Stables can damage the financial system

Stables can damage the financial system.jpgsignatured03acd3a977eee81985787aedfaca1ae

Cryptocurrencies have had a remarkable year, reaching a combined value of more than US $ 3 trillion (£ 2.2 trillion) for the first time in November. The market seems to have benefited the public with time on their hands at the time of loose locks. Also, major investment funds and banks have come in, especially with the recent launch of the first bitcoin-backed ETF - a registered fund that makes it easier for more investors to access into this asset class.

Coupled with this has been explosive rise in stable value like tether, USDC and Binance USD. Like other cryptocurrencies, stablecoins revolve around the same online ledger technology called blockchains. The difference is that their value is crushed 1: 1 to financial assets outside the crypto world, usually the US dollar.

Stables allow investors to keep money in their digital wallets that are less volatile than bitcoin, giving them one less reason to need a bank account. For a move that is all about declaring independence from banks and other centralized financial providers, a stable will help make that possible. And because the rest of crypto tends to go up and down together, investors can better protect themselves in a falling market by moving money into stablecoins than, say, a sell their ether for bitcoin.

A good portion of crypto buying and selling is done using stablecoins. They are especially useful for trading on exchanges like Uniswap where no one company is in control and there is no option to use fiat currencies. The total dollar value of stablecoins has shot up from a low US $ 20 billion year ago to US $ 139 billion today. In one sense this is a sign that the cryptocurrency market is evolving, but regulators are also concerned about the potential risks to the financial system. So what is the problem and what can be done about it?

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    The problem with stablecoins

    First introduced in the mid - 2010s, stablecoins are centralized operations - in other words, they are controlled by someone. Tether is ultimately controlled by the owners of the crypto exchange Bitfinex, which is based in the British Virgin Islands. USDC is an American consortium that includes payments provider Circle, bitcoin miner Bitmain and crypto exchange Coinbase. Binance USD is owned by Binance, another crypto exchange, headquartered in the Cayman Islands.

    There is a philosophical contradiction between the decentralized type of cryptocurrencies and the fact that such an important part of the market is centralized. But there are also big questions as to whether these organizations hold sufficient financial resources to be able to maintain the 1: 1 fiat ratios of their stables in the event of an emergency.

    These 1: 1 ratios are not automatic. They rely on stablecoin suppliers who have asset reserves equal to the value of their stable in circulation, which fluctuate with supply and demand from investors. Suppliers promise to store 100% of the value of their stables, but this is not entirely correct - as can be seen in the tables below.

    Sanctuary tether

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