What is happening with stablecoins?
This is something that is of concern to many. It seems that with the implosion of UST, many are leery. Of course, it doesn't help that the typical FUDsters, politicians, bureaucrats, and bankers are all speaking out. Their stance obviously is not one of optimism.
There are reasons to be optimistic. Also, there is a good chance that the stablecoin industry does not unfold how people are envisioning.
In this article we will uncover some of the highlights along with our best guess as to what will happen.
CBDCs Not The Answer
Many feel that Central Bank Digital Currencies (CBDCs) are going to be the answer. Governments all over the world seem intent on implementing them. There is one exception and it does carry a bit of weight.
The United States Federal Reserve held a conference on the role of the USD and a panel discussed the idea of a CBDC for the USD. It was not very optimistic.
Panelists during the Federal Reserve’s recent conference on the US dollar on Tuesday appears to be less than impressed with the underlying technology of a CBDC, claiming that there is no urgent need to move ahead with the digital currency.
In a speech given in August 2021, Fed Governor Waller highlighted a few points that revealed what the Fed was thinking. It obviously has not changed.
His view is that stablecoins could play a role in the monetary and banking system:
If one or more stablecoin arrangements can develop a significant user base, they could become a major challenger to banks for processing payments. Importantly, payments using such stablecoins might be "free" in the sense that there would be no fee required to initiate or receive a payment.16 Accordingly, one can easily imagine that competition from stablecoins could pressure banks to reduce their markup for payment services.
This was stated when pondering the belief that CBDCs would achieve innovation in payments, insinuating the private sector is not already doing that.
The entire speech is worthy of a read yet here is his overall conclusion:
After exploring many possible problems that a CBDC could solve, I am left with the conclusion that a CBDC remains a solution in search of a problem.
Almost a year later, a panel put together by the Fed, the most powerful of central banks representing the global reserve currency, has not changed its stance.
There is no urgency to get out a CBDC because they are not the answer.
Expand The Reach Of The USD
Many mistakenly believe the USD is going to collapse. This is a common sentiment within crptocurrency, one that is repeatedly being proven wrong. As stated on a number of occasions, if anything is going to take out the USD, it best top it in these areas:
- infrastructure
- depth
- liquidity
- sophistication
Thus far, nothing even comes close.
In fact, what we are likely to see with stablecoins is only going to reinforce the standing. When we look at tokens such as USDC, we see it is only expanding the reach of the USD. For all the talk of going the opposite direction, cryptocurrency will actually enhance the scope of the USD.
Obviously not all transactions take place in the USD. There are many currencies throughout the world, all taking a piece of the global pie. However, the USD is the overwhelming leader in these areas:
- Collateralization
- Derivatives
- Payment System (What Governor Waller was referring to)
- Funding/Investment
Essentially, we are looking at hundreds of trillions of dollars at play here. Just the USD portion of global debt is estimated to be at $150 trillion.
Large numbers like these do not just disappear.
That said, we are going to have many stablecoins in the future. The idea of one dominating is not likely going forward.
Dozens Of Stablecoins
Over the next few years, we are going to see a lot of experimentation with stablecoins. The innovation is just getting started. Aave just announced they are bringing out their own USD-backed stablecoin called the GHO.
This is how a lot is going to unfold.
If we look at the raw numbers, we are going to need tens of trillions in stablecoins to adequately facilitate the volume of economic activity that is going to take place, especially with the digital world exploding.
For this reason, simple math shows we are not going to have just one or two dominant stablecoins. Instead, we are likely to see dozens created, with around 10 being major players. By this we could see those having 1 trillion units or more in circulation.
Also, we are going to see many, if not most, have the USD as the unit of account, even if it is not directly tied to it. This is what will merge into the hundreds of trillions globally in USD denominated assets.
In the digital realm, if we are trying to cross a river, no need to build just one major bridge. We have the capability to easily construct dozens of bridges to handle the traffic.
Where Does HBD Fit In?
Over the last year, a lot of attention was paid to the Hive Backed Dollar (HBD). What is its future?
The reality is that all stablecoins will travel the same path if successful. Ultimately, it all comes down to utility. That means building the infrastructure, providing depth and liquidity, and establishing sophistication around it.
At the same time, it will have to enhance it standing as a payment system, vehicle for investment, derivatives tied to it, and the collateralization for lending that is created.
Those that can capture the network effect, i.e. users, will see their reach expand. This, naturally, needs to be coupled with development and innovation. If HBD can see additional layers added, the utility will skyrocket.
This is the general trend the stablecoin market can take. We might not know the exact players but we can see some broad designed being established.
What are your thoughts? How do you see this playing out? Let us know in the comment section below.
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Maybe the solution is to use stable coin for payment. For example, we can create markets selling with HBD. That will be awesome. At least online selling products will be good. Something like Amazon. I don't know if that exists with hive or not ?
Payments is only one aspect to giving value.
There is also:
We need to approach all the different areas.
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Basicly, I'm full agree with you in everything you say on this post. I think stablecoins will become more and more important and prevalent in the future. And, like you, I think that they will not come to replace the dollar as such (as many think), in fact, they will come to reinforce the power of the USD in many aspects. Due while it is true that cryptocurrencies have the potential to replace fiat money at some point in the future (many decades from now), it is also true that many advances will have to come in many areas before that happens.
