The Dangers Of Backed Stable Coins

in HODL3 months ago

Hey Jesstable ones

The term stable coin is such a typical marketing term to obfuscate the truth and give a product more credit by name only. A stable coin is no more or less stable than a cryptocurrency, yes it's volatility is range-bound due to it being pegged to a fiat currency that is backed by nothing and backstopped by an economy, but it isn't stable.

We all know fiat currency continues to lose its value each year, so the only stable thing it does is lose value. The only thing stable coins are good for is transactions since it's easy to understand for consumers to purchase with and to get out of a trade temporarily.

Not all stable coins are created equal; some are backed by reserves like USDT - Tether others are logarithmically created and based on collateral like DAI and SBD/HBD.

Stable coins have been unstable too

Algorithmic stable coins have broken their pegs to the upside and the downside in the past. While HBD/SBD continues, DAI has done pretty well to maintain its peg with a more robust system on how to manage the capital inflow and outflow and to match the incentives for everyone to ensure they maintain the peg, it's by no means perfect, but it's doing pretty well.

However, backed stable coins would seem like they can't break, you give them a dollar they mint a digital one, simple. However, we don't know if it is 1 to 1 backed, basket backed or asset-backed, rehypothecated, equity-backed or debt backed.

While the coin is built and distributed on decentralised networks, we are all trusting a 3rd party like Bitfinex or Coinbase to be honest about their backing. We've already seen Tether being called out for not being backed and because one company can only hold so many dollars before the competition comes in we're seeing more and more stable coins hitting the market.

JPM coin, JP Morgan stable coin looks set to try and enter the market now and what this indicates to me is a way to make money printer go bbbrrrrr on the blockchain and then sucker in users to part with their BTC for probably what I would argue is the shittest of shit coins.


The stable coin market has its limits

The stable coin market still has value because BTC is still seen as a volatile store of value, as the price continues to increase to values such as the $100 000 range and higher, the amount of capital that has to flow in and out to push the price up or down has to be enormous.

No this doesn't mean BTC value will be an absolute stable, but its movements will be less violent, it will start to develop a range with each new price level it settles at, and as this happens, it hardens and becomes a better store of value to trade against.

Once it reaches these levels the need for stable coins will be lower; once that happens, you have all these stable coins pegged to something with less demand, so all it can do is lose purchasing power in a market like crypto with brutal price discovery.

We could build stable coins on Bitcoin in the future

As second layer solutions are starting to expand on Bitcoin like Liquid, Lightning and RGB in future I think people will be able to use their BTC to mint a stable coin and pay for goods or services or trade without the need for it to be backed by a dollar because it's backed by the best blockchain asset, in Bitcoin. This to me leverages what we see on ETH now with DAI and gives it the power of Bitcoins liquidity and depth to make a better stable coin.

Have your say

What do you good people of HIVE think?

So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."

Let's connect

If you liked this post, sprinkle it with an upvote or esteem and if you don't already, consider following me @chekohler and subscribe to my fanbase

Browse & Earn CryptoStack Sats For FreeEarn Interest On Crypto



Stable coins like Tether still have their uses. It helps stop your money from losing value as there's a low tendency for its price to dump.

Posted Using LeoFinance Beta

Yes I get that it’s a way to hedge against volatility in the markets and great for getting out of bull or bare markers in crypto and it’s great for doing payments but I’m not a fan of backed stable coins with fiat because then it defeats the purpose since you can just print as much USDT as you want

At least with a DAI you first need to own ETH or Maker so it flows capital into those networks first

Posted Using LeoFinance Beta

There is no other, more stable thing than Bitcoin for me. This is since the day I started look into all other coins prices versus Bitcoin. Since then - all the world around me changed. And this change is in my mind. BTC price line is every day a straight, perfect, horizontal line. Exactly at 1.00.

Posted Using LeoFinance Beta

I am with you on that, I think trying to chase fiat is trying to chase a race to the bottom, I much rather look at how I can get more Satoshis stable coins are cool if you want to do quick trades and get more sats but other than that, I couldn't be bothered with them

Hola chekohler,

Gracias por destinar correctamente el 100% de las recompensas de está publicación a HivePower y ayudar al crecimiento de tu cuenta.

Thanks for allocating the 100% rewards of this publication to Hivepower.

Si no deseas recibir notificaciones, responde a este comentario con la palabra STOP.

If you don't want to be notified, answer this comment with the word `STOP`.

@tipu curate

Upvoted 👌 (Mana: 176/250) Liquid rewards.