Let’s understand what is the reason for the mistrust of the crypto community to stable cryptocurrencies.
A stable cryptocurrency, or stablecoin, is a fixed-rate cryptocurrency. The majority of currencies are determined by the market: buyers and sellers exchange tokens, and the rate is formed by supply and demand. Stable cryptocurrencies, on the contrary, try to have a fixed rate.
The most famous stablecoins – Tether (USDT) and TrueUSD (TUSD). These coins are provided with fiat money, and the mechanism is fairly simple: a third party accepts a deposit in US dollars (or another stipulated fiat currency) and issues as many tokens of stable cryptocurrency as the dollars received. When the token is cashed out, the third party sends the dollar to its owner and “burns” this token.
It would seem that this is the answer to all the critics of the bitcoin, shouting that it is not backed with anything: a cryptocurrency, secured by the good old American dollar (or another fiat). Why do stablecoins still do not take a place in the portfolio of each respectable investor?
One of the reasons lies on the surface: for many, cryptocurrencies are divided into bitcoin and non-bitcoins. Someone saw the potential of bitcoin long ago and invested in it when the rate did not reach $ 100. Someone follows the crowd: since so many people believe in bitcoin, then it really is worth something. The rest of the tokens, if they are gaining popularity, are not immediately available.
Now there are more than 1600 cryptocurrencies, and we got used already that they appear every day. However, they all have to prove their right to exist.
Whatever one may say, bitcoin remains the first, the largest, the main cryptocurrency – which was built on a pedestal and with which any new coins are compared. To attract an investor, the crypto project must answer the question: how is your token better than bitcoin?
In addition to the inevitable competition with the leader, in the sector of stable cryptocurrencies too many participants play a role and contradict the decentralized nature of the cryptocurrency.
In the case of cryptocurrencies secured by fiat, three main arguments are used against:
- The third party accepting security in the form of fiat must enjoy absolute confidence;
- Another third-party organization is needed to ensure that the number of tokens issued corresponds to a deposit in a fiat currency;
- It’s expensive, and auditing will take a lot of time.
Decentralized nature of cryptocurrency implies that there is no need to trust intermediaries or observers: the main thing is trust in the protocol. If a third party is needed for the operation of the cryptocurrency (and plus one more external organization), then how to ensure that this party does not take advantage of the situation in its own interests?
If we forget about ideology, we will stay with the issue the of audit. It was with this problem that the USDT token collided. Representatives of the crypto community noted the rapid issuance of crypto currency, and at the end of November 2017, the creator of the Litecoin Charlie Lee turned to the Bitfinex exchange and Tether Limited:
There's a fear going on that the recent price rise was helped by printing of USDT (Tether) that is not backed by USD in a bank account.
I urge @bitfinex and @Tether_to to perform a 3rd party audit to prove their reserves. Please do the right thing. Thanks.
— Charlie Lee [LTC⚡] (@SatoshiLite) November 30, 2017
The companies promised to audit and published its results, but many think that they have been edited. In addition, this summer, the University of Texas published a study that said that manipulation of Tether’s cryptocurrency was used to support the bitcoin course during periods of downturn in the market.
Stablecoins are different
Tether has become the most famous stable cryptocurrency, and naturally, its ambiguous reputation is projected onto all stable tokens. However, this sector of the crypto market is changing, and soon we can see a new wave of investors biting their elbows – this time because of stablecoins.
For example, recently it became known that the American giant IBM in partnership with the start-up Stronghold began to work on a new cryptocurrency, tied to the US dollar. Stablecoin is called Stronghold USD and will be launched on the Stellar blockchain.
This can attract the community’s attention to stable cryptocurrencies – again because of the issue of reputation. IBM is a corporation with more than a century of history. If such a large player is engaged in the development of stable cryptocurrency, it is easy to believe in its stability.
Some stable cryptocurrencies are supported not only by corporations but by whole governments. So, recently the blocking company Stasis announced the release of the URUS token, based on the EIP-20 standard and tightly tied to the euro exchange rate. This is not just another stablecoin from the next crypto project: Stasis actively cooperates with the government of Malta and expects to receive a license soon in accordance with the recently adopted in the country laws on blockchain, cryptocurrencies and ICO.
Undoubtedly, many are embarrassed by cryptocurrencies, tied to fiat and dependent on banks – in fact, bitcoin was created as a way to get away from traditional money and financial systems. However, almost 10 years have passed since the appearance of bitcoin, and the industry does not stand still, because it can and must develop.
Scandals and mistrust will go away as the official regulation of cryptos is formed, and the winners will be those who understood this before all – large corporations like IBM and ordinary investors who bet not only on bitcoin.