Because as long as the capitalization base of all existing crypto is, basically, the US dollar (and that is the way how it works and is how everything be at the present time); I think that it will not be possible to believe on that situation. I mean, until that scenario changing, the circumstances will not right for stablecoins to replace the US dollar or fiat money (and honestly, I think we're not even close to anything like that).
Obviously, the banking system and governments (deep down) do not like the idea of any means of payment that compromises their traditional levels of control within the monetary system. But stablecoins are part of the future, and they will not be able to simply decide to stay out of them, or ignore them, due if they do, they will risk also missing out on the benefits they can bring in every way.
As for HBD, I think it has a lot of potential to be one of the most valued and best established stablecoins in the future, if it continues as it goes.
Very interesting publication. Greetings.
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The banks and other financial entities hate the fact that they will lose control. They have done well establishing itself as the gatekeeper.
As for the USD, it will be the unit account at a minimum since there are 4 generations of people who understand it.
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That is very true. Greetings.
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Excellent write-up, my good sir. As a perma-bear on US stocks, I see no way to safely store wealth in fiat, as the daily devaluation of the currency lowers purchasing power closer and closer to absolute 0.
I remember learning about UST as it was just beginning to explode last year (after i speculated a little on LUNA - not a good idea), and thinking, how is it possible that they guarantee a 20% return on deposits, when the Anchor Protocol is barely lending out 30% of deposits for income.
It was as if Terraform Labs originally created a wildcat crypto bank that had 0 oversight or accountability when SHTF.
I am extremely bullish on HIVE longterm, and HBD as well. I believe that HBD is the only stabelcoin currently in existence that isn't actually directly pegged to a fiat currency (or basket thereof, looking at the upcoming $SILK stablecoin from Shade Protocol).
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The utility of both UST and LUNA was minimal at best. That was the main problem from the beginning.
As for the US market, to me it is risk on/risk off. We are in the latter right now. By the end of the year, I am going to position myself for the flip to risk on.
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i gotcha. Yeah I've avoided any stablecoins other than HBD, and I chose HBD because it isn't totally controlled by BlackRock coughUSDCcough or Paxos coughBUSDcough
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I think that within the crypto environment, stablecoin should be strictly regulated by key players in the industry. Minting of stablecoin shouldn't be done by any kind of person or entity.
I disagree completely.
Putting our trust in government is an awful idea.
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I mean that the regulation should come from the key players within the crypto industry, not the government.
I wonder why they were called "stable coins" to begin with if they're associated with Volatility🤔🤔
The idea of pegging led to the name.
But stabiilty come from a many different areas. It is important that projects start to build around that to push the value to the stablecoins.
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Alright Noted💯
What a scary thought for banks that payments and transactions might be "free". 😅
Same for Western Union and Moneygram.
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Western Union and Moneygram are the equivalent of Blockbuster Video, I don't know how they survive in the future, they are nearing being totally redundant now.
I would add PayPal to the list.
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hope everything is ok. coin will help us get rid of the domination of money and inflation
CBDCs are rat poison but stablecoins do make a lot of sense. A matter of fact I'm using USDT for all sort of purchases almost on a daily basis. While Bitcoin can't be called a true payment currency yet we can clearly say stablecoins have great chances of achieving that soon. No wonder these are gaining so much capital.
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I agree with you.
CBDCs are going to end up as major disappointments. We are going to see a lot of innovation out of the crypto sector which is going to far outpace what these CBDC become.
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For me, the answer is as an old saying goes: Do not put all your eggs in one basket, in short, have many fronts open in case of any eventuality. But without a doubt, Stablecoins, despite everything, are our best option when it comes to protecting ourselves due to the volatility of the market.
Hard to protect completely against volatility when the markets are so small.
Cryptocurrency is still miniscule as compared to the overall finance/monetary system.
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I think HBD has the potential to become a formidable player in the stablecoin market because it's steadily building the systems required to function as a 'proper stablecoin'. We're still in the infancy stage, so many things can go wrong but I'm quite certain that it'll be able to grab a good market share.
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I concue. HBD has enormous potential. We have to take the proper steps and keep building it from the base.
It has a strong foundation being built on Hive.
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It's a pretty mixed-up theory I'd say. Doom for the dollar would kill all stablecoins tracking the USD as an underlying currency.
Before that would even be possible, considering that stablecoins only promote the importance of the USD, the world would have to have taken a shift away from pricing commodities against the dollar. Without replacing that one function, there's no replacing the USD.
Side-note; for linking purposes, that Aave announcement was also published on leofinance here (would be great for SEO and my publicity obviously) if that was the referred article instead;)
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The USD is a lot bigger than just being used to purchase commodities. That is a key point that many people miss.
When we look at the financial system, the USD is deeply entrenched.
The idea about the doom of the dollar was spewed over the last 30 years and yet it only keeps expanding.
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StableCoins are bedrock that have help prevent unnecessary investment liquidity, image a case where stablecoins are not in the crypto space it will be chaos when market start dumping.
Overall i consider stablecoins as safe heaven for investment.
A need for regulating stablecoin will be a great start.
Depending on which one. what happened with UST was a tragedy for people who only wanted security
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They can be. Not sure we are there yet. The utility is not there.
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