Stablecoins vs Shitcoins: Are Fiat-Pegged Tokens The Same Quality As Useless Coins?

The Stability and Quality Of Stablecoins

As many already know, Stablecoins have received a lot of praise as the coins that can solve the volatility issues of cryptocurrency. They are said to have the potential to change the way crypto trading works and to speed up crypto adoption. They are to do this by reducing the price risks and make the coins more attractive to merchants and investors alike. But how good are they actually?

The Issue of Centralized Cryptocurrency

The first thing that everyone learns when studying and exploring cryptos is that they are decentralized. This means that they do not have an entity that would control them and that all the power is in the hands of the users. At least, this is how it should work in concept. While there are a number of coins that have managed to pull it off completely, a number of still unresolved issues, like large volatility, followed.

To solve those issues, we have also developed coins that are to mimic the price of fiat currencies, such as the USD. However, this brings a large level of centralization into the equation. This is due to the fact that a Stablecoin is backed by the traditional currency, and the amount of coins is equal to the amount of money that the company that launched the coin possesses. That way, the Stablecoin can keep its price stable.

However, there are numerous new issues here as well. For example, if the investors were to find out that the company doesn't possess as much fiat money as they claim, and their Stablecoin is backed by nothing but promises, it could lead to a disaster.

To avoid such a fiasco, new Stablecoins are obtaining government licenses and regulatory approval so that the investors would be sure that their coins truly have value. The Gemini Dollar, launched by Winklevoss twins, is one example of such a coin. It is fully regulated, which allows investors to rest assured that all claims regarding the coin are valid. Additionally, this means that the US dollar reserves are bound to the coin, but money transmission rules are bound to it as well.

Basically, the Gemini Dollar owes its existence to the government and permissions that it provided. This also means that the coin would die as soon as the government decides to turn on cryptos. It would become worthless, and everyone holding it would lose their investment entirely.

The issue here is the fact that cryptos are unstable and volatile. Their price is still determined in comparison to fiat currencies like the USD. The use of Stablecoins in order to get around the volatility issues means trying to bridge the crypto market and assets backed by the government. Basically, stablecoin would act as a banknote backed by the government itself, in its attempt to breach the crypto market.

Obviously, this means that stablecoins are not cryptos. They are simply a digital version of the real-life money, and as such, are fully controlled by the government. They are even worse than fiat currencies, since investing in them means losing everything if the government decides to scrap the project. Additionally, it is likely that they will never scale, which limits their use case to simple asset trade.

Are They Truly Stable?

The answer to this question is debatable, at best. As mentioned earlier, the coin can be stable due to the fact that it is backed by a stable fiat currency. However, whether it will remain stable depends solely on the coin's governing body. Additionally, the coin must have some sort of proof that each token is backed by the appropriate amount of traditional currency.

If the doubt of coin reaching its limit appears, the market will, undoubtedly, react with a correction. There have been attempts by some coins to work around this by being uncollateralized, or at least only partially collateralized. However, even such solutions only create new problems.

In the end, it can be concluded that stablecoins don't really have much to offer. Real cryptocurrencies like Bitcoin and its numerous altcoins are still a long way away from entering the mainstream usage. However, they do show signs of making progress, and there are reasons to believe that the time when our lives will revolve around cryptos will come. Stablecoins do not offer any such vision of the future, and their use case continues to revolve around trading and nothing else.

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Bitcoin Exchange Guide News Team
B.E.G. Editorial Team is a gracious group of giving cryptocurrency advocates and blockchain believers who want to ensure we do our part in spreading digital currency awareness and adoption. We are a team of over forty individuals all working as a collective whole to produce around the clock daily news, reviews and insights regarding all major coin updates, token announcements and new releases. Make sure to read our editorial policies and follow us on Twitter, Join us in Telegram. Stay tuned. #bitcoin

[Alert] Use the author's self-conducted information at your own risk, do you own research, never invest more than you are willing to lose.

[Disclosure] The published news and content on BitcoinExchangeGuide should never be used or taken as financial investment advice. Understand trading cryptocurrencies is a very high-risk activity which can result in significant losses. Editorial Policy \\ Investment Disclaimer


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