Once Tether entered our lives, it was used to save the purchasing powers of the traders against huge dumps. It was the only stablecoin with limited functions.
Water under the bridge; now there are separate sections to rank all these stablecoins. Of course, Tether is still the leader but there are lots of other options backed by several digital assets.
When we look from the bigger perspective, there are some concerns about the stablecoins. Even though they are not discussed as much as cryptocurrencies, they have fundamental problems. The first issue that I want to highlight is their future role in the ecosystem. For instance, Digital Yuan is currently tested by China and there are lots of intra-Blockchain projects that are limit-tested. When the USA establishes its digital USD, what will be the use case of these stablecoins?
Besides, will they compete against the USA for its currency? It does not seem possible. In terms of DAI & USDN which are backed by Maker and Waves, that's understandable but will the other stablecoins printing digital currencies backed by the number of dollars that they have in their bank account have utility? It is a kind of grey area. What do I mean?
Previously, I examined the trendy Stablecoins in terms of their pros and cons. I still support the idea that Tether is seen as suspicious by many because of its dark history. I think this situation may bring future concerns considering their share in the market. On the other hand, regarding the centralized stablecoins, USDC is a shining star. WHY?
It's partly because of the owners of the coin. Circle is an associate of Goldman Sachs and the share of USDC is going to increase as they teamed up with Visa. (Further info: Cointelegraph-News & Coindesk - News )
Contrary to Tether, the credibility of USDC is excessively high thanks to Circle. Yet, the same question comes to our minds, why should we choose it but for Digital USD? It's open to discussion.
Another issue is that the majority of these coins will be accepted only in local areas, their exchanges, or partners. In such a case, people will be supposed to exchange these stablecoins if they can... (I do not even want to talk about paying fees to exchange 2 stablecoins 😅) It turns into another workload for people.
The ultimate solution: Incentive Models
To be able to survive, all these stablecoins are to offer something more to be used. For example, BUSD (Binance's stablecoin) is used in Launchpad / Launchpool to farm new tokens. It's a nice incentive for people to hodl BUSD in addition to its stable nature. However, in this example, BUSD may have to back its stablecoin by something else but for USD in their bank account as it can be subject to regulation.
Another incentive can be cash-back operations. As you know, bounty, airdrop, reward, cash-back are highly fashionable and we may even relate these concepts to our newly growing ecosystem. As in the USDC example, any Visa card with a USDC cash-back option (Like crypto.com) would also add utility. Personally, there may no other motivation to push me to use relatively risky assets in the future.
Consequently
Once national currencies are digitalized, the existing stablecoins will not find any use scenarios to keep operating. Even, they may face regulations, and the majority of them can wipe out. To exist in the ecosystem, they need to expand their utility areas and even they may find substitute assets to be backed by. (Waves, Hive, and Maker are great examples)
In my perspective, they can offer incentive models to have a share in the market such as cash-back; farming, and interest. Moreover, it may be the only way to vary from the upcoming digital versions of fiat currencies. Otherwise, nobody would be a volunteer to take the risk by using them.
Finally, I'm worried about Tether a lot. One more law-case may trigger harsh legislations on stablecoins.
Stablecoins bear lots of fundamental issues. Although it is difficult to solve these problems without a digital version of fiat currencies, it can be too late for them once these players enter the game.
What do you think about the future of Stablecoins?
Until the controversy is settled, we are always going to see attacks from the establishment. This means we just have to be resilient in what we are doing.
This is a race to see who can get to the finish line first. Governments and banks basically want the status quo while those into technology (and freedom) see the potential. We just need to keep developing and expanding.
That is what will lead to bigger numbers. At some point, this will be too big to stop.
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Sometimes I perceive the race as between intercontinental giant institutions and governments. It's as if they are waiting for a move from each other to show up. However, I'm concerned a lot about Tether and the stablecoins printed by exchanges. They may deal with law-suits due to any regulation.
USDC, contrarily, is owned by Circle. Recently Visa had an agreement with Circle ower the use of the stablecoin for a separate debit card to be used between "Visa-friendly" companies. Although this agreement did not attract attention in crypto ecosystem, it's a brave move to take risk by Visa and Circle because they agreed on value created by an institution and backed by the USA fiat money.
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That is all true. I think we can add in the Diem with the Facebook conglomerate to the equation. It will be interesting to see how that affects things. Will they be allowed to operate without blowback? How much will they affect other coins already in that space?
They too are looking to back the Diem with USD.
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Stablecoins are global payment rails for crypto the way VISA is a global payment rail for fiat money, for example, USDC is regulated, settled instantly and without intermediaries all around the world and that's MUCH more efficient than the current banking system (which is already digitized by the way). If you can't see this I don't know what to tell you.
As far as incentives are concerned the main hurdle I see is that most stablecoins are fully-reserved, which is not capital-efficient. On the other hand, crypto-backed stablecoins are hard to peg and subject to smart contract attacks so much more dangerous for the system.
I agree about the threat of regulations though, in fact there's a push right now to force stablecoin issuers to obtain a banking license in the US, which would be terrible for any start up.
I hope this bill gets rejected.
Well said mate. If the old fashion banking system is to be forced the stablecoin issuers, then a new debate will show up.
In terms of incentives, there is no way for tens of them to survive as for me. Even when we compare them with USDC, they cannot find a use case. What I am projecting is that If they can be categorized as digital assets (beyond being pegged to USD) then they can use inventives as strategic actions. However, until that stage, whether they will be regulated or neglected is the primary enigma for now.
Humm, I am honestly not too sure what you're trying to say here.
We do want competition and innovation so forcing a super-costly banking license on start-ups is a bad idea imo,
Stablecoins have a massive use case though, just look at the growth:
https://stablecoinindex.com/marketcap
It's not an enigma whether they'll be regulated or not, they ARE being regulated right now, see MICA in Europe or STABLE act in the US, and that's just the start...
I already know about MICA but I'll check STABLE, as well. What I highlighted was also about the stablecoins backed by digital assets not just the US dollar. Additionally I question whether they will be acknowledged as stablecoin or digital asset when the existing fiat currencies are digitalized. Thanks for nice inquiry 😌
Afaik crypto-backed stablecoins are regulated under MICA, and would be under STABLE because the law has enormous scope.
Still unsure of what you mean by "when the existing fiat currencies are digitized". Fiat has been digitized for decades now: the number on your bank account do not represent actual paper reserves, you also have service like PayPal and CashApp that transfer digital fiat all day.