Cryptocurrencies have seen some of the big gains and especially losses in 2018. Most crypto’s have seen losses of more than 70–80% with the entire market losing more than 70% from it’s january 1st Market Cap of 600 billion dollars down to a low of 100 billion dollars.
Stablecoin emergence:
In the market that shows us this sort of extreme volatility, we all look for a way to stabilize gains or prevent mayor losses. And so 2018 has also have seen the emergence of the so-called stablecoins. Crypto’s that are tied to a fiat-currency most of the time on a 1 on 1 basis. The most famous is probably Tether (USDT) but others like Gemini dollar (GUSD), TrueUSD (TUSD) and Paxos Standard Token (PAX) are all examples of centralized tokens that are currency backed by dollars.
Characteristics:
These fiat-currency backed cryptocurrencies all share characteristics:
1: Their value is pegged to the US dollar in a fixed ratio.
2: deposits are realized off-chain, through banks or other types of regulated financial institutions.
3: The amount of currency backing the stablecoin reflects the circulating supply of these stablecoins.
Advantages:
The clear advantage of stablecoins is their relative stability. Because of the extreme volatility of the cryptomarkets and the effort it takes to jump into and out of the markets, being able to park your funds in a stablecoin, makes it a lot more attractive to venture into the markets in the first place. It also helps new teams with their blockchain projects. Where teams used to ‘park’ raised funds in Ethereum (ETH) the drop of ETH from more than 1300 dollars to around 80 has seen teams going broke and having to abandon their projects altogether. Taking some of the raised funds and diversifying into 1 or more stablecoins can keep teams liquide and help stabilize projects for the long term.
Challenges:
On clear challenge is the dependance of crypto’s on fiat-currencies. As everybody knows, the dollar is the world reserve currency but not free from its own manipulation. Looking back at the dollar of the early 1900’s, we can calculate that it also loses value. 95% to be specific. And with global turmoil growing, the events that lead to the invention of cryptocurrencies, should be front and center when looking at stablecoins.
The future will probably see the widespread use of stablecoins, some projects even inventing their own. They will also diversify into other fiat-currencies or use a basket of currencies or other assets. With gold and oil already used, the crypto space will see the emergence of coins backed by all sorts of commodities and (precious) assets. Further proof of a world where we tokenize everything.
Have a great and successful 2019.
For more information please visit us at www.tradebits.co
Thank you,
The Tradebits team.
