Are Stablecoins Actually Stable? by@Goldaz

Are Stablecoins Actually Stable?

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Zlata Pokutnia

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What does the term “stablecoin” mean?

Unlike highly volatile popular cryptocurrencies, stablecoins are virtual assets that maintain their value since they are pegged to less volatile assets such as the euro or US dollar. Stablecoins may be also linked to other assets such as metals or even other cryptocurrencies. In the crypto field, stablecoins perform the function of reserve currencies.

The key mission of stablecoins is to provide price stability for users transacting across coins as well as between fiat and digital currencies. The money in the reserve serves as collateral for stablecoins. Thus, when some users decide to cash out, the proportional amount is taken from the reserve to keep the price stable.

There are 3 main types of stablecoins: fiat-based, crypto-collateralized, and non-collateralized stablecoins. The first and largest stablecoin is Tether (USDT) which was created in 2014. According to the Tether website, the stablecoin’s reserves mostly consist of commercial papers, treasury bills, cash & bank deposits, corporate bonds, funds, and precious metals. Tether’s value should always stand at $1 per USDT. The list of other popular stablecoins includes Dai, Binance USD, TerraUSD, and USD Coin.

Stablecoins reduce the dependence of crypto traders on fiat thereby eliminating the need to pay fees or other commissions related to converting fiat to crypto or vice versa. Stablecoins may be also used for the international transfer of money such as donations.


What are the issues associated with stablecoins?

Stablecoins are used as a niche currency, they do not bring investors great profits. Since stablecoins are widely used by individuals and companies worldwide, they may be subject to regulations in the coming future. Also, stable does not mean that these virtual assets are secure for users. More than one-third ofstablecoins ever created failed.

According to CoinMarketCap, the total market capitalization of stablecoins is $186B. This amount is even greater than the total reserves (including gold) of the United Kingdom ($180B). Such a big market cap raises the question of whether companies behind stablecoins would be able to convert all these assets into fiat immediately if all holders decide to exit crypto.

Let’s outline the main issues affecting different types of stablecoins.

Fiat-backed stablecoins

As of now, there is no standardized way for fiat-backed stablecoins to disclose information about the assets behind them. Investors do not know, for example, whose commercial papers Tether holds.

Also, the other warning sign is that Tether, the stablecoin with a market capitalization of $82B, has just 31 employees listed on LinkedIn. So, the question of whether companies behind stablecoins have enough fiat or other real assets to back all their market capitalization remains open.

Crypto-collateralized stablecoins

There is the need to use a set of protocols to ensure the stability of these stablecoins when the price of underlying crypto fluctuates. The other mechanism of price stability provides for over-collateralization when the value of underlying cryptocurrencies is twice or even more times higher than the value of stablecoin. These stablecoins are complex to understand both by individual and corporate players. These types of stablecoins can experience price fluctuations, thus, they are not stable by nature. Also, crypto-collateralized stablecoins are subject to third-party risks. If a cryptocurrency they are pegged to collapses, these stablecoins may also experience a value drop.

Non-collateralized stablecoins

They are not backed by any collateral and are governed by a sovereign. Thus, there is always a risk of human error that may result in an imbalance between demand and supply for these stablecoins. non-collateralized stablecoins can also lead to the Ponzi scheme. When new investors stop coming, these stablecoins collapse.

Existing alternatives to stablecoins

The other big type of virtual assets are smart contracts tokens. According to CoinMarketCap, their market capitalization is $540B. The most popular smart contract tokens are Ethereum, BNB, Cardano, and Avalanцche. The role of smart contracts cannot be underestimated during the time of Web 3.0 transformation. Decentralized apps, metaverse and gaming tokens, and Web 3.0 solutions, all are and will be built on smart contracts.

Smart contract tokens cannot act as a reserve currency in the crypto world. Their value heavily fluctuates and any security concerns can cause panic sales among investors. Generally, it is hard to estimate the real value of smart contract tokens since they are backed by technology, the demand for which is subject to fluctuations.

Radically new type of stablecoins - how can it look like?

Based on the information provided above, we have determined that the main problem around stablecoins is insufficient information about the real assets backing them, the fluctuation of the value of underlying assets, and manipulations by the parties managing them. At the same time, the key problem around smart contracts tokens is volatility.

Is there any alternative? Let’s try to figure it out by answering some questions.

What is the main and most valuable asset in the modern economy? It is time, isn’t it?
Is time volatile? No, 1 hour is always 1 hour.

So, what about creating the radically new type of stablecoins that would be backed by time, namely, the work time of qualified specialists.

For example, each time-backed stablecoin would allow a holder to get the respective scope of services performed by the company behind this stablecoin.

The cost of labor, especially qualified specialists, increases every year. The demand for blockchain specialists grows by __300%-500%__yearly. This has resulted in a significant increase in the level of wages in the blockchain industry. For example, a blockchain developer gets between $70K and $200K per year. A blockchain quality engineer gets around $107K-$117K per year. Due to rising demand and industry growth, in the coming years, the figures may be much higher.

So, the value of such a stablecoin for a holder can either remain stable or move up. Also, this stablecoin would allow a holder to fix the price of services he will get in the future at the time of purchase. Thus, investors can buy a stablecoin today but use it only a few years later.

Smart contracts auditors are among the most demanded specialists in the modern crypto market. So, what if we back the value of a new stablecoin by the work of smart contracts auditors?

This Thursday, the company Hacken is going to release the Engineering Team Day (ETD) stablecoin.

Holders of this asset will be able to use it to pay for smart contracts audits by Hacken. Each ETD will be backed by 8 hours of work from the team of smart contracts auditors. It will act as a risk-free investment for the projects for whom security makes a difference.



