Stablecoins, are they the next buzzworthy investment?
By admin November 1, 2018

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A new form of cryptocurrency is gaining traction among proponents of digital cash: stablecoins. Unlike bitcoin, whose prices have swung from a peak of $19,000 to its current level of around $6,200, this emerging cryptocurrency aims to maintain a stable price at all times. Proponents of stablecoin argue their rise is instrumental for active investors and could represent a steppingstone to the future of money.

Bitcoin was initially praised as an alternative form of digital cash that could be used to purchase tangible goods and services. Sadly when put into practice, the currency’s volatility made buying anything with it far more complex than anticipated. Many are uncertain whether the price of crypto will go up or down but are well aware that it fluctuates on a daily basis. This “certain uncertainty” is why many view stablecoins as a unique alternative that could fulfill Bitcoin’s original promise as a medium of exchange. Stablecoins allow for possible payments that are small, fast, international, transparent, and automated.

Belief in the success of stablecoins has seen the launch of dozens of stablecoin projects within the last few months. Projects such as TrueUSD, Paxos, Havven, and Dai all share a combined market cap of more than $2.3 billion according to CoinMarketCap, a site which tracks the price of cryptocurrencies. Giving the U.S. dollar digital properties reflects the next stage of money evolution by taking the reliability of reserve currency and combining it with the capability of a cryptocurrency. This may enable faster payments without the input of banks, but could pave the way for financial apps and services that do not need the partnership of banks to function. New economic relationships can unfold in the form of digital economic contracts which enforce themselves. Bitcoin offered such a promise when it was initially released, but has since been held back by technical challenges, therefore prompting entrepreneurs to look for other approaches.

One such popular stablecoin is Tether, which launched in 2014 and gained much success as it fulfilled an important need in the investor community during a time of volatility in the cryptocurrency market. Hitting its own market cap of $2.8 billion this past August, many saw Tether as a growing triumph. But not all has gone well for Tether. Recently, Tether has begun trading below the dollar, going against its original one-to-one dollar to coin ratio. Under the suspicion that the company lacks dollars on hand to repay investors, many have begun to sell their Tether coins resulting in severe damage to Tether’s market cap.

The uncertainty surrounding Tether has encouraged many entrepreneurs to build competing dollar-backed coins with greater transparency. Critics argue that stablecoins ignore the simple rules of economics: rather than allow the market to set the currency’s price, they operate backwards and dictate the price of the currency in the hope that the market will obey. Time will tell of stablecoins’ success, perhaps by then they will merely be known as digital money and nothing more will be thought of it.


Additional reading:

Will Stablecoins Eventually Replace Bitcoin?

 Stablecoin Battle Is for the Heart of Internet Economy

Controversial Stablecoin Tether Confirms New Banking Partner Deltec After Weeks of Rumors


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