Why do everyone want to issue stablecoins?

In the cryptocurrency industry, stablecoins seem to have always been one of the core controversial topics, and many new issues continue to emerge. We have found that some companies and protocols announce various stablecoin initiatives almost every week. It seems that everyone in the cryptocurrency industry is eager to launch their own stablecoins. So, what is their purpose for doing this? In addition, what is the truth behind this seeming prosperity?

A stable currency is a cryptocurrency designed to have a stable (or relatively stable) price function, and is usually linked to the value of legal tender issued by the government such as the US dollar.

Since the launch of stablecoins, it has quickly gained the favor of cryptocurrency traders. Its advantages are obvious: it not only allows people to enter the cryptocurrency market more easily, but also avoids the high volatility of Bitcoin. From the perspective of utility, stablecoins have now become the most effective communication bridge in and out of the cryptocurrency market.

At present, the most famous stable currency is Tether, which once claimed to be 100% backed by US dollars, but this is not the case. Its collateral includes commercial paper and other assets. It is undeniable that Tether is also one of the most controversial projects in all cryptocurrencies. There are also many questions about Tether reserves in the market and “allegations” about how they are used to support the price of Bitcoin.

In addition to Tether, other well-known stablecoins include Circle’s USDC and the decentralized DAI stablecoin . For now, the stablecoin war is mainly launched between two competitors-Tether and Circle, but other participants have also flocked to it.

Tether: The controversial king of stablecoins?

To date, Tether is the most frequently traded asset in the entire cryptocurrency industry-even surpassing Bitcoin.

According to the latest data from CoinGecko, at the time of writing, the 24-hour trading volume of the Tether stablecoin reached 74 billion U.S. dollars, which is more than twice that of Bitcoin. Bitcoin ranks second with 34 billion U.S. dollars.

Tether (the company) has long claimed that Tethers (USDT) can be converted into U.S. dollars anytime and anywhere, so it can be used to purchase other more volatile cryptocurrencies and provide investors with a stable store of value. According to a Tether spokesperson:

“Currently, no stablecoin can exceed Tether’s 24-hour trading volume, which proves that traders have full trust in Tether.”

However, this “trust” claim is also at the core of a lot of controversy surrounding Tether.

In May of this year, Tether announced the details of stablecoin reserves, and the results showed that less than 3% of Tether was backed by US dollar cash. Obviously, the fact that Tether holds very few actual US dollar reserves is confirmed.

Although Tether’s general counsel Stuart Hoegner stated at the time that “only focusing on cash is misleading”, multiple evidences show that Tether has the problem of artificially raising the price of Bitcoin, and if Tether investors try to sell all of their Tether, they There will be a “run risk”.

Tether’s problem opened the door to the company behind the stable currency USDC to challenge the status quo of the stable currency. Although Tether felt a “threat”, it still welcomes competition in public at least, as the company’s spokesperson said:

“Tether welcomes competition, because the larger the stablecoin market, the more fair the regulation of the field is.”

Circle: A stable currency reserve bank?

The Boston-based Circle is one of the earliest companies involved in the crypto industry. It co-founded the stable currency USD Coin (USDC) with Coinbase, the largest cryptocurrency exchange in the United States.

Circle has taken a series of measures this year-

  • In May, the company cooperated with FTX to strengthen support for USDC;
  • In July, the company announced that it would go public through a SPAC transaction, merge the already public “blank check” fund with a private start-up company and then promote its listing.
  • In September, the company’s CEO Jeremy Allaire announced that Circle’s goal is to become a full-fledged reserve bank, which means that the company will have to comply with more and more regulatory regulations, but if Circle achieves this transformation, it is bound to be. It has brought huge “pressure” to Tether and has become one of the largest stablecoin providers in the crypto industry.

However, like Tether, Circle is also controversial.

