Stablecoins have garnered serious investor attention in recent weeks. Unlike bitcoins and similar cryptocurrencies, they are digital resources created to reduce price volatility and are often coupled with the US dollar or with consolidated commodities such as gold. Volatility is one of the main reasons why several institutional investors and individuals have twice thought of entering the cryptocurrency arena, and the stablecoins try to make things a little less frightening.
Blockchain, a cryptocurrency company, has published a report examining the growth of the stalemate, the differences between the growing number of outstanding stablecoin and whether they really work to lower volatility in the market.
A total of 57 stablecoins were examined, including Tether, TrueUSD, Dai and Digix Gold Token. About 26 of these stablecoins – about 45 percent – are live, while the remaining ones are in pre-launch phase. The number of active stablecoin projects has increased dramatically over the past 12-18 months and more than a dozen separate companies have released plans for the launch of new stablecoins by the end of the year.
The report states that most stablecoin can be divided into two categories: asset-backed and algorithmic (coins that have implemented a central bank platform to keep prices robust). Approximately 77 percent of those surveyed have patrimonial support, with USD as the main choice resource among 66 percent of them. Most tokens – around 54 percent – use collateral.
Over 50 percent of stablecoin offers "dividends" or incentive mechanisms integrated into their projects; these already constitute a good part of the digital resource arena. Tether, for example, is now the second most traded digital asset after bitcoin and counts among the top ten cryptocurrencies for market value. It also accounts for almost 98 percent of the stablecoin business. Many of these currencies are also listed on about 50 different digital exchanges, with Tether on a whopping 46.
The total market value for all current stablecoin is $ 3 billion, equivalent to about 1.5% of the total cryptocurrency market. About $ 350 million in venture capital funds have been earmarked for the establishment of stablecoins, and most are legally domiciled in the United States and Switzerland. A large part of the stablecoin teams prefer to create a home in the United States, while the regions in Europe such as the U.K. they remain popular.
Ethereum has proven to be the most popular hosting platform for stablecoin projects, with about 60% of them building exclusively on top of the Ethereum blockchain. For the rest, the best blockchain options include Bitcoin, NEO and Stellar. Approximately 69 percent of the stablecoin teams have made open source code for the inspection, and some of the major investors in the stablecoin include Pantera Capital, Coinbase, Circle and the Digital Currency Group.
The report introduces several cases of use of stablecoin, including intelligent travel insurance. Approximately 600,000 passengers per year do not submit compensation claims for flights canceled or delayed. What it does not seem to know is that these flights become public and can be interrogated by intelligent flight insurance software. If an aircraft fails to take off for any reason, the intelligent contract covered by insurance will immediately pay the applicant and will lighten the compensation process, while the insurance premium may be deposited in the chain to remove the counterparty risk.
Where stablecoins are failing is in their adoption rates. While enthusiasm surrounds these currencies, the technology behind them is still very new and requires further experimentation before a perfect project can be born. The regulation on stablecoins has also remained uncertain, with one of the biggest problems if the stablecoins comply with national laws on securities and money.
Furthermore, it is believed that many stablecoins pose greater threats to fiat than standard cryptocurrencies and run the risk of triggering the competitive backlash of traditional finance officials. Barry Eichengreen, professor of economics at the University of California, Berkeley, argues that the stablecoin supported by the USD, for example, introduce several additional expenses as for every dollar of cryptocurrency issued, a dollar of investment capital is taken from national reserves. Therefore, users are exchanging fully liquid US-backed dollars for cryptocurrencies that are not fully consolidated, have "questionable" support and are difficult to use.
He also claims that this type of stablecoin trade model will only be attractive to money launders and tax evaders, and does not expect the model to scale.
The report also says that some stablecoins will weigh more heavily on the prices of entities such as bitcoin and ether, which could lead to more aggressive competition in the encrypted market.
However, the report states that stablecoins are likely to see further adoption in the future and lead to generally stronger adoption rates among cryptocurrencies. The authors describe the stablecoin as "a form of infrastructure or fundamental layer for cryptographic resources that generate immense value for the digital resources ecosystem". They believe that stablecoin will successfully solve volatility concerns, although they claim it will be a long-term process.