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Lately there has been much discussion about the so-called stablecoin. But am I really the answer to the general instability of many cryptocurrencies? A recent article on The Guardian suggests that they might be in error.
"Stable" Coins
The price of Bitcoin 0 0 and other conventional cryptocurrencies may vary from hour to hour, making them unsuitable as units of account. While many retailers can accept cryptocurrency payments, no one in their right mind would pay things directly in Bitcoin because of floating prices.
Enter the stablecoins – offering all the advantages of cryptocurrency, without the uncomfortable instability of the value. Since the birth of Tether, there have been a number of these stablecoin coming onto the market, all anchored to the dollar, to the euro or to another legal tender.
Some believe that these are the savior of the crypt – including Charlie Shrem, who praises the latest offer from Winklevii, Gemini Dollar. Others are not so sure of their credibility.
I decided to issue my stable currency.
Give me $ 10 today and I'll give you 1 dollar and a guppy GIF tomorrow.
For every $ 10 you send me I'll put 1 dollar in a bank account that you can check from a diary and I'll spend the rest in a new aquarium and imaginative dinners.
– Palley (@stephendpalley) 12 September 2018
Fully Collateralized
Some stablecoins are fully guaranteed, which means they are backed by an equivalent amount of fiat currency, held in reserve. The halter is one of these coins, anchored to the value of the US dollar. However, despite the assurances that this is 100% supported, many still question the details of the situation.
Even if it were, there are a limited number of reasons why you would rather have Tether than the equivalent fiat. Without motivations ever more "legitimate" to have them, The Guard n article suggests that few governments would support them.
Again, US regulators have just approved Gemini Dollars, making the currency only the second regulated stablecoin in the world.
Partially or Un-Collateralized
Some stablecoins are not fully guaranteed, so traders hold only a fraction of their responsibility in reserve. This is the same way that most banks issue fiat currency, and you only have to look back ten years to see how that can escape.
Any loss of trust between investors leads to a mass exodus. Unable to cover the responsibility with limited reserves, we would see the equivalent of a bank run. Then the peg decomposes, decimating the value of the stablecoin.
Ultimately, we need something to counteract the price instability of Bitcoins 0 0 et al. If there is an increase in cases for use, or if the cryptocurrency becomes universally accepted as a payment method, then perhaps the stable currencies will fill that role.
Experiments in national cryptocurrencies, such as those in the Marshall Islands, could very well stimulate this on-as it can be approved by the United States and the associated legitimacy of the Gemini Dollar.
Can stable currencies keep their promise? We will have to wait and see.
What are your thoughts on the development of stablecoin? Do not hesitate to let us know in the comments below.
Images courtesy of Shutterstock.
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