Before Jeremy Allaire announced that USDC would be turned into a “reserve bank”, a report showed that USDC (similar to Tether) reserves also did not have sufficient cash support, and its reserve composition was also backed by corporate bonds and commercial paper. As a result, It inevitably triggered market criticism that USDC is not a legal stable currency.

Therefore, if the two companies behind the two largest centralized stablecoins in the industry today, Tether and Circle, are involved in accounting and regulatory disputes, where does the stablecoin industry go?

Paxos: The company behind the scenes is PayPal?

Paxos Stable Coin (PAX), or “Pax Dollar” (previously known as “Paxos Standard Coin”) is an ERC-20 token. Like Tether and Circle, Paxos also stated that PAX is fully backed by U.S. dollars.

It is worth mentioning that Paxos is a company that provides infrastructure services for PayPal’s encryption business.

When PayPal announced that U.S. account holders could buy and sell cryptocurrencies through its platform, the payment giant became one of Paxos’ most popular customers. PayPal did not have to build its own infrastructure to facilitate crypto transactions, but turned to Paxos to handle operations.

Since then, Paxos seems to have continued to grow. In April of this year, the company successfully raised US$300 million through Series D financing-which makes Paxos’ total financing amount more than US$500 million, and in the process, the company’s valuation has soared to a staggering US$2.4 billion. , Which became the headline news in the encryption industry. In the same month, Paxos also received a federal bank license from the Office of the Comptroller of the Currency (OCC), which oversees the U.S. banking industry.

Although Paxos is not the first cryptocurrency company to obtain a Federal Bank license, it helps to grant the company (and stablecoins) a certain degree of legitimacy and is also a way to differentiate Paxos from its competitors.

However, the PAX stablecoin is not all smooth sailing. Last year, crypto analysis company Coin Metrics released a report on stablecoins and their links to illegal activities, which found that approximately 40% of PAX transactions were related to the so-called Ponzi scheme.

Binance and Paxos collaborate to launch BUSD

In fact, Paxos’ stable currency exposure is not limited to PAX. The company also cooperates with cryptocurrency exchange Binance to help the exchange launch the U.S. dollar stable currency BUSD.

In theory, BUSD should be pegged to the U.S. dollar 1:1, but in fact, Binance has not fulfilled this promise. During the life cycle of BUSD, its highest price rose to 1.15 US dollars, and its lowest price fell to 0.90 US dollars.

However, BUSD stablecoins can trade some of the world’s largest cryptocurrencies—including Bitcoin and Ethereum—at market value. Earlier this year, Binance Exchange listed Coinbase Stock Token (COIN) and allowed users to trade using BUSD.

In recent months, BUSD has also made waves in some of the most dynamic subcultures of the crypto industry. For example, Binance and the State Hermitage Museum in Russia initiated an NFT auction, exhibiting some of the most famous artists in the world. work. The Binance NFT market platform also auctioned off a collection of digital masterpieces including Leonardo da Vinci’s “Virgin and Child”. In all these auctions, the starting price of each NFT is 10,000 BUSD (approximately 10,000 U.S. dollars), which indicates that the stable currency BUSD has begun to be used in certain specific markets and has the opportunity to become a mainstream payment method.

Filecoin and stablecoin incentives

In fact, bespoke stablecoins are becoming a trend.

Filecoin’s recently launched stablecoin oneFIL is a good example, and it also lets us know why more and more crypto projects feel the need to develop their own stablecoins-with oneFIL, Filecoin storage buyers and providers can gain access to the Filecoin ecosystem Discounts and rewards can also provide customized stablecoin services to its users.

The goal of the ICHI protocol (the protocol behind the oneFIL stablecoin) is quite ambitious. They hope to use the stablecoin to realize Satoshi Nakamoto’s original mission to Bitcoin, which is to become a “peer-to-peer electronic cash system.” Not only that, OneFIL also aimed at DeFi, and the ICHI team claimed that the stablecoin could also be used to “earn income in DeFi.”

