Blockchain

Is a global stablecoin possible?

In recent years, and increasingly so, a new type of virtual currency has grabbed headlines around the world. We refer to stablecoins, stable virtual currencies with a high level of centralization and stability in their quotation. For this reason, and in view of their growing importance, it is normal that we question whether a global stablecoin is possible. This topic was discussed during the Cripto Latino Fest today.

Stablecoins: a refuge against the volatility of cryptosystems

The importance of stablecoin
If one word has been associated with cryptomonies to this day, it is „volatility“. Since it began to gain relevance worldwide, the price of Bitcoin has suffered a series of surprising rises, followed by sharp collapses. This has led many investors to consider cryptomoney too volatile an asset to invest in the long term.

Faced with this problem, the stablecoins were born, virtual currencies whose value is backed by a traditional asset. Be it Fiat money, natural resources or, in some cases, a basket of cryptomonies. Therefore, each token issued from a stablecoin would have its value guaranteed by a fund from the base asset of the token. Varying its quotation in the same measure as its asset base.

Thanks to this, stablecoin such as Tether, BUSD or USDC were born. Although these have a greater level of centralization than cryptomonies, since the fund with the reserve asset must be managed by a centralized entity. They have become popular within the crypto community, providing a guarantee of stability for traders and crypto users.

What about the institutional demand for Stablecoins today?

A global virtual currency
For this reason, and as part of the Cripto Latin Fest, our house analyst, Claudio Quiñonez, commented on the possibility that the growth of stablecoins could reach a point where one of these virtual currencies could become a common currency worldwide. And in this respect, for Quiñonez this is not only a possibility but practically a certainty.

This does not prevent him from warning about the risks of stablecoins, and especially those issued by central banks of the countries. As Quiñonez commented, the problem with these stablecoins is that they give governments excessive power to make and break with the virtual currencies they issue. The advantages that crypto-currencies bring to the financial world thanks to the decentralization of the Blockchain have been eliminated.

Thus, Quiñonez defends a third possibility, with stablecoins backed by Bitcoin. These stablecoins, for the cryptoanalyst, would be reaching a point of maturity, with different mechanisms to avoid the volatility of BTC. As if we could consider the possibility of using stablecoins backed by cryptomoney, to combine the decentralization offered by Bitcoin Revolution with the stability of stablecoins.