Stablecoin Revolution?

By Gerry Brady | Blog

Mar 01

Bitcoin, Ethereum, Litecoin (and many more) have emerged over the last 10 years as gateways to the Crypto World. They have been called “digital currencies” but some critics say that they fail that test for a whole host of reasons. One reason often given is that their value can fluctuate way too much against the established digital currencies with which we are all familiar e.g. the US Dollar, the Australian Dollar, the British Pound, the Yen, the Euro. We call these conventional currencies “fiat” currencies and they have been digital for many, many decades ever since banks adopted computerized Ledgers.  This fluctuation risk is a problem because, for example,  if a merchant were to accept Bitcoin in settlement of a trade, he/she could find its value in fiat terms suddenly dropping at an alarming rate (or admittedly, rising).

Let’s give an example.  An car retailer accepts Bitcoin in settlement for the sale of a new car and expects to hold that Bitcoin for a period of time in order to pay for something that he/she has in mind. That period of time may be only minutes. But if the car retailer holds the Bitcoin for any period of time (even a few minutes), it is exposing itself to grave risk. Any plunge in the fiat value of that Bitcoin holding could wipe out all of the profit (and more) that was made in selling the car.

If the car retailer wants to pay for something with those Bitcoin e.g. his staff wages then he could have a very big problem. Not only has he/she lost a significant amount of fiat value by holding the Bitcoin, he will still have to pay his staff wages in contracted amounts of fiat currency. So, suddenly two losses emerge where there was just one.

Such a car retailer will not remain in business for long and all his staff will soon find themselves without a job.

If the alternative were to happen and the Bitcoin rose sharply in price, then the car retailer would have a sudden, instant profit that may even outway by a large amount the profit he/she made on selling the car. If this were to continue, then how long do you think it would be before the car retailer stopped selling cars, sold off his buildings, sacked his workers and switched to Bitcoin investment as his chief business model?

In other words, such a car retailer will not remain in business for long and all his staff will soon find themselves without a job.

This week, we have seen a very significant event in the Crypto world. The 24 hour Volumes traded in Bitcoin have been exceeded by a Stablecoin, Tether.

The Bitcoin Volume over the last 24 hours (at time of writing) was US$ 10.875 Billion.  The Tether Volume was US$ 11.303 Billion. This could be a significant day in the history of Crypto. Time will tell.

Another Stablecoin that is growing in Daily volumes traded is the USDC  by Circle & Coinbase. It was released in October last year so it has been trading for just 5 months. Volumes have risen from around US $ 100,000 per day to $ 55 Million per day.

Another one, the True USD Stablecoin Daily Volume has risen from US$ 1 Million per day to US$ 125 Million in just under 12 months. The PAXOS Stablecoin Daily Volume has risen from US$ 2.5 Million per day to US$ 120 Million over the last 5 months.

And the DAI Stablecoin daily volume has risen from US$ 100,000 per day to US$ 37 Million in just 12 months. The Gemini Dollar volume has risen from about US$ 75,000 to US$ 248 Million.

JP Morgan, the giant US bank just announced its own Stablecoin for in-house use only to be used as an accounting tool to facilitate low cost data storage on a blockchain or DAG (a Directed Acylic Graph).   JP Morgan settles $6 trillion of transactions on average every day between clients of its wholesale payments business. It is highly likely that all banks and all large entities will eventually have similar (private) Stablecoins to serve the same purpose.  The JPM Coin will initially run on top of Quorum, the private version of ethereum developed by the bank and EthLab. In future, they could use any blockchain technology. They are not tied to ethereum.

Get the drift?  The Stablecoin revolution is coming. And these should (theoretically) replace the older gateways such as Bitcoin, Ethereum. Litecoin etc.  Of course, there is theory and then there is reality.  But if that happens, the question must be raised — what will happen to the price/value of the old gateways?

If you wish to read more about this revolution, take a look at this report.

Link:  https://www.blockchain.com/research

Stablecoins will almost certainly be the bridges, the gateways into the New World of Crypto which will look very different to the Old World of Crypto. Prepare to be shocked at the speed of this transition.


Make your own conclusions, do your own research. Avestix does not offer investment advice.

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