Serious Stablecoin Threats Emerge at Austin’s SXSW Event: How Will the Fiat Tokens Fare?
One of the most popular methods for hedging against volatility in the crypto market is stablecoins.
Even though tether has been the most popular go-to stablecoin, it recently made a change to its website that has gotten some negative attention. The change went from backing one tether with a USD to the following revision:
“Every tether is always 100 percent backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities.”
This may be an issue. Recently Valerie Szczepanik stated that the nature of stablecoins may cause them to be construed as securities. She explained that stablecoins can be categorized, which means that the tokens are tethered to:
“some real asset, like real estate or gold and oil – Coins tend to a fiat currency held in reserve, and a third category that could become problematic under the law.” She continued,
“I’ve seen stablecoins that purport to control price through some kind of pricing mechanism, whether it’s tied to the issuance, creation or redemption of another type of digital asset tied to it, or whether it is controlled through supply and demand in some way to keep the price within a certain brand.”
Jay Clayton, the SEC’s senior advisor also mentioned that stabelcoins could be a security, regardless of whether they are backed by reserves in a bank or apply the over-collateralization method which ahs been supported by Maker network.
There are those who have issues with the tether reserves because they believe that Tether did not prove its backing. One finance author stated:
“Tether’s U.S dollar peg is no longer credible” and “Perhaps crypto enthusiasts should read up on the fate of Reserve Primary Fund in 2008. Or perhaps Venezuela – After all, an exchange rate peg only holds until the reserves run out.”
Aside from Tether, there are other stablecoins that have worked to received approval from U.S. regulatory authorities.
For instance, Trusttoken (TUSD) has been having issues with transparency and it has tried to address them by providing token holders with a “real-time view” of the platform’s reserves. The platform’s accounting firm developed the real-time solution.
At the end of the day, stablecoins are dependent upon the promise that the platform provides. If there is an absence of liquidity, promissory notes could experience issues. As for Szczepanik, she also stated:
“You’re talking about folks who are buying into that ecosystem, or are buying this coin, with the expectation that somebody else is going to be holding a profit, or guaranteeing a profit or holding the price at a certain level. Again, that could raise issues under securities laws.”