Why Some Stablecoins Are Dangerous
By Market Mad House on ALTCOIN MAGAZINE
I think stablecoins are dangerous because they offer an illusion of stability. Stablecoins are among the most dangerous crypto assets because they are not what they appear to be.
To explain, stablecoin promoters advertise their products as backed by; or pegged to, historically stable fiat currencies like the US dollar or the pound sterling. However, stablecoins like the USD Coin (USDC) or the EURS (EURS) are smart contracts they program to pay someone a dollar or a Euro when a person spends the token.
Thus stablecoins do not represent fiat currency as many of their proponents claim. In fact, the State Street Bank (NYSE: STT) holds the dollars pegged to the Gemini Dollar (GUSD) in trust. Thus the fiat currency is not in the crypto asset as some people think. Hence, the Gemini Dollar is really a contract to pay somebody $1 from an account at State Street.
Therefore, a stablecoin liquidity crisis in which the entity issuing the coins has no money is a possibility. Notably, none of the stablecoins I have seen is insured by a government agency like bank accounts in many countries are. However, the New York State Department of Financial Services (NYDFS) regulates but does not insure the Gemini Dollar.
