Stablecoins—cryptocurrencies whose value are maintained at a 1:1 ratio to a fiat currency, has often been mentioned in discussions about the future of cryptocurrency. A recent report has shown the role these fiat-pegged cryptos will play in the mainstream adoption of cryptocurrency in the United States and beyond.
The report titled “The State of Stablecoins 2019: Hype vs. Reality in the Race for Stable, Global, Digital Money” was published on Wednesday, Feb. 20 by California-based stablecoin startup Reserve. Its objective is “to research the stablecoin landscape and then independently report his findings for the broader industry to learn from.”
For the report, the authors led by blockchain adviser George Samman harnessed data from 40 cryptocurrency and stablecoin firms including Arrington XRP Capital Blocktower, and Reserve.
As part of its conclusions, the authors noted that stablecoins could better the chances of widespread use of cryptocurrency.
“The development of stablecoins, price-stable cryptocurrencies, asset-backed cryptocurrencies etc. is likely to play a critical role in how this new economy achieves mainstream adoption.”
Stablecoins got a lot of attention in 2018 and also this year. The argument is that these stablecoins which are maintained at the price of fiat currencies helps solve the main problem that discourages people from suing cryptos, which its volatility. Last year several dollar-pegged stablecoins were launched to compete with Tether USD which used to be the sole stablecoin in the market.
As reported, Circle USD (USDC), Gemini dollar (GUSD) and Paxos USD all launched last year while stablecoins pegged to other fiat currencies are starting to be introduced. These stablecoin issuers normally hold a fiat equivalent value of total stablecoins in circulation in regulated custody. Critics have cast doubt on the ability of the stablecoin issuers to maintain these deposits when there is a huge demand for the stablecoin.
The stablecoin report notes:
“The ideal stablecoin should be able to withstand market volatility, be affordable to maintain within a value range, have easily comprehensible stability parameters and be easy to observe for traders and other market participants.”
They predicted that the U.S.-dollar will become the most tokenized liquid asset in the cryptocurrency space in the next 12 to 24 months. When the demand for dollar-pegged stablecoins explode, the authors said it could it could increase the total supply of fiat money and fuel inflation.
They suggested that stablecoins are better pegged to assets than fiat currencies while noting that countries with hyperinflation like Venezuela are more likely to adopt stablecoins.
Venezuela already launched Petro, a cryptocurrency backed by oil although it has failed to show a notable impact in its economy. More recently, US investment bank JP Morgan announced it will launch its dollar-pegged cryptocurrency which will be used to facilitate cross-border settlements.
A detailed copy of the stablecoin report can be downloaded from the company’s website.