There are reasons to invest in stablecoins – but there are some negative aspects as well. This is the first installment of a series of comments on stablecoins.
As the cryptocurrency world develops into a more mature and diverse ecosystem of technologies, the fear of volatility has been brought under control by a new series of “stablecoins” that have been the new darlings of investors. There are two key methods of keeping volatility low – first by linking the cryptocurrency to the US dollar or second, to an established and liquid commodity like gold. With constant fear of price fluctuations in cryptocurrencies, the stablecoins allow institution investors – some who cannot invest in erratic investments – to sleep well at night as the volatility has been lowered considerably.
According to a recent resport, the number of stablecoins has increased over the past 18 months. And there are some, about 45 percent (26) of the total of 57 coins are live, while the reminder are in pre-launch phases. In a report discussed in this article, roughtly 77 percent of those observed are asset-backed with the US dollar being the asset of choice for 66 percent of them. Most of the tokens – roughly 54 percent – utilize on-chain collateral. And about 50 percent of the coins offer “dividends” or have some incentive mechanisms built into their designs.
With the total market value of stablecoins being $3 billion, or roughly 1.5 percent of the total cryptocurrency market, please note that about 60 percent are being exclusively on the Ethereum blockchain platform. There seems to be a lot of new interest in stablecoins but there are pros and cons for the use of these products. We will be touching on these details in a an article on our site soon. More to come.