Why can’t stablecoins remain anchored?Pantera | Capital | June 2021
There are some fiat currencies pegged to the U.S. dollar, because they are supported by booming economies. China has been pegging to the U.S. dollar for decades, and has only decided to adjust its exchange rate slowly in the last decade. The valuation of the renminbi (or renminbi) relative to the U.S. dollar is considered to be suppressed. This is to increase China’s exports and GDP growth.
Before Bitcoin, all previous attempts to create digital currencies failed, mainly because of their centralized nature. An administrator can block transactions and shut down the entire network. At present, most stablecoins are centralized and can be censored.
The P2P transaction network and blockchain enable Bitcoin to overcome any government censorship and provide access to modern payment networks that empower individuals and remove countries and banks from the transaction equation.
Financial regulations around the world prohibit the unauthorized issuance of new currencies in any form. Stable currency is a centralized entity in the fully globalized cryptocurrency industry.
Tether issued USDT in 2016 and created this new category-stablecoins in the market. Since then, their market dominance has been increasing. I explained my thoughts and positions on Tether’s USDT in this article: Tether ($USDT): An accident waiting to happen.
Stablecoins are linked to another currency, usually legal tender. Most of them are linked to the U.S. dollar. History tells us that financial regulators do not enjoy competition with national legal tender.
Except for the current Centralized state Stable crypto assets, The second disadvantage is the underlying asset Need to support these stable coins. Reserves should be equal to the total market value of stablecoins, but we often see that they lack transparency and the parent company cannot provide sufficient evidence.
also, Volatile assets Use as a reserve may cause additional dangers. If foreign exchange reserves are extremely volatile assets, then the 1:1 peg to the U.S. dollar may be difficult to maintain for a long time.
As with all linked national legal tenders, the final exchange rate will have to change because the economy is changing rapidly and going through cycles of prosperity and depression. The destruction of tokens held by the parent company looks similar to the Thai government’s attempt to maintain a peg to the US dollar and reduce depreciation by purchasing Bhat.