Interest in stablecoins peaked in September, but will the trend continue? Stablecoins are not exempt from the “impossible trinity” theory of currency, and the question remains: will they too become a bubble?
Recently, stablecoins showed explosive growth with 15 institutions announcing the launch of stablecoins over the past 30 days. At the beginning of September, four major exchanges in China and South Korea jointly funded the Terra Stablecoin project, which launched what they called “Stablecoin Month”. Cryptocurrency exchanges, blockchain companies, financial companies, and even banks started issuing stablecoins. Among them, two stablecoins were “endorsed” by regulatory authorities, namely Gemini Dollar (GUSD) and Paxos (PAX).
According to Xcong, 15 institutions announced the launch of 13 stablecoins in September:
|Launched/Declared on||Stablecoin Name||Abbreviation||Linked Assets||Issuer||Region||Remarks|
|September 29||LBXPeg||GBP||London Block Exchange (LBX)||England|
|September 29||Kinesis Velocity Token||KVT||Gold and silver||Hyperion Exchange regulated by the US Securities and Exchange Commission||US|
|September 28||Dukasnotes||TBD||Dukascopy, regulated Swiss bank||Swiss|
|September 26||USD//Coin||USDC||USD||Circle, a cryptocurrency platform invested by Goldman Sachs||US|
|September 26||AUDF||AUD||Blockchain Global, a multinational blockchain company||Australia||Expected to be launched in October|
|September 26||AUD||Exchange: Bit Trade, Blockchain employment platform: Emparta||Australia||Expected to be launched next year|
|September 19||ekon||Gold||Eidoo, a blockchain start-up in Swiss||Swiss|
|September 18||JPY||SHIS LTD||Hong Kong, China||Expected to be launched at the end of this year or at the beginning of 2019|
|September 18||Wealth in Token||WIT||Offshore RMB||CITIC International Assets Management Limited and Galaxy Digital Assets Management Company Limited||China||WIT uses offshore RMB as the settlement standard|
|September 12||CarbonUSD||USD||Carbon, a cryptocurrency project||A stablecoin based on Ethereum|
|September 10||Paxos Standard token||PAX||USD||Paxos, a blockchain start-up||US||Approved by the New York Department of Financial Services (NYDFS)|
|September 10||Gemini Dollar||GUSD||USD||Gemini Trust, a cryptocurrency company||US||Approved by the New York Department of Financial Services (NYDFS)|
|September 3||Terra||Tmon, the second largest e-commerce company in South Korea||South Korea||Joint investment by four major exchanges in China and South Korea for a total of $32 million USD.|
Most of the stablecoins above are linked to the US dollar, while some are linked to offshore RMB, the Japanese yen, the Australian dollar, the British pound, and gold.
According to the blockchain data company Blockchain Global, there will be as many as 57 stablecoins in the future. The market demand for stablecoins seems to be increasing, but opponents pointed out that stablecoins may drive the next cryptocurrency bubble.
Whale Panda, a well-known cryptocurrency commentator, said via Twitter that stablecoins are a bubble.
Some netizens commented on Weibo that the vast majority of stablecoins are of no practical significance; stablecoins are just a medium of exchange. These stablecoins cannot compete with Tether (USDT) in terms of function, and their trading volumes are poor. A trader only cares whether he can buy enough Bitcoins with these stablecoins. Zhao Dong, the founder of DFUND, agreed with this opinion on Weibo.
At present and in the future, the vast majority of stablecoins will be of no practical significance. Stablecoins will not be more stable than the legal tenders they are anchored to. The role of stablecoins is simply a medium for trading digital currency.
The reason why USDT is widely used is because it is based on the premise that the spot trading volume of BFX comes first. Holding USDT always gets the deepest spot trading in the market, which is impossible for all other stablecoins. Some people think that a stablecoin can support an exchange, which is a complete mix up of the causal relationship.
A trader only cares whether he can buy enough Bitcoins with these stablecoins. Other coins like TUSD, GUSD, BitCNY, etc., no matter how valuable, safe, and ‘stable’ they are, have trading volumes far less than Bitcoin, and they cannot be used directly even if I did get them. This is because they must be exchanged to USDT or legal tender first. This is the only role of these coins.”)
In addition, Zhao Dong recently said in WeChat Moments that stablecoin is a “pseudo-proposition,” and mentioned the “impossible trinity” theory of currency.
(“Views on stablecoins:
There is an ‘impossible trinity’ theory in currency. In 1999, Paul Krugman proposed the USDT, the success of which relied on abandoning the independence of monetary policy by handing it over to the bank, with the aim of achieving high liquidity and anchoring to the ‘stability’ of the US dollar. At this point, the USDT has basically done it. GUSD learned from USDT, but it’s still unknown whether it can also achieve success.
What about other so-called ‘stabilized coins’? If you want to be independent and stable then you must give up liquidity. However, you cannot move freely. If there is no liquidity in the stablecoin, do you still need it? I don’t.
Therefore, if you want to be independent and have liquidity, you must give up stability. Thus, the stablecoin becomes a ‘pseudo-proposition’ and does not exist.”)
An article from Cryptovest points out that a stablecoin usually faces a big problem even if it is endorsed by the regulator and is fully compliant; namely, it needs to abide by the rules of the bank, which completely violates the concept that the value transfer should be unrestricted. In order to remain a fully compliant stablecoin, the user’s account and transaction size will be limited.
Cryptovest said that if the original intention of cryptocurrency was to let people master the autonomy of wealth and eliminate third-party institutions like banks, then the emergence of stablecoins is a step backwards.
While being questioned, many institutions and commentators have affirmed the value of stablecoins. After issuing USDC, Jeremy Allaire, CEO of Circle, talked about the new dynamics of the stablecoin industry:
“Blockchain infrastructure does require a token model based on legal tender. From tokenized bonds to securities and investment contract lending to tokenized property – everything is very powerful.”
According to the analysis of Forbes, senior VCs (including a16z and Sequoia Capital) have invested millions of US dollars in decentralized agreements and applications. In theory, stablecoins can solve the liquidity problem, and users can exchange their own funds into stablecoins and exchange them to the required tokens at any time, instead of holding dozens of different tokens in multiple wallets. At the same time, there are no price volatility issues with stablecoins.
Forbes believes that the long-term potential of stablecoins and their wallets is to become a new type of retail bank, which is one reason why investment institutions are optimistic about it.