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What does the term “stablecoin” mean?

Unlike highly volatile popular cryptocurrencies, stablecoins are virtual assets that maintain their value since they are pegged to less volatile assets such as the euro or US dollar. Stablecoins may be also linked to other assets such as metals or even other cryptocurrencies. In the crypto field, stablecoins perform the function of reserve currencies.

The key mission of stablecoins is to provide price stability for users transacting across coins as well as between fiat and digital currencies. The money in the reserve serves as collateral for stablecoins. Thus, when some users decide to cash out, the proportional amount is taken from the reserve to keep the price stable.

There are 3 main types of stablecoins: fiat-based, crypto-collateralized, and non-collateralized stablecoins. The first and largest stablecoin is Tether (USDT) which was created in 2014. According to the Tether website, the stablecoin’s reserves mostly consist of commercial papers, treasury bills, cash & bank deposits, corporate bonds, funds, and precious metals. Tether’s value should always stand at $1 per USDT. The list of other popular stablecoins includes Dai, Binance USD, TerraUSD, and USD Coin.

Stablecoins reduce the dependence of crypto traders on fiat thereby eliminating the need to pay fees or other commissions related to converting fiat to crypto or vice versa. Stablecoins may be also used for the international transfer of money such as donations.


What are the issues associated with stablecoins?

Stablecoins are used as a niche currency, they do not bring investors great profits. Since stablecoins are widely used by individuals and companies worldwide, they may be subject to regulations in the coming future. Also, stable does not mean that these virtual assets are secure for users. More than one-third ofstablecoins ever created failed.

According to CoinMarketCap, the total market capitalization of stablecoins is $186B. This amount is even greater than the total reserves (including gold) of the United Kingdom ($180B). Such a big market cap raises the question of whether companies behind stablecoins would be able to convert all these assets into fiat immediately if all holders decide to exit crypto.

Let’s outline the main issues affecting different types of stablecoins.

Fiat-backed stablecoins

As of now, there is no standardized way for fiat-backed stablecoins to disclose information about the assets behind them. Investors do not know, for example, whose commercial papers Tether holds.

Also, the other warning sign is that Tether, the stablecoin with a market capitalization of $82B, has just 31 employees listed on LinkedIn. So, the question of whether companies behind stablecoins have enough fiat or other real assets to back all their market capitalization remains open.

Crypto-collateralized stablecoins

There is the need to use a set of protocols to ensure the stability of these stablecoins when the price of underlying crypto fluctuates. The other mechanism of price stability provides for over-collateralization when the value of underlying cryptocurrencies is twice or even more times higher than the value of stablecoin. These stablecoins are complex to understand both by individual and corporate players. These types of stablecoins can experience price fluctuations, thus, they are not stable by nature. Also, crypto-collateralized stablecoins are subject to third-party risks. If a cryptocurrency they are pegged to collapses, these stablecoins may also experience a value drop.

Non-collateralized stablecoins

They are not backed by any collateral and are governed by a sovereign. Thus, there is always a risk of human error that may result in an imbalance between demand and supply for these stablecoins. non-collateralized stablecoins can also lead to the Ponzi scheme. When new investors stop coming, these stablecoins collapse.

Existing alternatives to stablecoins

The other big type of virtual assets are smart contracts tokens. According to CoinMarketCap, their market capitalization is $540B. The most popular smart contract tokens are Ethereum, BNB, Cardano, and Avalanцche. The role of smart contracts cannot be underestimated during the time of Web 3.0 transformation. Decentralized apps, metaverse and gaming tokens, and Web 3.0 solutions, all are and will be built on smart contracts.

Smart contract tokens cannot act as a reserve currency in the crypto world. Their value heavily fluctuates and any security concerns can cause panic sales among investors. Generally, it is hard to estimate the real value of smart contract tokens since they are backed by technology, the demand for which is subject to fluctuations.

Radically new type of stablecoins - how can it look like?

Based on the information provided above, we have determined that the main problem around stablecoins is insufficient information about the real assets backing them, the fluctuation of the value of underlying assets, and manipulations by the parties managing them. At the same time, the key problem around smart contracts tokens is volatility.

Is there any alternative? Let’s try to figure it out by answering some questions.

What is the main and most valuable asset in the modern economy? It is time, isn’t it?
Is time volatile? No, 1 hour is always 1 hour.

So, what about creating the radically new type of stablecoins that would be backed by time, namely, the work time of qualified specialists.

For example, each time-backed stablecoin would allow a holder to get the respective scope of services performed by the company behind this stablecoin.

The cost of labor, especially qualified specialists, increases every year. The demand for blockchain specialists grows by __300%-500%__yearly. This has resulted in a significant increase in the level of wages in the blockchain industry. For example, a blockchain developer gets between $70K and $200K per year. A blockchain quality engineer gets around $107K-$117K per year. Due to rising demand and industry growth, in the coming years, the figures may be much higher.

So, the value of such a stablecoin for a holder can either remain stable or move up. Also, this stablecoin would allow a holder to fix the price of services he will get in the future at the time of purchase. Thus, investors can buy a stablecoin today but use it only a few years later.

Smart contracts auditors are among the most demanded specialists in the modern crypto market. So, what if we back the value of a new stablecoin by the work of smart contracts auditors?

This Thursday, the company Hacken is going to release the Engineering Team Day (ETD) stablecoin.

Holders of this asset will be able to use it to pay for smart contracts audits by Hacken. Each ETD will be backed by 8 hours of work from the team of smart contracts auditors. It will act as a risk-free investment for the projects for whom security makes a difference.


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