Challenges faced by Stablecoins

It is a particular class of crypto that usually has its value related to another asset, such as a fiat currency, some commodities or other classes of crypto assets.

As for prominent cryptocurrencies, which experience sudden jumps in their valuation – sometimes within seconds – skeptics argue that regular cryptocurrencies are nearly impossible to use as a medium of exchange. Your morning cup of coffee could end up being 25% more expensive in the time it takes to checkout.

In this sense, these assets seek to solve the specific situation through a “guarantee”. Operation in practice varies. In some cases, a currency is kept in reserve based on the amount of stablecoin in circulation, or perhaps a gram of gold.

Since dollars and precious metals are not as vulnerable to erratic fluctuations, most of these cryptos seek to remove “instability” from the equation. In addition, they are considered by some as a safe haven when the sector suffers temporary setbacks.

In addition, it is possible to take advantage of your price movements in trading services, you can register on the website of Bitcoin Prime and access trading applications on the main altcoins.

Although this sounds good, what are the aspects to consider?

Some of the main players in the sector have been accused of a lack of clarity. Tether is the seventh largest cryptocurrency in the world at the time of this writing, and the high-profile stablecoin has a market capitalization of more than $ 4 billion. But his simple promise that each unit is “100% backed” by US dollars has been questioned in recent years, and legal problems have been raised.

Some critics of crypto have requested that digital currencies such as USDT be audited in such a way as to verify the authenticity of their claims; however, this request is still maintained without results.

The recent new requirements modifications on the official website may be revealing, as they could suggest that USDT is asset backed. In addition, it indicates that it is possible to reach accounts to be collected from financing. The assertion that it operates with a fractional reserve arose after a disclosure by legal representatives, where it is stated that the company only has support for less than 80% of the supply.

“A small amount of reserves” is also in Bitcoin, prompting a New York Supreme Court judge to ask why Tether had placed its assets in the same volatile currency that it was supposed to modulate.

All of this comes as an ongoing case by the New York Attorney General’s Office alleges that $ 850 million of USDT funds were used to cover losses at Bitfinex; an affiliate exchange, which undoubtedly affects trust.

What can operators do?

One way to instill confidence and overcome a significant challenge these assets face is total clarity.

USDT’s rivals have taken advantage of its weakness, opening their books to the public and claiming that their cryptos have full protection from the US currency.

One of these products is the USDK. Launched in June 2019, the ERC-20 was co-developed by the OKLink company and the US-licensed trust entity Prime Trust, with independently guarded funds.

The operator says that it offers a guaranteed 1: 1 conversion rate between USDK and USD, and its monetary value is 100% reserved. To this end, independent auditing firm Armanino provides monthly USD reports, maintained by Prime Trust for USDK token holders in order to offer maximum clarity to the public. While the IC reviews are carried out by third-party companies (Certik and Slowmist).

The USDK, which is listed on the major exchanges OKEx and Bitfinex, offers the necessary liquidity for financial agents to make use of crypto.

What will 2022 bring to this class of crypto?

Many experts say that big launches will occur, but that they could lead to new “regulatory dramas.”

Keep an eye on Facebook and Walmart on how their projects are progressing, as well as watch as countries around the world unveil plans to create crypto versions of their own currencies. Regulators will likely have no choice but to come up with a clear framework outlining the place that stablecoins occupy in the economy, but some countries, such as India, could continue to push for a total ban on the use of these assets.

Back in the crypto community, the next few years to come could see exchanges working together to make “crypto-stable” available globally. A boost for disintermediation and financial inclusion. USDK has been launched by listing on both OKEx and Bitfinex, which means that the digital currency can benefit a wider sector of consumers.

On the other hand, in the United States, which has taken a more cautious approach to cryptocurrencies in general, it appears that regulation will depend on the method these assets use to achieve permanence. As a result, those that are “tied to the US dollar” were managed differently from those that maintain a stagnant value with the adjustment of the environment.

Although “regulation” is considered a dirty word, there is an argument that clear guidelines from equity institutions could help this class of crypto – and the crypto sector as a whole – to grow and take hold. Timothy G. Massad, a professor at Harvard’s John F. Kennedy School of Government, believes that strengthening regulations would better protect crypto investors, encourage innovation, reduce the instances in which these digital assets are used for illicit purposes, in addition to lowering the frequency of cyberattacks.

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