Stablecoins or stablecoins were launched on the market for the first time in 2014 by Tether, achieving high acceptance due to their 1: 1 parity with the US dollar. The project also encouraged other initiatives to launch their own stablecoins to offer greater security to people who seek to protect themselves against the volatility of the cryptocurrency market, investing in a token that is on par with a fiat currency.
With this finding, a healthy balance was created between fiat and digital money, which despite having added a large number of followers to the crypto space, has also made many regulators doubt its legitimacy. This is because their creators could end up manipulating them just like central banks do by printing uncontrolled amounts of fiat money..
Argentine peso printer
For this reason, some governments have taken legal measures, promoting regulatory projects that prevent market manipulation and restrict the free development of stablecoins in the ecosystem. A situation that the crypto market could face at any time and that would bring serious consequences to its operation.
Why have Stablecoins aroused so much interest?
Due to its decentralized nature, cryptocurrencies have become a highly coveted asset for citizens of countries that have been economically hit, therefore, many governments are looking to launch their own CBDCs – short for Central Bank Digital Currencies – in order not to lose the monopoly they have over the financial system.
It is enough to look at the growth that the cryptocurrency market has had during this year to understand the fears and concerns at the public policy level regarding the treatment of cryptocurrencies, especially considering that the market in general has increased its capitalization from around $ 744 billion to more than $ 2.3 Trillion in the last 4 months.
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If we add to this that the stablecoin market has also grown rapidly from $ 28,198.21,607 to $ 90,573,141,810 in the same 4 months to meet the growing demand of the crypto market, you could have an idea of the risk they pose to the fiat currencies they are backed in should these decentralized versions continue to grow to the point of global adoption.
Graph 2 market capitalization of stablecoins
Stablecoins grow in Latin America
In several Latin American countries such as Argentina, Brazil, Colombia and Venezuela, stablecoins have become the digital currencies of choice among their citizens. Either to face the economic devaluation that their countries are going through, or to protect themselves against the volatility to which they would be exposed with other cryptocurrencies.
Venezuela could be taken as an example, where Recently the government increased the minimum wage of its citizens to just $ 3 a month at the exchange rate, so it is not surprising that some of its citizens prefer to preserve their savings or receive their remittances through stablecoins how Tether (USDT), DAI (DAI), among others, instead of trading Bitcoin and risking their price volatility.
Another advantage that stablecoins offer and that makes them very attractive in the eyes of citizens of countries such as Venezuela or Argentina (where their governments prevent or control the sale of foreign currencies) is that it facilitates access to that type of fiat in a without the need to open bank accounts abroad, something almost impossible for a Venezuelan living in his country.
Rodolfo Andragnes NGO Bitcoin Argentina
Rodolfo Andragnes, co-founder of the NGO Bitcoin Argentina, commented in an exclusive interview conducted by the BeInCrypto team in Spanish, that the economic situations that Venezuela and Argentina are going through are those that have driven the adoption of cryptocurrencies not so much to speculate with their prices but to use them as a store of value.
In addition, he confirmed what MakerDAO had previously published on his blog about the advantages that DAI offers its users and how these had made it the preferred cryptocurrency of Argentines, surpassing even Bitcoin in trade volume:
“It is very likely that the volume of DAI and other stablecoins was high or higher [que Bitcoin], as it is also used for operations that are not merely savings, such as international payments or remittances, and others where stable currencies are used more and there is an interesting volume for that purpose. “
Governments and the fight for control of cryptocurrencies
The decentralization offered by cryptocurrencies has been the tip of the iceberg to achieve the adoption that they have today, however it has also become the “Achilles Heel” that governments have been attacking to gain control.
Although regulations can positively influence the attraction of investors to the crypto market, it is also true that there are some politicians who maintain a firm position against everything they represent, so beyond regulating them legally they could be trying to suffocate them from indoors.
The US wanted to propose a regulation on stablecoins that prevented free trade
For some years now, several US congressmen have established their clear anti-crypto position trying to prevent its free use within the country. For example, in December of last year three congressmen promoted the proposal of a regulation project called “The STABLE Act.”, Which sought to regulate stablecoins by calling any activity related to them illegal without their permits.
However, thanks to the change in administration, these types of laws were not approved but on the contrary, the Office of the Comptroller of the Currency in the United States (OCC) declared the green light for all financial entities in the country to use public blockchains. to run its own stablecoin nodes by improving its settlement infrastructure.
On the other hand, the European Union has also shown a position similar to that of the US (regarding the regulatory issue) although a little less radical, studying with interest the implications of launching its own central bank digital currency (CBDC) .
What if stablecoins suddenly disappeared for some reason?
The short answer would be that the crypto market would collapse in an accelerated way at least in the short term as these represent the most adopted trading pairs in the ecosystem. Just as an example, during May 6, 2021, USDT mobilized a value of (210,540,346,338) while Bitcoin registered (71,606,811,656).
For example, if USDT fell rapidly overnight, the Bitcoin market would also suffer just as quickly as USDT supports at least 20% of all Bitcoin liquidity between various exchange platforms. Therefore, for traders who represent a good part of the community, this situation would cause distrust and perhaps it would distance them from the crypto market.
This is without talking about new investors, who have less knowledge about the various stablecoins that exist in the market, but who do not have anywhere near the same capitalization of Tether.
The end result of a drop in the capitalization of major stablecoins like Tether, would result in a strong war between the supply and demand of Bitcoin that would shoot its prices into the abyss until the lost liquidity gap is covered, which is why such is the importance of stablecoins within the value stream of the crypto ecosystem.
This topic presents a somewhat dark picture that will always be there to haunt traders and crypto enthusiasts.. However, it is unlikely to happen since unlike previous years today Tether has started to publish its reports supporting the issuance of USDT, which is currently the currency that moves the highest amount of operational volume in the crypto market.
Graph 3 Volume Comparison of Tether vs Bitcoin
What future does fate hold for stablecoins?
While the world of cryptocurrencies is in full swing, stablecoins are playing a really important role in this whole new industry.
So it would not be surprising if in the near future some nation launches its own stable currency or declares one as the legal tender in its country, a situation that would undoubtedly bring greater adoption of the crypto market.
However, it is more likely that most nations will end up launching their own CBDCs before pushing a stable cryptocurrency that would make it difficult for them to manipulate and control activities that many of them are used to, it is difficult for a government to give up said can.
The post How Stablecoins Could Increase Cryptocurrency Adoption was first seen on BeInCrypto.