18 May 2022
The Stablecoin Dilemma
The Stablecoin Dilemma

Stablecoins were initially designed as a haven of stability against the inherent volatility of the cryptocurrency market. The three main types of stable cryptocurrencies that are currently in operation foresee the pegging of their prices to fiat currencies, commodities, and other cryptocurrency reserves through algorithmic exchange mechanisms.

The Types of Stablecoins

The first type of stablecoins that relies on fiat, such as the US Dollar, has long been seen as the most reliable cryptocurrency for daily operations. It allows the user to have some measure of prediction regarding future prices in the medium and long run. The stablecoins tethered to commodities are more prone to volatility, considering that assets like gold and oil experience considerable fluctuations depending on the geopolitical situation prevalent in the world or local economic shocks. The third type of stablecoins that are pegged to other cryptocurrencies are considered to be more of an experiment rather than an actual tool. Since their underlying system is still under development and the predominant volatility of the cryptocurrency market at large is detrimental to their daily operations application.

The Concept of Stablecoins

The idea of stablecoins was conceived as a result of the search for a constant and proverbially stable instrument in the cryptocurrency market. The answer was found in pegging their value to a fiat equivalent, such as the US Dollar, as with Tether’s USDT. But regulation was crucial since fiat remains the most trusted form of currency. Any asset willing to piggyback on that trust had to abide by the same regulations.

Nonetheless, fiat-pegged stablecoins have found ways of integrating into broader areas of cryptocurrency and traditional economies. They allow people to save the value of their assets and trade Bitcoin and Ethereum, especially in times of market turbulence. The currently prevalent instability of the cryptocurrency market has revealed the vulnerability of algorithmic stablecoins. The reason is that traders have lost confidence in their underlying concept in light of the drop in value of such market heavyweights as Bitcoin and Ethereum.

Market Outlook

Though the market situation is unfavorable regarding stablecoins, there is no such thing as a perfect stablecoin. The many kinds of stablecoins that emerged over the years are the results of various market needs and technological experiments with blockchain network calculations. Cryptocurrencies are volatile because they are unbound and do not peg their values to any immutable assets, making them ideal trading instruments. As for stablecoins, they can be pegged to anything but said anything has to remain stable in value. Given that no asset can ever remain stable in value, stablecoins have quasi-stability, which is largely based on a perception of stability.

It is impossible to predict the cryptocurrency market's behavior at large, just as it is impossible to say for certain what future awaits stablecoins. The fact that fiat-pegged assets remain predominant is evident, given the global dominance of fiat as the most stable asset. This gives reason to believe that the cryptocurrency market will continue to evolve existing stablecoin models and perfect them to cater to global economic realities.

The Embily Approach

‚ÄúThere is no such thing as a perfect stablecoin. The many kinds of stablecoins that emerged over the years are the results of various market needs and technological experiments with blockchain network calculations. Cryptocurrencies are volatile exactly because they are unbound, they do not peg their values to any assets, making them ideal trading instruments. As for stablecoins, they can be pegged to anything, but said anything has to remain stable in value. Given the fact that no asset can ever remain stable in value, stablecoins have quasi-stability, which is largely based on perception of stability.‚ÄĚ says Alexander Bychkov the CEO of Embily.

The Embily global payment network caters to all clients using the DAI, USDT, and USDC stablecoins. The given assets have proven to have the best price histories in terms of stability. Embily thus mitigates the risks of associated volatility and ensures that all clients have a high degree of certainty regarding the end value of their payouts.

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