Since the pricing of Bitcoin, the whole world has witnessed its exciting and disappointing price trend. Due to the huge volatility of cryptocurrencies such as Bitcoin, they cannot become equivalents for daily payments or transactions, so the stablecoin market is gradually being developed. .
Giants Enter the Stablecoin Market
Today, more and more traditional industry giants will choose the stablecoin market as their first step into the blockchain field, where price fluctuations are small and risks are controllable. Two of the most prominent examples of this are Facebook and JPMorgan.
Facebook's Stablecoin
In February of this year, the "New York Times" published an article stating that Facebook may issue a stable currency linked to legal tender, which is said to be used for transfers and remittances in the mobile application WhatsApp.
Although the technical details have not been announced, what is certain is that what Facebook has to do is to become a stable currency linked to the U.S. dollar or a basket of fiat currencies.
JP Morgan's Stablecoin
On February 14, the media reported that JPMorgan Chase Bank will issue its own digital currency JPM Coin, but for the time being, it will only be circulated and used by a small number of JPMorgan Chase institutional clients, which can be used to purchase securities and achieve instant settlement.
JPM Coin is directly linked to the U.S. dollar, 1 JPM Coin is equal to 1 U.S. dollar, and institutional users can obtain tokens by depositing funds in the bank.
Stablecoin with the most audience: Tether (USDT)
USDT is the most widely used cryptocurrency in the world, with a market value of more than 2 billion US dollars. It is one of the top ten cryptocurrencies in the world. Many traders use it for asset preservation and risk hedging.
other stablecoins
other stablecoins
In addition to stablecoins backed by fiat currency like USDT, there are also stablecoins backed by other assets, such as Digix - 1 DGX is worth 1 gram of gold, and Petrocoin issued by Venezuela - 1 petrocoin is worth 1 barrel of crude oil .
When stablecoins are no longer stable
Currently, there are various stablecoins on the market, but we haven’t solved the most obvious and easily overlooked problem: Most stablecoins, including USDT, are made by unregulated, unaudited and operated Opaque physical issuance.
Although USDT occupies half of the stable currency market, the old people in the circle know that its growth has been accompanied by great controversy. First, the fiat currency storage account has always been a mystery. No one knows how much USD deposits Tether has. Second, the relationship between Tether and the BitFinex exchange is unclear, and the latter is often accused of borrowing USDT to manipulate the price of Bitcoin.
At the end of March, Tether revised the product introduction on the official website. In the new terms of service, they stated that USDT is no longer 100% backed by the US dollar. This move has made the outside world very worried about Tether's financial stability. Tether can use assets other than the US dollar in the future to maintain literal stability.
At the end of April, Tether’s trust crisis broke out again. The New York Attorney General’s Office revealed that BitFinex had a funding gap of US$850 million. Both BitFinex and Tether will face prosecution.
The indictment alleges that Bitfinex also pooled $1 billion in customer funds with its own funds through its payment service processing provider, Crypto Capital. The funds are currently seized by Portugal, Poland and the United States.
It is worth noting that even if Tether is eventually investigated for good, it does not mean that it will be a trustworthy stablecoin in the future.
The incident proves that regulators have begun demanding greater transparency from fiat-backed cryptocurrencies. Therefore, only when the release, management and distribution methods of USDT become more transparent, investors' worries, uncertainties and doubts will completely disappear.
The self-help focus of stablecoins
As a disruptive technology, stablecoins, like other cryptocurrencies, will have some thorny problems before they mature.
As we all know, the funds held by banks and the amount of savings accounts have not been deposited according to the ratio of 1:1. Banks implement a reserve requirement system, which will make predictions based on solvency and profitability, and often less than 20% of bank deposits are supported by actual cash.
If this is applied to stablecoins, it means that it is not a question of 1:1 financial support, but a question of transparency.
Perhaps, as stablecoins mature, they will function like the banking system.
There are already some stablecoins experimenting with this. The stablecoin USDC released by Circle has been publishing third-party audit reports, proving that it is backed by the U.S. dollar 1:1; TrueUSD is also very transparent, and its audits have also confirmed that it is fully backed by U.S. dollars.
Central banks around the world are likely to start issuing regulated stablecoins that are either backed by fiat or managed in a similar manner to fiat. This may pose some centralization risks, but its presence does make it easier for investors to operate in the digital ecosystem.
It may take a while for stablecoins to reach a level where ordinary users feel safe and trustworthy, and those who need a 100% trustworthy, fully functional stablecoin can choose MakerDAO's stablecoin DAI - which uses blockchain technology, It is pegged to the U.S. dollar but does not need to pledge the U.S. dollar. It has multiple mechanisms to ensure decentralization and transparency.
Summarize
Summarize
Both centralized and decentralized stablecoins have their own advantages and disadvantages. These problems cannot be avoided, because the underlying blockchain system and the platforms and DAPPs on which they are built are still just a new technology.
Although the USDT regulatory incident has caused many people to fall into the dilemma of choosing a stablecoin, the answer is actually very obvious: like other assets, choose multiple stablecoins to diversify risks.
Although the dozens of stablecoins that currently exist may not be the perfect solution to the volatility of the cryptocurrency market, the basic technology and regulatory measures surrounding stablecoins will definitely develop in a more mature and widely used direction in the future.
