Stablecoins are cryptocurrencies attached to a stable asset such as fiat currency, cryptocurrency or gold. They are issued by some central authority or DAO. Many stablecoins have been enjoying successful journey up till now and many are getting ready to step in the world economy.
Basis is one of the well reputed stablecoin that has experienced some success. It has been attracting a lot of crypto investors with its algorithmically adjusting supply. Its production is modified relative to its demand. This is done primarily to regulate its price efficiently. The company explains the aim behind Basis on its website that reads:
Basis is designed to maintain a stable value and serve as a medium of exchange accessible to anyone with an internet connection.
MakerDAO, built on Ethereum blockchain, has been going well with its stablecoin, Dai. Provision of stability in Dai is associated with the fact that it is pegged with US dollar. The working and functionality of Dai clarifies the prospects it has to offer. The Dai whitepaper claims to enhance blockchain technology by stating:
We believe that stable digital assets like Dai Stablecoin are essential to realizing the full potential of blockchain technology.
Another stablecoin pegged to USD, Stably has been a prosperous stablecoin for many crypto investors. Stably met investors’ approval before its launch by raising a remarkable $5 million. It is available on popular blockchain platforms such as Ethereum and Stellar. In future, other blockchains are expected to hold stably as well. At the moment, stably is free of issuance and redemption fees to attract more investors. The company explains the benefit of stability that is brought up by Stably by stating:
The blockchain economy desperately needs a reliable and price-stable medium of exchange as well as store of value in order to evolve and scale beyond its current speculative state. Most cryptocurrencies cannot fulfill this role due to their high price volatility. Imagine conducting a $1-billion M&A transaction denominated in Bitcoin, only to find out the next day that Bitcoin has gone down 5% overnight.
Backed by USD and a market cap of $2.8 billion, Tether is the most conspicuous stablecoin of all time. It was the idea of people who were involved in formation of BitFinex. Currently, Bitfinex, Shapeshift, GoCoin, and many other exchanges allow trade of Tether. Tether has been affiliated with the rise and drop of Bitcoin’s price. Many people have linked this scandalous activity with sharp rise and fall of bitcoin prices in past. Recently, a large amount of tether was transferred to BitFinex and people are suspicious of the activity. Ran NeuNer, founder of Onchain Capital expects a ‘pump’ in Bitcoin and asks people to tighten up their belts, in his tweet:
Here comes the pump!! Hold tight! https://t.co/quIBpwnet9
— Ran NeuNer (@cryptomanran) September 2, 2018
With the introduction of stablecoins, several questions popped up, and answers to those questions varied from person to person. Colton Robtoy, Chief Investment Officer of i94 Capital, a cryptocurrency Hedge fund, enlightened Blockpublisher with his opinion on the idea behind stablecoins. He said:
I like the idea, but yeah it wouldn’t be Decentralized. Its be on a Network the US controls, just like SWIFT now.
Moreover, Tuur Demeester, Economist and crypto investor, directed Blockpublisher to his idea of stablecoins, He suggested the trickery of stablecoin in a tweet.
Imo stablecoins are very tricky:
– pegged = price floor until central bank runs out of money
– backed = IOU, assumes volatility of underlying
– issuance = price ceiling by printing until coin loses public trust
– combo of above: suppressed volatility leads to hyper-volatility
— Tuur Demeester (@TuurDemeester) December 11, 2017
While many stablecoins like the ones mentioned have seen success, there are number of them who faced failure and ultimately vanished. The idea behind them is quite fascinating but as Turr Demeester said, they are very tricky.