BY Risen Jayaseelan - October 24, 2018
The Stablecoin Hype
There are more than 50 stablecoins, some gone live, some in the works.
Some VCs are putting big money into stable coin projects, banking that it is the next big thing happening in cryptoland.
So what’s the big deal about stable coins?
The story of course begins with Tether or USDT, the mother of them all.
You could say that Tether’s recent blowup has catalysed the stablecoin movement, as others race to claim that space.
All the other stable coins are putting in better features than what Tether had.
Tether was possibly the worst example of a stable coin considering these facts:
- There was no redemption guarantee
- The parties creating and backing it were not established names
- There were questionable links with the Bitfinex exchange
- They could never conclusively prove that they had the 1-for-1 US dollar reserves in place
But perhaps the most interesting thing about Tether would be to actually know who was actually using the token.
It is likely that one of the main users of Tether were people from China.
While there is no conclusive data available to back this up, the hint first came from Bobby Lee, a renowned blockchain speaker.
Lee is the co-founder of BTCC, the oldest exchange in China which had to move out of the country after the government ban.
Lee, who is also the brother of Charlie Lee of Litecoin, was speaking at a June conference in Seoul, South Korea called the Blockchain Open Forum.
Lee was giving an update on the situation in China, where he said crypto activity was garnering steam, despite the official crackdowns.
Lee explained that trading takes place in China through active underground crypto networks, where traders are allowed to fiat in via cash at certain places which operate akin to money changers. People turned in cash in return for Tether.
Some Twitter users support the theory that wealthy Chinese are the biggest users of Tether and Bitfinex to get around capital controls.
If it were true, then all the new stable coins entering the market ought to make a beeline for the China market!
Assuming that theory is not true, then lets move to see why do we need stablecoins.
The most basic answer to this would be that stablecoins now present an opportunity for the world to gain the benefits of blockchain technology, minus the volatility of Bitcoin and altcoin prices.
So here we go back to what the new decentralised Internet could potentially deliver – read the whole token economy that is promised.
To accept this view is to accept the theory that many individuals and institutions have stayed on the sidelines of the blockchain revolution solely due to the volatility of bitcoin and altcoin prices.
Another powerful use case is that stable coins is an alternative for the millions of people who have no clear or cheap access to inflation fighting options such as opening US dollar accounts or holding gold ETFs.
Stable coins proffer an easy option to overcome all that. Will users bite?
The good news is the stable coins are all making marked improvements from what Tether did. They have solid audit proofs of their reserves be it in currency or commodities such as gold; superior custodian services; clear redemption guidelines; and big name backings from traditional finance.
It will be interesting to watch if this will be sufficient to attract users (other than Chinese nationals wanting out of capital controls) to buy into stable coins.