This article misses two key technical points about stablecoins that are extremely important to determining whether or not any particular offering is useful or just a fancy scam.
First, what platform will the stablecoin tokens be contracted on? Since these things need to be pegged to real currency, I don’t think they can really be their own blockchain, but rather will ride on top of existing blockchains as smart contracts. Tether, the most widely used stablecoin, rides on smart contracts on many different public blockchains. Large public blockchains have governance which is widely distributed and are much harder for any one entity (even a government) to manipulate. I am afraid, though, that some stablecoin issuers might elect to distribute their tokens on smaller, less distributed blockchains (or, worse yet, privately run blockchains) which have the potential to be directly controlled by one entity, meaning they can probably roll back transactions they don’t like.
Second, how are the assets backed? Tether is famously opaque in this regard. USDT, intended to represent the US Dollar, supposedly has over $160 billion in market cap. With so much money under management presumably we would know where it all is, but Tether’s financial reports have been lacking. While they do release reports, they are seen by many as not complete. Still, whenever there is a “rush” of large investors looking to redeem their USDT for actual US Dollars, Tether can meet those redemptions. But understand that so much of the crypto ecosystem currently relies on USDT that if they ever fail to meet redemptions and Teher loses its peg, the entire crypto market will crash, and crash hard.
The whole point of a stablecoin is to always be worth exactly whatever its currency is pegged to. It pays zero interest, by design. Assuming Tether has all 160 Billion in USD invested in conservate investments yielding just 3%, they make nearly 5 billion dollars just holding the money in reserve. That is a ridiculous amount of money for maintaining a bunch of smart contracts on public blockchains. Where is it all going? If government regulations can add some transparency to that, it would be awesome – but Tether can work from anywhere in the world, so too much regulation will just drive it out of the regulating country altogether.
This article misses two key technical points about stablecoins that are extremely important to determining whether or not any particular offering is useful or just a fancy scam.
First, what platform will the stablecoin tokens be contracted on? Since these things need to be pegged to real currency, I don’t think they can really be their own blockchain, but rather will ride on top of existing blockchains as smart contracts. Tether, the most widely used stablecoin, rides on smart contracts on many different public blockchains. Large public blockchains have governance which is widely distributed and are much harder for any one entity (even a government) to manipulate. I am afraid, though, that some stablecoin issuers might elect to distribute their tokens on smaller, less distributed blockchains (or, worse yet, privately run blockchains) which have the potential to be directly controlled by one entity, meaning they can probably roll back transactions they don’t like.
Second, how are the assets backed? Tether is famously opaque in this regard. USDT, intended to represent the US Dollar, supposedly has over $160 billion in market cap. With so much money under management presumably we would know where it all is, but Tether’s financial reports have been lacking. While they do release reports, they are seen by many as not complete. Still, whenever there is a “rush” of large investors looking to redeem their USDT for actual US Dollars, Tether can meet those redemptions. But understand that so much of the crypto ecosystem currently relies on USDT that if they ever fail to meet redemptions and Teher loses its peg, the entire crypto market will crash, and crash hard.
The whole point of a stablecoin is to always be worth exactly whatever its currency is pegged to. It pays zero interest, by design. Assuming Tether has all 160 Billion in USD invested in conservate investments yielding just 3%, they make nearly 5 billion dollars just holding the money in reserve. That is a ridiculous amount of money for maintaining a bunch of smart contracts on public blockchains. Where is it all going? If government regulations can add some transparency to that, it would be awesome – but Tether can work from anywhere in the world, so too much regulation will just drive it out of the regulating country altogether.