Stablecoins 2019: How Fiat Coins are Changing the Landscape of Cryptocurrencies Moving Forward
The down in the cryptocurrency market has led to an increase in stablecoin issuance. Right now, there are over 50 stablecoins being offered today.
The big question here is how stablecoins are going to fare in the coming year. And for many, one of the best ways to gauge the future is to look at the past.
What is a Stablecoin?
Stablecoins represents a stable collateralized asset blockchain that functions as a hedge against crypto collateral price volatility and decline. Generally, stablecoins are backed by assets like the USD and other fiat currencies. Sometimes, they are even backed by gold. There is no appreciation value either.
Stablecoins can be used to provide greater stability to one’s portfolio, and some even apply them for payments. However, one major limiting factor in stablecoins’ proliferation is the speed of the underlying blockchain.
Stablecoins have a crypto structure and it has one only by design to satisfy tokenization and to prevent double spend or on-chain rehypothecation. The majority of stablecoins are centralized.
A driving force behind stablecoin expansion is the lack of trust in Tether, the fist stablecoin to be developed. Even though Tether was seen as a slow blockchain with a few miscalculations, it has also been described as a trailblazer in the industry. Right now though, there seems to be a shift as well. New entrants into the area, such as GUSD, PAX, and USDC are next-generation stablecoin designed to improve the stablecoin industry.
Overcoming the Challenges
Scaling is one of the major issues associated with current stablecoins. Most of the coins are not user-friendly for those who do not understand the underlying structure and they prohibit onset and payment velocity. It is also difficult to predict which one will emerge as the strongest, even with all of the competition.
Some are pointing to sidechains as the solution to scaling payments. The problem there is centralization. The ideal point for some would be to reach a point where there are sufficient levels of decentralization and security for maximum transactions.
Differentiation May Help
For current and future issuers of the technologies, differentiation may be best. To differentiate, it may be best to rely on optimized technology and service providers that allow for cheap and fast transactions. Stablecoins do not have the large networks that various credit card companies do. As a result, they need to look for a method for uniform transactions across various technologies and borders. While applying these mechanisms, they need to ensure that the architecture is fast and secure.
Some are pointing to a clearinghouse of stablecoins, which may promote immediate quasi-fungibility. This may promote anti-money laundering, ensure a check-and-balance system, and more efficient use of stablecoin applications. It’ll be interesting to see how 2019 goes.