Stablecoins are a relatively new phenomenon in the cryptocurrency arena which is gaining
popularity.
So what exactly is a
“Stablecoin”?
Stablecoins are digital currencies that are pegged to a
stable asset like fiat currency, gold or even a collateral like cryptocurrency.
It can also be backed by algorithm that governs the approach to expanding and
contracting the money supply. The basic philosophy behind pegging them is
to achieve store of value and use
these stablecoins as a medium of exchange
(two major functions of money).
There have been many stablecoins surfacing in the market.
Tether was the leading stablecoin up till now but it is experiencing a decline.
Fall of Tether
Tether (USDT) promised to be 1:1 pegged to the US Dollar
(having a dollar in reserve for every digital dollar issued) and provide the
benefits of cryptocurrency while staying stable during price fluctuations. Most
people bought USDT through Bitfinex
because it gave them two advantages – buy bitcoins and transfer US dollars
between countries. But Tether has fallen below $1 in the recent weeks. It is
believed to be the largest stablecoin to date but now faces a decline due to
scrutiny over suspicious accounting practices and false claims of having a
one-to-one ratio of US dollars to back its digital currency.
The pro-USDT narrative has been that despite its failure to
provide transparency into its reserves and failing to acquire a proper audit, USDT is still the most widely traded
stablecoin with significantly more volume than other stablecoin competitors.
But their narrative seems to be false as the market cap of USDT has gone down
from $2.8 billion to $2 billion in two months.
Rumor has it that Tether is planning of exiting the
stablecoin market due to increased scrutiny. However, other stablecoins are
coming to the market. To read more about
the upcoming stablecoins, wait for our next blog!
