Main navigation

3 Types of Stablecoins Defined by Harvard Business Review

Tue, 08/10/2021 - 16:09
article image
Vladislav Sopov
Harvard Business Review, an iconic general management magazine by Harvard University's subsidiary, enumerates three general concepts of what is called a stablecoin
3 Types of Stablecoins Defined by Harvard Business Review
Cover image via stock.adobe.com
Read U.TODAY on
Google News
Contents

Christian Catalini, a Diem Association chief economist and co-creator, and Jai Massari, Diem's counsel, covered the three main concepts of stablecoins' segment for Harvard Business Review.

No stablecoins without regulation

The authors of the article are sure that the U.S. watchdogs and lawmakers have stated that strengthening cryptocurrency regulations is a matter of "when," not "if." This fact reflects the growing confidence in stablecoins' leading role in the future economy.

Three types of CBDCs
Image by HBR

The mainstream adoption of stablecoins can bring multiple benefits for institutions and individuals, in particular — for those who remain unbanked in 2021.

All in all, this is good for both stablecoins and their holders. The authors stress that the absence of regulatory rules will ruin the value and the operability of the stablecoins of all sorts:

But without robust legal and economic frameworks, there’s a real risk stablecoins would be anything but stable

All the stablecoins are divided into three categories by their design, economic model, use-cases, and underlying assets: true stabecoins, deposit stablecoins, and CBDCs.

A bumpy road to CBDC

True stablecoins, the authors add, actually represent "narrow banks" as their peg to some fiat currency is guaranteed by certain financial entities. True stablecoins are a transparent (yet expensive) type of stablecoins.

Deposit stablecoins are a tokenized form of demand deposit claims of a certain bank. Holders of "deposit stablecoins" are protected by the regulations of bank deposits and FDIC insurance up to $250,000. This form of stablecoin is more reliable, but it lacks interoperability with other traditional and digital value transfer instruments.

CBDCs, issued and controlled by central banks, are more like "digital cash" but on blockchain rails. That's why "CBDCs and stablecoins are strong complements, not substitutes." 

The authors concluded that the road to the release of viable CBDCs won't be rosy:

Given the incredibly high bar in terms of resilience and security, it will likely take years for a CDBC to be developed and adopted

article image
About the author

Blockchain Analyst & Writer with scientific background. 6+ years in IT-analytics, 3+ years in blockchain.

Worked in independent analysis as well as in start-ups (Swap.online, Monoreto, Attic Lab etc.)