In short, oneFIL, like any other stablecoin, is a medium of exchange, but more importantly, oneFILE is also a medium of exchange tailored specifically for the Filecoin community itself, aiming to become a medium of exchange from DeFi transactions to payment hardware and If all the tools of the storage space are successful, oneFIL may be regarded as a landmark milestone for the next step of the stablecoin.

Facebook’s stablecoin Libra  Diem

About two years ago, Facebook launched the digital currency project Libra. At that time, many followers might not have thought that the final form of this product would be a stable currency—at least, what Facebook says now.

Frankly speaking, Facebook’s digital currency road is full of thorns.

In October 2019, eBay, Mastercard, Stripe, and Visa withdrew from Facebook’s Libra agreement (Libra is the early project name of the Diem stablecoin) on the same day after the regulators investigated Facebook’s plans.

In December 2020, the Libra Association announced that its cryptocurrency (not yet a stable currency by design) was renamed Diem. The company announced a rebranding while recruiting several experts. The main reason for the change was “because The project must be approved by the regulatory authorities before it can be launched.”

One month later, in January 2021, the Diem testnet (an undisclosed test network) has reached 50 million transactions. This may sound impressive, but the Diem testnet has about 3 transactions per second. The processing speed is not satisfactory, and such transaction speeds even lag far behind the faster transaction speeds of cryptocurrencies such as Bitcoin and Ethereum.

In March 2021, Facebook executive and Diem leader Kevin Weir announced his departure. Two months later, Facebook announced that it would launch a US dollar stablecoin instead of a global cryptocurrency—as they first promised in the summer of 2019, this announcement also led the Diem Association to transfer its operating base from Switzerland to the United States.

Despite the bumpy roads, Facebook now seems to be getting closer and closer to finally launching its stablecoin. In September 2021, David Marcus, the co-founder of Facebook Diem, stated that the stablecoin wallet Novi is “ready to go public”. He said:

“Novi is a challenger in the payment industry. We will provide free person-to-person payments at home and abroad for those using Novi wallets.”

What is the next step for stablecoins?

For now, Tether and Circle still dominate the stablecoin market, but as other projects have proven, as long as there is demand in the market, stablecoins will appear.

What’s “interesting” is that according to El Faro, the El Faro news outlet, this is the first country to recognize Bitcoin as a legal tender. It is possible in July to include a stable currency in the government’s plan. The country’s President Ibrahimovic Nayib Bukele believes that stablecoins have a certain role in promoting Bitcoin to become legal tender.

It is reported that this stable currency will be named “Colón-Dollar”, referring to the country’s former national currency, the Colon (“Colón), which was replaced by the U.S. dollar in 2001, and the locals have adopted the U.S. dollar as a currency in circulation. According to statistics from the Central Bank of El Salvador, 90% of the currency in circulation in the market is US dollars, and the colon has almost been abandoned. The local government may hope to stimulate economic growth through the issuance of US dollar stablecoins, but whether this approach can be successful remains to be seen.

Generally speaking, stablecoins collateralized by legal currencies still occupy a dominant position. In the past year, the trading volume of stablecoin-related trading pairs has increased rapidly, attracting a large amount of over-the-counter funds. Due to its advantage of low volatility, it has become the first choice for traders to hedge risks when the digital currency market fluctuates greatly. At present, stablecoins with legal currency assets as the collateral perform best in terms of transaction volume and stability.

However, stablecoins still face many restrictions, and factors such as compliance, counterparty risk (issuer), and the volatility of mortgage assets will still affect the stability of stablecoins and the implementation of specific application scenarios.

As of this writing, according to data from Coingecko, the total market value of stablecoins is close to 130 billion U.S. dollars. As the market value continues to rise, stablecoins with absolute advantages in compliance, security and transparency will become the mainstream of the digital currency market in the future. Will become a trend.

Author | Scott Chipolina

Translator | Deep Chain Finance Tanker

 Edited | Cheese Portuguese Portuguese Review | Lin Eggshell


Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/why-do-everyone-want-to-issue-stablecoins/
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