Go-to-market Strategy of Stablecoins
Crypto industry experts spend much of their time studying which stablecoin may become adopted and the set standard for stable transaction of value. We all agree on why stability of prices is needed in crypto, but rarely ask ourselves how price stability is actually perceived by consumers. This is very important as consumers will determine what gets adopted or not. In relation to this, go-to-market strategy needs to be properly addressed.
Currently we have three types of stable tokens — non-collateralised and decentralised (Basis), collateralised by central entity using USD (Tether), and collateralised in a decentralised manner using crypto assets (Maker).
For some, the Maker project looks the most promising way of delivering a safe stable token with all the benefits of decentralised mechanics. Users of Maker’s stable token DAI know that each DAI is collateralised by crypto assets and they need not worry about DAI becoming a “useless asset”. When I say useless asset, I mean that there is no real economy or exchange of good or services performed by it. Or in other words, it doesn’t serve a medium of exchange function, which is the goal of stable tokens (besides storing value). Since stable tokens are initially (or in the first few years) only an experiment and don’t really have any use in real life, underlying collateral serves as a hedge for the belief of consumers that even if it doesn’t succeed, there is always enough collateral backing it. The go-to-market strategy of this kind of stable token therefore relies less on adoption — although it is very much needed in the long term, the token creators have less worries if the collateralisation mechanics are robust.
In the case of Basis, the creators must rely heavily on a go-to-market strategy. Because there is no collateral behind Basis, users will have to rely on the token becoming medium of exchange or have a defined use case soon after launch. If it doesn’t, it is just another token with an algorithmic price peg. This is why the huge backing of VC money should come in handy for its creators — it creates a lot of noise and some Dapp builders might add it as native token. If it gets adopted through some useful Dapp, the non-collateral aspect shouldn’t really be worrisome for users because the exchange of such stable tokens relies on actual use case.
This is how Linden Dollars were actually working in the game Second Life. The economy of Second Life generated around USD 3.5m in economic activity during the peak month of 2005 and there was no collateral backing it. But there was activity and exchange of digital goods performed by users who were relying on the Second Life digital economy. This was good enough not to put users in doubt about the actual backing.
This is where the whole Tether story gets interesting as well. There is still some kind of disbelief in the general crypto public that there are no actual USD behind Tether or, as most people think, there is high under-collateralisation of Tether with USD. Well, even if any of those beliefs are true, Tether proves to be a useful asset and therefore has its value. It serves as an asset for performing arbitrage between exchanges and it enables users to easily switch between crypto and stable token which is highly adopted among exchanges. Since there are no real alternatives adopted by exchanges, there is a good amount of value assigned to Tether just because of mentioned functionality. The only question is, how does this end in the long term, especially if there is a better alternative being adopted on major exchanges instead of Tether and there is hard proof there are not enough dollars behind Tether. In such case public would panic and dump Tether so hard that issuers can no longer maintain peg of the price due to lack of assets in reserve.
As seen, it all depends on the perception of users and their belief about the current and future price stability of the crypto asset serving both medium of exchange and store of value function. This is why a go-to-market strategy is important because user perception can be manipulated. Backing of stable coin by some collateral is not really needed if it is able to serve as native currency for functionable and reasonable big economy. Backing just adds to the safety perceived by users and even that is not guaranteed if collateral is not diversified enough and doesn’t protect from black swan effects.
There is another interesting way of creating a stable token that seems very ambitious and less certain to ever occur. Imagine Bitcoin Lightning or Bitcoin Cash (or whatever other crypto asset) gets adopted as a medium of exchange, so people start transacting with it on a regular basis. Imagine you pay for more and more goods with Bitcoin and suddenly you realise it is better for you to get your salary in Bitcoin. Let’s say you even buy your car and house in Bitcoin, and you “hodl” some, just in case. Well, in this less probable scenario Bitcoin with no price peg suddenly becomes a stable token in the eye of the consumer.
