Mar 8, 2019 07:00 UTC
Mar 8, 2019 at 07:04 UTC
Stable coins have gained unprecedented popularity in the last year and many believe that these stable coins are the perfect solution for the heavy volatile market of cryptocurrencies.
Tether is the most popular stable coin in the market and it works on the two coin theory, where one coin has a stable value pegged against the US dollar while the other coin bear the burnt of volatility and price fluctuation in the market.
The trend of stable coins has gained such momentum that JP Morgan, the elite investment institute and one of the biggest critiques of Bitcoin, and who went on to claim that its a bubble waiting to burst. But, as they say, “If you can’t defeat them join them,” and JP Morgan did exactly that by launching its own JPM coin.
So, are stable coins really the future or just another trend in the crypto space, we will analyze various factors of it and try to understand whether the trend is here to stay or not?
Stable Coins: What Makes Them Popular?
The cryptocurrency trade market is known for its price fluctuation and heavy volatility in prices, and this has restrained many traditional investors from venturing into crypto markets as the risks involved are too high. In order to address this issue, the stable coins were formed.
Stable coins usually provide a sense of security and confidence among its investors as the coin is pegged against a stable real-world entity like the US dollar and in certain cases even gold.
Stable coins are generally used as a form of a reserve as the stable prices provide a certainty. The prices of these coins are kept stable by using two tokens, instead of just one, where the second token is listed on the market and it faces all the adversities of the volatile market.
The sudden surge in many upcoming and new blockchains to create a stable coin of their own can be attributed to the foray of traditional banks and investors into the crypto market. Traditional investors seem to be more interested in the crypto space than ever before. And thus, either they are creating their own stable tokens or looking into other stable tokens for investment.
The Downside of Stable Coins
Cryptocurrency space is defined by the decentralization and the tokens even though not completely decentralized have some essence of it. However, Stable coin existence itself based on the cores of centralization, where the creator has control over all the supply.
Take the newly formed JPM coin, for example, the token was on the receiving end of many memes and jokes because of the history that JP Morgan shares with the crypto space. However, it is important to note that the coin is not cryptocurrency in a true sense, as it would be controlled by the JP Morgan group and won’t be listed on the trade market. Even the creators accept it and try to avoid the crypto tag.
However, most of the stable coins even those which are listed on the trade market share the same characteristics, as the reserve is controlled by the creators. Take Tether for example which is the most popular stable coin, or you can even call it “Bitcoin of stable coins” has been at the center of controversy for many reasons. Apart from the centralization aspect, Tether has been accused of making false claims over its USDT reserves.
Many firms and institutions use tether as a form of reserve, but many analysts think that Tether does not have the supply that it portrays and despite numerous claims, it hasn’t shown any concrete evidence to back its claims.
The two coin theory, many believes is a false narrative as it gives total control over the supply to the creators and this aspect might be the reason for its failure in the long term.
Stable coins with the level of centralization are nothing more than glorified fiat as it shares too many features with the fiat rather than the decentralized cryptocurrencies. This is the reason too many institutional investors and firms are looking into it as an investment option.
Stable coins are becoming a trend in the crypto space, whether it would be able to impact the market the same way other altcoins have done, it would be really interesting to see. However, one must note that stable coins are nothing more than glorified fiat or digital fiat, and if you truly believe in the decentralization and the vision of Satoshi Nakamoto, chances are you might not like the Stable coin or how it functions.
Stable coins can be best used as a form of reserve and that is what most of the popular stable coins are doing. However, if you look at the long-term, the creators must look for refinement of the technology to bring some decentralization aspect into it.
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