Stablecoins Growing in Popularity, More Projects in the Works
If you’ve been following the crypto market recently, you may have noticed that Bitcoin has experienced an uncharacteristically stable few months, with the price of the coin staying mostly between $6,200 and $6,800. In fact many have argued that $6,000 appears to be a new floor for Bitcoin that the currency is unlikely to fall through without good reason. Despite this recent calming, so-called “stablecoins” are continuing to gain traction, positioning themselves as the smart alternative to other fluctuation-heavy crypto coins.
Defined as cryptocurrencies that are pegged to assets such as, say, the U.S. dollar, stablecoin companies argue that such steps are necessary to help spur adoption of digital currencies. As The Washington Post reports, several stablecoin projects have either launched or been announced over the past few months. While some suggest that pegging coins to fiat currencies weakens investor appeal, the Post says stablecoins “could represent a crucial steppingstone to the future of money.”
Speaking to the Times, Origin Protocol co-founder Josh Fraser explained the issue with Bitcoin and others, saying, “I don’t know whether the price of that crypto is going to go up or down, but it’s almost certainly not going to be the same as it is today. That introduces the problem [for] either the buyer or seller . . . as part of that transaction.” To that point, Fraser could be right as a major concern for some merchants and even government agencies looking to accept crypto payments has been the price fluctuations that make it difficult to price items properly. Thus, proponents of stablecoins suggest that they can help bring on actual usage of digital currencies and help fulfill the vision of cryptocurrencies. Coinbase’s chief technology officer Balaji Srinivasan expressed this notion, saying, “Stablecoins bring some of the early potential of crypto into view and they make possible payments that are very small, very fast, very large, very international, very transparent and very automated.”
Although there may be excitement around some of the recent stablecoin start-ups, there have also been some unfortunate setbacks for the space as well. Launching in 2014, the company Tether had the idea to back each Tether coin sold with one U.S. dollar. As the Times recalls, Tether reached a market cap upward of $2.8 billion but started to fall after the coin began trading well below a dollar on some exchanges — something that’s not supposed to happen with a pegged currency. This led to speculation that the company didn’t actually have the dollars to back the coins with some offering more complicated explanations for what was wrong. In any case, while some may be raising questions about Tether, others are pitching themselves as a more transparent alternatives.
There are also those who criticize the idea of stablecoins, accusing them of ignoring economics and embracing what Preston Byrne has called just a “techno-magical idea.” Still those who believe in the idea of stablecoins say the concept could easily grow and expand, changing the way people think about digital currency. As Circle CEO Jeremy Allaire told the Times, “I don’t think in five years people will be calling them stablecoins. It’ll just be ‘money on the Internet.'” So are stablecoins the fulfillment of the crypto dream or a misguided concept that’s doomed to fail? Expect that debate to grow louder as more stablecoin start-ups come to market.