head of International Relations and Business Analytics at ICOBox. "Let's have a look at the EUROS stablecoin based on Ethereum
released last summer, which is tied to the euro. What attracts those investing in the new currency is the transparency of the underlying assets and the multilevel process of their verification through, for example, daily and weekly statements and quarterly audits. This is an excellent approach that allows tracking the real assets that ensure cryptographic money and avoid speculation. It is vital for investors to see that they are not deceived – this immediately increases confidence in the project. "
The British startup London Block Exchange (LBX) is also evaluating the issue of euro-related stablecoin. In the meantime, them
announced their plans to launch a stable currency supported by the British pound.
Stablecoins protected by cryptocurrencies have their own set of problems, and they are fairly easy to spot. Digital money in today's market conditions is extremely volatile, which means that even if you enter into stable currencies you will not be free of volatility. There is only one possible solution to this dilemma: providing an extra guarantee for the stovereco, which will serve to minimize the effects of currency fluctuations in the underlying currency. But this makes them too capital. And even extra warranties will not save this cryptocurrency from the next bitcoin mass or from the arrest of Ethereum: your stablecoin will simply evaporate.
The third model is a secure stablecoin. In effect, these are algorithm-based assets whose stability is guaranteed by the balancing of speed in various ways. They operate similarly to the seigniorage principle, where the government benefits from the increase in the amount of money in circulation: the issuing authority, the central bank of the country, creates new assets in line with increase in demand and buy them with the decrease in their value, effectively creating a controlled currency problem.
Many market experts believe that this stablecoin model without support is the most attractive and ambitious, because these currencies are completely decentralized and independent of other currencies, making them impervious to crises. However, their disadvantage is that the lack of underlying assets makes their holders completely undue in the event of a stablecoin collapse. They are also almost impossible to assess for safety, security and perspectives and are extremely difficult to start.
"Stablecoins is a potentially very valuable market solution, but at this point it is all but impeccable.The crypto-market has taught us to refrain from jumping to conclusions and dives I think for now it would be better to check from near the development and application of the stablecoin.This would be the right thing to do At this point, it seems rather premature to hypothesize if the model will push and replace bitcoin ", weighs in Daria Generalova, Managing Partner of ICOBox.
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