A $100 billion problem

Total supply of all stablecoins tops $100 billion

A 0 billion problem

This week, data from The Block shows that the total supply of all stablecoins surpassed $100 billion.

By far the largest stablecoin is still Tether, and the most household name. It is the center of many cryptocurrency conspiracies and theories. Then in second place is USDC, created by Circle, Inc. The most kindergartenized explanation of a stablecoin: It’s like a combination of a money market fund and a bearer instrument, where anyone can hold a stablecoin on their phone or personal device and then transfer it to others. The value of a stablecoin is pegged to a dollar or other currency or asset.

Let’s take a step back and talk about Bitcoin for a moment. Bitcoin is groundbreaking in that for the first time on the Internet someone can hold a scarce asset without a third party knowing about it or having a record in their database associated with the identity of the holder. Two people, say Ming and Wang, can transfer bitcoins to each other without going through a centralized medium such as a bank, Paypal , Venmo or Zelle, etc.

Obviously, people buy bitcoin for many reasons, but one of the most important is the appeal of holding an asset that is not tied to a centralized entity like a bank, Facebook, or government issuer. People have previously been able to personally hold a decentralized store of value (like gold in a basement vault), but not in a digital way. So Bitcoin solved that problem once and for all.

But now stablecoins exist and are booming. Although, again, there is a lot of distrustful sentiment from all areas, they continue to grow massively. Their greatest use is to enable cryptocurrency traders to easily transfer dollar-denominated assets between different cryptocurrency exchanges, using stablecoins and public blockchains significantly more efficiently than banks.

But what if people just want to use stablecoins as a way to hold dollars, and then someone says, “It turns out that dollars are a pretty good way to store value,” then what?

Bitmex Research, the research arm of cryptocurrency exchange Bitmex, posted this provocative tweet earlier this week.

There are two things to note here. One is that BitMEX is suggesting that if you can hold digital dollars yourself (on your phone, on your device, etc.) and pass them between two parties without an intermediary, then one of Bitcoin’s key selling points, anonymity, is undermined. Bitcoin holders hate this because they keep talking about the Fed’s balance sheet and the 21 million bitcoin cap, and inflation and the Fed, etc. Yes, of course, that’s why some people don’t want dollar assets. But since most of the world sees the dollar as a pretty solid store of value for some time, that ability will be strong.

But another point is that there was actually a history of “stablecoin-like assets” before stablecoins existed. Many people tried to do things like store gold in a vault and then give you a token or something that allowed you to access that gold that could then be passed between individuals. They were all killed or eventually shut down by regulators or law enforcement for one reason or another. Of course, those entities that have been shut down in the past, like Liberty Reserve, were more of a gray business that was wandering around the edges of the law. Stablecoins like USDC have a different goal in that they want to operate within the existing financial system.

But there are still questions about their future. In the short term, many people are concerned about what kind of assets they hold and how people can understand how safe they are. But the bigger question for the industry may be what the regulatory environment will be like going forward, and what regulatory limits the industry can thrive under by allowing dollar-denominated assets to be passed through P2P.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/a-100-billion-problem/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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