Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

What are Stablecoins, Stable Coins or Stable Tokens about?

Currencies / BlockChain Jan 03, 2019 - 04:27 PM GMT

By: Submissions

Currencies

It is no secret that the crypto market has taken a serious hit this year in terms of the decline of crypto prices across the board - although fundamentally the crypto market is stronger than ever before, measured by the number of crypto projects that have made great progress in terms of product development, etc. - regardless of the percentage of failures (real or perceived).


Now this crypto bear, crypto winter or whatever you prefer to call it has given rise to stablecoins - crypto tokens that supposedly help to provide stability in the crypto market. So let’s dive into it and see what these tokens are all about.You might be shocked by what you discover...
What are stablecoins?
When asked this question, you can expect to receive different answers and among the better answers will probably include that stable coins are crypto tokens that are tied to an asset, help to maintain purchasing power and reduce exposure to price instability or volatility.

Tied to an asset? Yes, some stablecoins are tried to an asset, but others are not. E.g. algorithmic stable coins are tied to an algorithm. Maintains purchasing power? Where exactly? E.g. how is well-known USD-backed stablecoin, Tether (USDT), protecting your purchasing power when Bitcoin (BTC) shots up in price?

With the above in mind, a better answer would be to say that a stable coin maintains a stable price relative to other assets. Allow me to explain...

Most so called stable coins are centered or backed by the US Dollar (USD) - the same currency that lost about 95% of its value over the last 100 years or so due to reckless policies across the board.

The last straw was when reckless, in-your-face monetary policies such as quantitative easing (QE) and government financial bailouts to the “fat cats” - who caused all of the problems in the first place - surfaced. This is the main reason why Bitcoin and many other cryptos were born to give people access to better alternatives - to for one help protect the purchasing value of their money’s worth.

Now one can whine about the sharp decline in the price of Bitcoin over the last year or so - predominantly on the back of an orchestrated attack on cryptos by the very same “fat cats”, but the fact of the matter remains that Bitcoin has so far maintained purchasing power much better than the USD. In fact, those who have held Bitcoin throughout the price volatility seen since its inception in 2009 have seen a strong growth in purchasing power. This while the dollar has continued to buy less and less.

It should be clear that the dollar is not stable. Whenever the US wants to prove a point, they simply drive the price of USD up or down. Yet, somehow USD backed stablecoins are deemed to be stable and the “fix” for price stability in the crypto market. This is despite the fact that it doesn’t maintain a stable price relative to other assets as a stable coin is supposed to do.

The primary worth of a stablecoin such as Tether (USDT) is to transfer value expressed in USD back and forth in the crypto market without it fluctuating (or by much for that matter). E.g. it helps traders who want to profit from the volatility the crypto market provides, but who don’t wish to keep their profits in crypto due to falling crypto prices.

Beyond this, if you are not a trader or don’t need it for the purpose specified, it is probably best to outright hold USD as there is counterparty risk attached to holding coins that are supposedly backed by something. What are the best or true stable coins?

The best or true stable coins are those crypto tokens who allow you to transfer value from point A to B without it fluctuating, maintaining a stable price relative to other assets.

One of the the best examples of such stable coins are probably hard-asset backed stable coins. e.g. gold backed stable coins. Gold has pretty much held its purchasing power for a long time, despite price fluctuations. Throughout the last 2000 years or so - and still applicable today, 1 gram of gold can roughly buy about 10 loaves of bread.

This stability that gold provides as a currency makes gold backed stablecoins true stable coins. Market arbitrage helps to reach market equilibrium that in turn pretty much keep the prices of such gold backed tokens at the spot price of gold, regardless of the currency used. This gives rise to a stable coin that is stable in various currencies, meeting the requirement for a stablecoin to maintain a stable price relative to other assets. What are the pros and cons attached to stablecoins?

There is always counterparty risk involved when it comes to stablecoins as it comes at best with the promise of being backed by something. This is true considering that all guarantees given are only as strong as those that give the guarantees. History is filled with examples where something that is supposedly backed by something of value failed to deliver when push came to shove.

Stablecoins will not protect your purchasing power in a rising crypto market. In fact, it will do the exact opposite. However, some will allow you to move value from point A to B without fluctuations (as described in the user case involving tether above).

If you have no intention of doing the latter, it is better to remove the counterparty risk mentioned altogether by holding the USD or whatever supposedly backs a given stablecoin - directly. In terms of gold, it means to hold physical gold in hand - not even to have it stored where somebody else besides you have access to it.

By Travis Bard

Copyright 2019 © Travis Bard - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules