What are StableCoins?

Assessing the value of something can be quite subjective depending on the field of play. For instance, Leonardo Da Vinci’s Salvador Mundi painting sold at an auction for a value of $450 million and it was bought by the Abu Dhabi Department of Culture – this makes it the most valuable painting in the world. To a section of society, that might have been highly over-valued, but to the buyer and possibly seller, the deal was transacted at its ‘worth-value.’

How Then do we define value? The valuation of an asset can be quite tricky but overall, value can be defined as the importance placed on a thing or its relevance by a section of people or market to meet their needs and the amount they are willing to part with for it to meet their needs. Bottomline? It practically depends more on a customer’s perception of the worth of an item, object or thing than on its intrinsic value.

That being said, the primary and economically proven theory of value simply boils down to a combination of demand and supply as such one of the fundamental principles behind the creation of Bitcoin. And one characteristic as a result has been high volatility of the coin and likewise altcoins in the early formative years of the crypto market. When the market rises and sharply so, there are happy people and countenances, but when the reverse is the case, there are gloomy people in panic mode.

Being a very dynamic, fluid, fast-paced and forward-thinking industry, some smart people in the space came up with the concept of stability to help curtail the market’s propensity to be highly volatile, hence the development of StableCoins. The stablecoins of which Tether is currently the most popular have the ability to serve as shock absorbers in this highly volatile market. Since January 2017  through to September 2018, the amount of Tethers outstanding have grown from $10 million to $2.5 billion, yet the entire stable coin cap is less than 2% of the cryptocurrency market.

StableCoins are able to maintain a calm in the crypto-storm because they are backed by fiat currencies as well as precious metals and other assets. The reasoning behind the stable coin concept is so that investors can turn to stablecoins to keep their assets relatively safe and holding favourable value so they can venture back into the market when things are more favourable, without the encumbrances and fees of having to convert from cash back into crypto-assets. As the market starts getting conservative, we can expect to see a rise in the stablecoin era and this could eventually lead to a rise in market share of this asset class.

There are some differences with stablecoins as individual coins differ in the product offerings. Their offerings sometimes seem too-good-to-be-true such that a section of the industry view them with scepticisms. Some crypto-enthusiasts believe stablecoins to be dubious. Tether is the market leader in the stablecoin space, leading with about 80%. With a $2 billion market cap, it pledges one-on-one backing in US Dollars for ‘hodlers’ of USDT tokens. Some people however claim that Tether does not have an equivalent amount of dollars in their coffers to back their claim and coin value. This is further fuelled by the fact that the company has shown little proof of holding an adequate amount of USD in their vaults. This lack of transparency has been sighted has a key factor playing against the growth of the stablecoin market and with Tether, there is no legal right for investors to retrieve their assets in case they go ‘capout.’

This means that an investor will just trust without concrete assurance that Tether and other stablecoins will always be around to safeguard their assets. Meaning that they will just hope without the foresight of analysis and projections that the value of their Tether (USDT) will not drop.