University of California, Berkeley Economist Warns About Stablecoins Trouble

Stablecoins Can Mean Trouble, Economist Warns

With several stablecoins appearing all the time in the crypto market, Barry Eichengreen, an economist from the University of California, Berkeley, has affirmed that several unseen risks can start to appear.

According to the professor, there is simply no safe model for stablecoins in the cryptocurrency world at this moment. Even in cases like Tether (USDT), which have money in banks to back the tokens. The usage of coins like Tether is very awkward, and additional regulatory matters like the usage of these cryptos and not being as liquid as true USD can be issues found by the investors.

The professor affirms that this might be attractive to criminals and money launderers but not to other people as these tokens do not have a scalable model of business and they would only lose by not using USD. He believes that there is the chance that governments around the world will not even let these tokens be used.

The Real Trouble Is For The Unbacked “Stablecoins”

If tokens like Tether USD can face some problems, the others are even most likely to fail. Partially backed or unbacked stablecoins are being created fast and they do not work so well. Basis, for instance, is a project that uses an “algorithmic central bank” without any collateral. The token has many problems, the professor believes.

According to him, while the creators believe that the price cannot be manipulated by speculators, they can be. If the platform buys and sells tokens to keep the price steady, people can also manipulate it. Platforms like BitUSD-BitShares faced several problems to keep their price in the past. Deliberate attacks could also cause several problems.

The Gemini stablecoin can be the beginning of the change. The token has pegged its value to the USD and, unlike Tether, Gemini exchange is considerably more trustworthy.

However, most stablecoins, even the ones pegged to the USD, are unstable due to their lack of liquidity. Tether takes most of the market, so it has more liquidity than all of the other tokens together so far. TrueUSD (TUSD), is the second most powerful stablecoin and it has only 0.1% of the whole market against 20% of Tether.

Some analysts believe that stablecoins are just a temporary solution as the market evolves and it develops more solid sources of valuation, but right now, they are considerably more risky than people actually say that they will be.

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