Takeaway #1: increased competition will help drive overall crypto adoption
Many predictions were made at the end of last year, at the height of the ICO craze, about what 2018 will bring.
As the current year draws to a close, it’s clear that one of the biggest stories has been the significant funding and subsequent proliferation of various stablecoins. With more than 50 announced projects (and more coming soon), the stablecoin war is well and truly underway.
To encourage new users to use crypto, it’s essential to reduce friction with existing systems and ways of doing things. Like it or not, currently USD is the closest we have to a global currency.
Further, the current volatility of cryptocurrencies mean that they still can’t be used as medium of exchange or unit of account. No merchant would be willing to sell coffee for crypto, when the underlying value of the token can change by more than 10% on a daily basis.
Stablecoins address both the USD popularity and crypto price instability, help bridge the gap with existing financial services and onboard new crypto users. As a result, the stablecoin arms race is a very welcome development for the crypto ecosystem.
While many people will reflect on 2018 and think of the bear market and dramatic price drops, I believe that looking back a crucial development will prove to be the massive funding and evolving landscape of stablecoins.
Takeaway #2: Transparency is king and Tether’s dominant market share is under serious threat
As the crypto ecosystem continues to mature at a rapid pace, following increased pressure from institutional investors and plummeting token prices, it’s clear that transparency has become even more crucial.
Gone are the days when a lengthy whitepaper and a nice marketing video could help a project raise 8-9 figures via a public ICO (another welcome development given scams and lack of sophistication on the retail investor front). That option no longer exists and the implications travel far and wide
While Tether is still the largest stablecoin by market cap and volume, its leadership position is now under serious threat. The vague letter provided by their latest banking partner, Deltec Bank & Trust Limited, did little to alleviate concerns about their 1:1 USD peg claims.
Deltec’s statement that the letter is “provided without any liability” combined with an anonymous signature at the bottom, speak volumes.
In 2019, there’s a major opportunity to capture a significant portion of the stablecoin market share away from Tether, and teams at Gemini, Paxos, MakerDAO and others are getting ready to do just that.
Tether’s volume and market cap have proven the demand for digital dollar. Investors have taken notice and reached for their checkbooks to fund an alternative. Transparency is king and Tether is about to learn that, unless they change their ways fast.
Takeaway #3: it’s likely that we won’t see too many stablecoins remain in the long-term, but reward for the winners will be big
As the crypto asset class continues to evolve, some stablecoins will inevitably grow faster than others in the next few years. Given that the network effects in the stablecoin space are significant, these will prove hard to overcome later down the road (though not impossible).
Most users don’t care whether a stablecoin is crypto-backed, dollar-backed or uses some sort of a fancy algorithmic mechanism on the backend. As long as the price is consistently stable and pegged to USD, that should be good enough.
So, while it’s still early to determine which of the 3 methods to secure the peg is the best, it’s quite clear there’s no need for 50+ different forms of digital USD. While most stablecoins will fail, the winners in this space are going to reap massive rewards via an increased market cap and play a key role in accelerating the transition to the web 3.0 era.