Stable coins: are all uprights?

With the inherent uncertainty of cryptocurrency, users look for something that can bring back much needed stability and mitigate price fluctuations. In research, a concept continues to gain traction: stable coins.

These are undoubtedly difficult times for cryptocurrency investors. Digital money has always been volatile investments, and it is certainly a continuous trend. Over 40% of the value of Bitcoin was wiped out only in November and investors are fleeing from cryptocurrencies at an alarming rate.

Some users ask that their digital currencies are connected to the real world or to algorithmic support, which stable currencies allow, while others condemn the connection of fiat and other raw materials such as centralization of cryptocurrency.

The state of Crypto

Cryptocurrency has undergone a meteoric rise in recent years. Blockchain technology allowed the creation of cryptocurrencies, which quickly became the decentralized response to global finance. The first and most popular cryptocurrency, Bitcoin, has garnered the most attention and the highest speculation from investors. Excitement reached its boiling point towards the end of 2017, when a single Bitcoin was valued at almost $ 20,000.

Fast forward to the present day and Bitcoin is down significantly. As investors flee from cryptocurrency in general, the total market value of Bitcoin and its rivals dropped from over $ 800 billion last January to around $ 130 billion at the end of November.

Because cryptocurrencies have underperformed – or even stalled – in 2018, investors and encrypted users are looking for something less volatile. Enter stable coins or guaranteed cryptocurrencies. These cryptocurrencies are linked to a sort of guarantee. This can be fiat currency, metals, bonds: anything of agreed value can be used to support the stable monetary system. These coins typically use smart contracts to keep track of the balances and make sure that only the holders who have passed the Know Your Customer (KYC) process can make deposits or withdrawals.

This could be the answer?

There is a growing chorus of users who believe that stable currencies are the answer that cryptic markets are eager. This is because the true virtue of stable currencies – unlike the cryptocurrencies that precede them – provides a solution to the intense speculations and fluctuations of the purchaser inherent in digital investments.

The coins of the stables, supporters support, give cryptos guarantees. This probably centralizes the decentralized proposition of cryptocurrencies. But believers argue that this is necessary in times of extreme volatility.

In addition, stable currencies may perhaps reflect on the business rather than on buyer speculation. If you look at the initial coin offerings (ICO), most of the time they are speculation exercises. This was especially true during the height of cryptocurrency: in many cases, it did not even matter if the currency was useful, people would have invested because they had encrypted in the title. This could inflate the real value or functionality of the currency, and with stable coins, this becomes less of a problem.

It is worth noting that stable currencies can stick to decentralized principles. A good example is Synthetix: this currency blocks volatility by holding most of their collateral tokens escrow. Then there are incentives for people to support collateral tokens, called Synths, which they then take advantage of whenever the transaction currency is used, Nomin. For these stakeholders, there is no compromise on the underlying vision of Nakamoto's decentralization because they do not fix their currency on any centralized system fiat currency or value.

Nonetheless, there are doubters who say that stable coins are not all that are cracked to be.

The stable coins could not be anything but Hype?

The largest contingent of stable money-claimers consists of cryptocurrency purists, who claim that tying any currency to a good supported by the government goes against the intentions of the decentralized system. But, as shown, there are ways to get around this problem and stable currencies do not necessarily have to be linked to commodities like the US dollar.

Another, perhaps, more difficult problem for stable currencies is legitimacy. If some company can create and then issue a stable currency, can it be trusted? This concern about stable currencies has proved to be correct in some cases. Tether, who claimed that every token issued was supported by a US dollar, suddenly lost its dollar anchor in October as the USDT 1 token fell significantly below $ 1. According to Forbes, there had never been a robust audit to support the claim that each token was supported by a dollar equivalent.

Thoughts of separation

Time will tell how stable the coins are and whether they resolve the fluctuating evaluation of many cryptocurrencies. Perhaps one of the ways to make the bigger system more reliable is to include the government in an active role, perhaps even to issue stable currencies. This could offer a central authority, prevent the proliferation of stable currencies issued by the company and include the incorporation of other services, such as the automatic linking of smart contracts.

STASIS CEO Gregory Klumov agrees with a more global perspective of the future of technology:

"It has become obvious to all market participants and liquidity providers that stable currencies are indispensable assets in the cryptocurrency market … so initiatives from Singapore, Switzerland and real legislation on Malta have long been in place to legitimize stable currencies in other nations ".

The truth is that stable currencies could be the bridge to the legitimacy of cryptocurrency. This method could provide a way for cryptocurrencies to become a better deposit of wealth or means of exchange of goods and services. Especially with an older audience who might feel disenchanted with technology or the sudden depreciation of value, digital money anchored in secondary value may regain their confidence.