All Exchanges should have stablecoin (ex. USDC) and fiat (ex. USD) pairs exclusively

Eric Lamison-White
Dec 7, 2018 · 4 min read

Now that Stablecoins are proliferating with USDC, TUSD, DAI and PAXOS issuing units at the similar rates, exchanges and all lit markets should be using them for trading pairs instead of /BTC or /ETH

Alt-to-Alt trades should happen purely on Over the Counter (OTC) trade desks, where institutional traders negotiate non-standard trades to save time and commissions. /BTC and /ETH trading pairs should also become non-standard.

Currently the entire taxonomy and “marketcap” metric of cryptoassets is distorted by their dominant pairings with /BTC and /ETH. Most of these asset’s valuations change dynamically and proportionally with the price of Bitcoin simply because their last matched order was priced in BTC. The resting bids and asks are priced in BTC, the market makers and algorithms are doing wash trades in BTC.

This can change overnight.

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Low liquidity assets merely correlated with bitcoin’s price

Not only do stablecoins now have better governance than Tether did, they also all settle on Ethereum’s blockchain. Lack of confidence in Tether has hampered the growth of the Tether trading pair, and it has a very large lead. Tether is also an asset issued on the OMNI layer of Bitcoin. This leads to long and frustrating transaction times as Bitcoin derives its transaction security from 10 minute block confirmations and you need 2–12 block confirmations to confirm an OMNI transaction.

Ethereum derives its transaction security from 12 second block confirmation times and an interesting uncle/orphan system for when 12 seconds blocks create predictable blockchain problems. Any asset issued on Ethereum inherits this much faster and predictable transaction time and leads to a much better consumer user experience.

Bitcoin theoretically has an even faster layer-2 solution called the Lightning Network, and with further development of the OMNI protocol, simply stablecoin assets on Bitcoin may become more favorable than ETH based ones again in the future. (But Ethereum also has upgrades and layer-2 solutions in progress, the race is on.)

USDC, TUSD, DAI and PAXOS all use Ethereum. There also is a version of Tether that uses Ethereum.

If all assets traded against a stablecoin pair, or a fiat currency, we would see a more efficient market. Even with volatile bitcoin pairing in an efficient market, you would expect to see other assets trade at an inverse offset to the fluctuation of their primary trading pair, but given the lack of valuation metrics and demand for these assets, the market is not efficient and merely maintain’s the existing bids priced in bitcoin.

A more efficient market would mean that the market price for an asset would remain at what the market had valued it at. Or perhaps we would be able to see the risk-on, risk-off sentiment of the collective conscious play out in stablecoin markets.

Project issuers should demand exchanges disable their BTC and ETH markets.

Decentralized exchanges and relayers should disable their ETH markets and only allow for DAI markets.

The liquidity and size of these stablecoins will follow suit very quickly. As of time of writing:

  • DAI has issued 60,000,000 worth of $1 units
  • USDC has issued 178,000,000 worth of $1 units
  • TUSD has issued 199,000,000 worth of $1 units
  • PAXOS has issued 168,000,000 worth of $1 units

The non-Tether stablecoin markets have grown from nothing to $605,000,000 in just 6 months, and when exchanges flip you could expect this to increase.

The curious question becomes what happens to the demand for Bitcoin and Ethereum? People won’t be using it to trade, they’ll be using it for transaction fees exclusively. The demand for Ethereum drops completely to transaction fees in this scenario, as even new projects should only accept capital in DAI or USDC or a different stablecoin.

DAI itself will become collateralized by a basket of other stablecoins and assets, not just ETH and likely rarely ETH.

This obliterates the speculative story for Bitcoin and Ethereum in the near term, and maintains the cyclical demand for these commodities. As transaction fee demand increases from stablecoin transactions alone, these commodities become valuable again, but that requires a level of demand that has never been seen on these networks and is currently unsupported by their blockchains.

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Eric Lamison-White

Written by

Macroeconomics, Emerging Markets, Derivatives | Director @ STS

Coinmonks

Coinmonks

Coinmonks is a non-profit Crypto educational publication. Follow us on Twitter @coinmonks Our other project — https://coincodecap.com

Eric Lamison-White

Written by

Macroeconomics, Emerging Markets, Derivatives | Director @ STS

Coinmonks

Coinmonks

Coinmonks is a non-profit Crypto educational publication. Follow us on Twitter @coinmonks Our other project — https://coincodecap.com

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