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Cryptocurrency Volatility an Issue to Be Solved By Stablecoins?

  • Darryn Pollock
    ⭐ Features

    Volatility in cryptocurrency may be a trader's best friend, but it is not aiding the adoption of cryptocurrencies, so maybe stablecoins can?

Cryptocurrency Volatility an Issue to Be Solved By Stablecoins?
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Volatility has always been an integral, but controversial part of the cryptocurrency space. The way in which coins like Bitcoin have skyrocketed has brought much interest and intrigue from investors, as well as a lot of money, and thus a big price spike.

However, with those highs, there have also been some crushing lows, as Bitcoin and the rest of the cryptocurrency market sits in a rather large lull currently. Volatility is indeed the necessary evil that managed to get cryptocurrencies into the mainstream, but perhaps now, they need some stability to take the next step.

Investment over cash

The duality of cryptocurrencies means they can be used both as a form of investment, or as a usable digital currency, and many feel the latter is the path that this revolutionary technology should be taking.

However, that would need a change in volatility as it is that very aspect that is making things like Bitcoin a form of digital gold rather than digital currency. The fact that there is a chance the value of this digital asset can spike 10 or 20 percent in a day means it is too valuable to use on a day to day basis.

There are alternatives that are not intended to be used as a store of value, such as RippleBitcoin Cash and Litecoin, but that does not mean that these assets are devoid of volatility. In fact, they may not be challenging Bitcoin as they are too volatile to be digital cash, and not intended to be a store of value either.

The introduction of stablecoins

This predicament has led to some companies starting up what are known as stablecoin, digital currencies pegged to other assets, such as the US dollar. The most well-known, and controversial, of these stablecoins is Hong Kong-based Tether.

Tether has, reportedly, swapped about $2.7 bln worth of fiat currency into its eponymous digital tokens, but the controversy comes in because there has been no strong and independent audit on these tokens.

However, it has sparked interest in this as an opportunity to take digital currencies to the next level.

For example, crypto finance company Circle is launching a new token called USD Coin.

"Imagine a US dollar coin that you can make payments with, use on crypto networks, or use in smart contracts to pay dividends, but which you can convert back to fiat currency at any time," explains Circle chief executive Jeremy Allaire.

Blockchain adoption

The idea of stablecoins does make sense in terms of turning a well-known asset into a digital token that can take advantage of Blockchain technology- such as anonymity, and easy cross-border payments.

However, it will require some more time and effort to perfect and grow into a viable alternative for digitalized money, such as sent via PayPal and bank transfers. But the decentralized nature of such an asset, with its less stringent controls, is certainly appealing.

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Question of the Day: Can Stablecoins Accelerate Cryptocurrency Adoption?

  • Yuri Molchan
    ⭐ Features

    Stablecoins show hardly any volatility compared to Bitcoin and altcoins, many are hoping that they will be able to bridge new crypto economy and regular fiat money

Question of the Day: Can Stablecoins Accelerate Cryptocurrency Adoption?
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Bitcoin, the father cryptocurrency, emerged in hope that it will remove all intermediaries in electronic commerce that cut off their share of payments. BTC was perceived as a P2P way to replace fiat cash in an electronic format, which would enable one party to pay another without any financial institution or payment platform which would demand its share of a transaction as a reward for its services.

What is wrong with Bitcoin

For quite a while Bitcoin was performing the way the crypto community expected. But the situation changed later – BTC rate became weaker, thus bringing down its financial and economic reliability, when it gets to be used as a regular means of payment.

You cannot have a currency that would cost like a British castle today, a gram of gold – tomorrow and a pack of French fries the day after.

At that point practical fintech minds came up with an idea of creating something which would become a breakthrough in the universe of crypto – a so-called stablecoin.

Will stablecoins solve the volatility problem?

Technically, stablecoins are protected from the volatility roller-coaster that Bitcoin and other cryptos love to ride. They are programmed to keep their prices stable and investors now are largely attracted to this new type of digital assets.

Stablecoin does not show any volatility in its monetary value, since it has a fixed connection to an asset it is pegged to. The major goal of using stablecoins is taking the best from decentralized crypto coins and combining it with a constant value. Thanks to it, stablecoins can be used as a reliable means of trade.

Asset-pegged stablecoins

Asset-backed ones get their value from an asset as can be understood from the name. An asset provides the necessary value to a coin, as well as the necessary legitimacy.

A great example of an asset-pegged stablecoin is Tether (USDT). In spite of a series of scandals at the end of last year, it remains the most popular stablecoin in the crypto market.

Recently, it has partnered with the Tron Foundation to launch a Tron-based stablecoin.

Other examples are TrueUSD (TUSD), USD Coin (USDC), the Gemini Dollar (GUSD), and the Paxos Standard (PAX). They are all pegged to the USD.

Crypto-backed stablecoins

Some digital coins work in a similar way to fiat-backed ones, however, they are pegged to collateral crypto. That means that crypto assets that ensure the value of such stablecoins are stored in a wallet similar to escrow.

A good example of a crypto-pegged token is Maker, which is ranked 16 on CMC.

Algorithmic stablecoins

Even though, stablecoin can be interesting at first thought but the way they are built goes against the principle of decentralization that crypto coins have as a foundation. Thus, many crypto fans and evangelists are positive that stablecoins must be linked towards not a centralized asset but a computer algorithm which takes value from a balance between supply and demand.

Basis is now considered the most promising algorithmic stablecoin of all.

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Can stablecoin ensure smooth future for the crypto industry?

The primary goal of all crypto assets was and remains to come up with virtual asset that would be liquid enough and not vulnerable to market volatility. From this point of view, stablecoins are a dream of all crypto fans and evangelists of a decentralized economy.

Apart from the potential to conduct crypto transactions smoothly, experts believe it can bridge the two worlds – fiat and crypto, bringing them a mutually beneficial coexistence. However, that may take time.

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