Most cryptocurrencies because of their instability is not able to perform the functions of money. They can not be a measure of value, subject matter, or a reliable asset. But stablecoins to solve this problem.
Stablecoins are cryptocurrencies supported by stable assets such as money, gold or other precious metals. Due to this bond, low volatility and stability of their speed are achieved.
One of the brightest representatives of stablecoins is Teter (USDT). This is a cryptocurrency based on the blockchain and supported by the US dollar (one-to-one). Often this coin is used in a pair of crypto-currencies. For example, you can buy for 461 USDT 1 ETH. And when the exchange rate increases, it will be exchanged for USDT. Compared to fiat, Tether is easier and faster moving between purses and different exchanges.
Capitalization of Teter in the market of cryptocurrency is $ 2.6 billion. However, you cannot be 100% sure that this amount is supported by real money. According to Tether, the company has accounts in Taiwan with Cathay United Bank and Hwatai Bank, but it is impossible to verify this amount.
But Teter’s story is not that simple. On December 21 last year, Bitfinex’s exchange broke a crypto basket of 31 million USDT. This incident caused a resonance, because few believed that the bank issued such a sum in the cryptographic business. As a result, it turned out that the management of the exchange and Tether are related persons. Giancarlo Devasini, financial director of Bitfinex, at the same time takes the same position in Teter. And the CEO of Bitfinex – Jean-Louis van der Velde is at the same time Tether CEO. Among the members of the cryptocommunity there is a theory that the stolen amount was taken out into an offshore. And then it was artificially put on exchange issued 2.1 billion USDT, which, probably, are not backed up in any way. However, this hypothesis has not yet been proven, although Teter and Bitfinex appeared in money laundering cases in Panama Papers.
The company Stasis decided to release stablecoin with a binding to the euro. While the project was not seen in fraudulent schemes and now it actively cooperates with the Maltese government.
According to Executive Director Gregory Klumov, this cryptocurrency is designed to meet the growing demand among European institutional investors who want to invest in cryptocurrencies. The developers are sure that the coin allows you to speed up transactions and help the crypto investors reduce the volatility of their investment portfolios during the “storm” in the market.
Cryptodollar from IBM
Last week, the Stronghold start-up, together with IBM, announced the creation of a USD-bound stablecoin on the basis of the Stellar blockchain.
According to the project, Stronghold’s cash reserves will be placed in the Prime Trust. Thanks to this, bank accounts will be created in those institutions that are insured by the Federal Deposit Insurance Corporation (FDIC). This should increase confidence in the availability of bank accounts, which are supported by the cryptocurrency.
For its part, IBM must implement the application of a new coin among institutional investors, including taking into account cross-border transfers and multicurrency trades.
Fixing the cryptocurrency against the dollar or the euro is not the limit. The Digix project tied one of its tokens to 1 gram of gold. Compared to Teter developers, a more responsible approach to issue asset validation has created the concept of evidence-of-Asset. Due to the whole package of documents stored decentralized you can check the digital signature of the supplier of precious metals, the auditor and the depository where the gold stock is stored. Through this dataset, the owner of the tokens receives the right to request gold bullion.
According to Coinmarketcap, Digix’s capitalization is $ 2 billion. But the cryptocurrency is traded only on the Kyber network, and only in conjunction with ETH.
Instability control method
But there are other options for hedging the instability risks of cryptocurrency futures and locked accounts. Futures are exchange contracts, through which you can conclude an agreement in the future at a price set today. In other words, if you agreed to sell bitcoin for $ 8,000, and its price on the day of the transaction was $ 12,000, then you will “win” a difference of $ 4,000. Traders use this speculative tool to generate profits precisely because of the high volatility of the exchange rate.
Another way to hedge risks is to use Lock-accounts. This is a service that allows you to “freeze” money and thus save your money in the case of a change in the course of cryptocurrency.
For example, if a freelancer gets a salary for work in a bitcoin, he can “freeze” him and exchange for dollars. At a time when he needs his amount in cryptocurrency, he can turn his bitcoins back. During this time, such a rate may increase, and thereby bring profit to its owner.
Stablecoins is cryptocurrency, which is provided by real stable assets such as gold or fiat money. They exist to accelerate transactions between cryptotices and cryptoexchangers, and also become a kind of stabilizer for investment portfolios of cryptanalysis during the peaks of their variability.
The main problem of stablecoins, as well as their main advantage, is the strengthening of assets. It is not always possible to verify the accuracy of this information or to make sure that the promised amount is actually stored in a bank account.