Stable coin - the future of cryptocurrencies?

A stable coin, i.e. a virtual currency linked by value to other goods, may turn out to be the future of cryptocurrencies. Such a currency is closer to real money because its value does not change as rapidly as in the case of classic cryptocurrencies.

Individual countries' approaches to bitcoin vary. Some consider it an acceptable medium of exchange, others forbid it. There are central banks that keep some of their reserves in bitcoins. There is no consensus among professionals as to what bitcoin is - a means of payment, money, or maybe a huge fraud.

- Bitcoin is not digital money, because it is subject to too large fluctuations of the exchange rate, which makes it impossible to use it in transactions - explains Prof. Krzysztof Piech [1], director of the Center for Blockchain Technology at the Lazarski University. As of January 2017, bitcoin was worth $ 900. Now its value is approaching $ 40,000. Only during the pandemic that has been ruling us for a year, its rate has increased by 400 percent

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Stablecoin is intended to combine the advantages of cryptocurrency with the stability of traditional money. This is achieved by correlating the exchange rate of the virtual currency with a traditional currency, a basket of currencies, gold, or other goods not subject to such rapid changes in purchasing power as the classic cryptocurrency.

For now, the publishers of stablecoins are private companies. The most popular of these currencies is the tether. It has existed since 2014. It is pegged 1: 1 to the dollar and is always aiming for that value. According to the declaration of the publisher of this cryptocurrency, it is fully covered in dollars, but no external audit was carried out to confirm these declarations. Every report about the introduction of own cryptocurrencies by the largest internet giants causes a big stir in the markets.

China is closest to introducing a state-owned cryptocurrency. Stablecoin-yuan was to be introduced to general circulation in 2020. For now, more tests are underway to distribute [3] million e-yuan to citizens for quick spending. Recently, reports on this cryptocurrency are scarce.

The European Central Bank is also getting ready to introduce the digital euro. Consultations have taken place on this matter. There is probably still a long way to go to the start of the crypto-euro. This is referred to as a five-year perspective. The National Bank of Poland is not planning to introduce the crypto-zloty yet, explaining it with the attachment of compatriots to paper money.

Coronavirus and the growing importance of stable coins

The global Covid-19 pandemic has resulted in a significant increase in the level of investments, mainly in Tether and USD Coin, in recent weeks. Investors, too, did not miss smaller indices such as Binance USD or Paxos Standard. An interesting fact is that all the cryptocurrencies listed are backed by the US dollar.

Markets' demand for stable coins has reached a new historical high (ATH) of $ 568 million.

In addition to the aforementioned facilitating entry into the cryptocurrency exchange, stable coins allow you to freeze the current income obtained in connection with cryptocurrency trading. In situations of large fluctuations on the crypto exchange, the currency used at the moment is converted into a stable coin. That is why, at times when the value of classic cryptocurrencies was falling, it was easy to observe an increased tendency to invest in stable cryptocurrencies, allowing to withstand the recession without losses - comments Rafał Tomaszewski, editor of Fintek. pl. - Now, admittedly, the bitcoin price is increasing, which is related to the halving of this cryptocurrency announced for the second half of May. Remember, however, that the last few weeks have not been kind to bitcoin itself and the rest of the cryptocurrencies - he adds.

Financial Stability Board league

The increase in the importance of stable coins worried the Financial Stability Board. It is the international body that monitors the global financial system and makes recommendations within the G20 committee.

On April 14, the FSB issued a recommendation to central banks recommending the regulation of trading in stable coins or a total ban on their use in their countries.

The main threat posed by the growing popularity of stable cryptocurrencies is the strengthening of a country-independent substitute market. According to the FSB, too large investments in stable coins will have a negative impact on the flow of physical cash and will shake the exchange rate of government fiat money (the so-called fiat currency) - comments Michał Dąbrowski, Managing Director of FinTech. pl.

There is also a risk that in emerging economies, stable coins attached to local currencies may completely replace fiat money, retail deposits, or safe assets. The authors of the document say this could "exacerbate the banking panic."