The global battleground for stablecoins
Editor's Note: This article comes fromFirst class warehouse blockchain research institute (ID: first_vip1), reprinted by Odaily with authorization.
Editor's Note: This article comes from
First class warehouse blockchain research institute (ID: first_vip1)
, reprinted by Odaily with authorization.
As early as 2017, stablecoins were strange in front of high-volatility cryptocurrencies such as Bitcoin. By 2019, stablecoins have become the central topic of world politics: the US government suppressed Libra, and international condemnation of non-government stablecoins at the G7 summit , stepping up the creation of stable coins in Europe, China and other regions.
Why are stablecoins causing a commotion? Will the state use force to destroy stablecoins, or compete with them? What are the popular stablecoins today? What are the prospects?
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2014-2017: The Birth of Stablecoins
The advantage of Bitcoin is that it can reliably exist outside the country. The disadvantage is that its price (volatility) is extremely unstable. The issuance of Bitcoin and other classic cryptocurrencies is algorithmically limited and predictable. Therefore, they will not be depreciated by sudden large-scale copying, but their prices rely heavily on market speculation: the lack of a centralized mechanism to suppress price surges and crashes, as well as bubbles.
In 2014, the first stablecoin projects were launched - CoinoUSD (XUSD), NuBits (USNBT) and BitUSD (BITUSD). As their names suggest, all three currencies are pegged to the U.S. dollar. However, the stability of the first two projects tested the "word of integrity", and the projects failed. However, BITUSD uses the volatile cryptocurrency BitShares (BTS) to stabilize the exchange rate, and its stability far exceeds that of other stablecoin pioneers.
In 2015, the first truly famous stablecoin was launched - Tether (USDT). Like BITUSD, it is pegged to the U.S. dollar and uses a stabilization fund. The main difference is that the stabilization fund is made up of real dollars, and the currency itself has only one issuer — the company Tether Limited, which has a close relationship with the Bitfinex crypto exchange.
Unlike most other cryptocurrencies, USDT is centralized, has specific companies, and quickly established partnerships with large exchanges such as Bitfinex, Poloniex, etc., allowing the project to advance and be far ahead of competitors. In 2017, it turned out that USDT has a monopoly in stablecoins.
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2018: Tether alone is not enough
By the end of 2017, USDT's market capitalization exceeded $1 billion, but this figure has caused a scandal: If each USDT is really equal to one dollar, where is Tether Limited storing these dollars? For a while, Tether Limited shied away from answering questions, but when opacity threatened its reputation, it had to reveal something: The reserve fund still exists. But it's unclear whether it now has all the $4 billion in its pocket.
From 2017 to 2018, several new stablecoins were introduced, and these stablecoins wanted to solve the problems of their predecessors
Another compliant stablecoin with a transparent reserve of traditional assets is Euro Stasis (EURS). Compared with the tokens above, it is characterized by being pegged to the euro instead of the U.S. dollar. Furthermore, EURS has the jurisdiction of Malta, where the attitude towards cryptocurrencies is more liberal than in the United States.
There’s also the Digix Decentralized Autonomous Organization (DAO)’s Digix Gold (DGX) token, which is also not pegged to a currency at all, but to gold.
Another development direction of stablecoins is not to use traditional currencies, but to use cryptocurrencies as reserve currencies. Maximize decentralization while maintaining anonymity. Despite BITUSD’s long history as a pioneer of this approach, it has not gained popularity, and having a cryptocurrency as a reserve currency has its merits. Cryptocurrency reserves are subject to volatility due to exchange rate fluctuations, but are more convenient to use and can be better deeply automated through smart contracts.
The most famous example of modern money and cryptocurrencies is DAO Maker's Dai. It uses ether as a reserve currency, and smart contracts guarantee the transparency of the system. Today, DAI is considered one of the truly decentralized projects in the blockchain. On the Nasdaq exchange, Maker token (MKR) entered the EXANTE DeFiX index.
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2019: Stablecoins a threat to world order?
In 2019, the total market value of USDT ranked fourth among cryptocurrencies, and none of its competitors entered the top ten.
The stablecoin market is no longer as monopolized as it was in 2017, but users are faced with a choice: use the popular, centralized, and scandal-ridden USDT — or the more transparent, but less popular USDC, DAI, etc. It is logical to expect a new project to emerge that combines legal reliability with a strong marketing opportunity. This stablecoin, it turns out, is Facebook's Libra.
With a user base of US$1 billion, Libra has a great advantage over competitors and even shakes the status of national currencies including the US dollar. Libra as a non-state, but stablecoin may be closer to Hayek's ideal than the more volatile bitcoin and ethereum. Although, from a free market point of view, being attached to a large company is one of its major disadvantages, quite a few people will easily accept it because of its stable exchange rate and the free flow of money between countries.
However, the dollar does not like hegemony to be challenged. If in June Libra was serious about redistribution of world financial power, in July, American politicians effectively blocked the Libra project. President Trump and Treasury Secretary Mnuchin have criticized cryptocurrencies for engaging in illegal activities. Requiring that Facebook needs to obtain a banking license and act according to traditional rules cannot act as a "second Federal Reserve". Congressional hearings on Libra have failed, and a bill to ban large companies from issuing cryptocurrencies has been brought to lawmakers for agreement.
Not only does Libra influence Facebook's plans, but it also casts a shadow over all private stablecoin projects. At the G7 summit, a united front criticized measures that threatened world stability, among other things. Coincidence or not, shortly after the G7 summit, an unprecedented $1 trillion lawsuit was filed against Tether and Bitfinex, which could very well lead to the bankruptcy of the companies.
National blockchains bring many benefits to governments. They can combine the convenience of transactions such as cryptocurrencies, the stability of transaction prices and the compliance of fiat currencies, as well as the infinite possibility of controlling the flow of funds. The government has been discussing it for a year, but so far no stablecoins have been issued.
The only exception is the pro-Venezuela blockchain oil company, which just shows that the national cryptocurrency is not feasible: it is impossible to maintain a stable line, no one develops the "oil fields" of reserves, and in many cases, the oil is forced to use, Discourage people from using alternative energy sources.
However, the threat of Libra and similar stablecoin projects have turned the attention of politicians to the national cryptocurrency. In October 2019, a group of German bankers called on EU officials to join forces to create a digital euro. Subsequently, Chinese leaders announced major progress towards a digital yuan. In November, the BRICS countries announced the possibility of establishing a blockchain among the BRICS countries.
Most likely not just political manifestos, but real plans. Despite Libra’s failure, the world has seen some popular non-state stablecoins that cannot be banned by just one country’s regulators. If one day, a global non-state stable currency appears and attracts the attention of the people, then the government must not only give a strong reason, but also have an alternative. In cases where anonymity is important, people prefer privacy coins, but in cases where reliability is more important (e.g. reversibility of transactions when wrongly paid to a crook), national currencies still have merit.
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2020: What's next for stablecoins?
Although the general trend is “national stablecoins against non-national stablecoins”, it would be naive to think that the world will soon become a “digital financial concentration camp” where the only means of circulation is a national blockchain that controls all transactions.
