Unlike classic cryptocurrencies, stable cryptocurrencies (stablecoins) try to keep their exchange rates constant. Most stablecoins' exchange rates are pegged to those of fiat currencies, and, at first glance, seem to offer nothing new to investors. However, sometimes it is still a viable option to invest in them using the issuer's token, and even when one uses stablecoins for non-investment purposes in order to solidify their trading profits, one needs to understand which stablecoins one is dealing with.
Since G7's statement about the dangers of stable cryptocurrencies, the question of trusting such currencies became especially critical to the current powers. Libra's launch by Facebook has essentially been stopped by the American government, and the most successful active stablecoin – Tether (USDT) – faces all kinds of controversy all the time. In the fall of 2019 a lawsuit for over $1 trillion was filed against Tether Ltd (which was dropped later, though).
Corporate Cryptocurrencies Are Under Attack
It is not just stable currencies that were targeted by the governments in 2019, but also (and sometimes to a greater extent) cryptocurrencies issued by private corporations that were potentially capable of granting their issuers significant power. This is especially true in the case of Libra, as it could turn social networking site Facebook, which has over a billion clients, into a virtual superpower.
Telegram Open Network became another victim of bans, and lawsuits against it are still going on. Tether (USDT), which was mentioned above, is also an example of a corporate currency from an opaque company called Tether Ltd that has long been hiding the information about the coin's reserve fund. Some governments (such as that of Germany) have openly stated that they are going to combat corporate cryptocurrencies as their top priority (without making any emphasis on their stability).
There are a number of reasons why corporate cryptocurrencies were the first to be threatened by governments:
- Corporate currencies are easier to take legal action against than decentralized international systems. Any action against the issuer increases the risk of a default, unlike any possible sanctions against decentralized projects that can continue their business in secret.
- Rather than simply challenging the power of national banks (which is also true of any other cryptocurrency), they shift the balance of power in favor of their issuer, which allows it to compete with the government.
- Proprietary corporate cryptocurrencies do not enjoy as much support in society as decentralized, open-source cryptos, as they fail to exemplify the romantic ideals of the crypto market. The crypto community is quicker to accept government action against them than that against Bitcoin or other decentralized currencies.
Solution One: Complete Loyalty to the Government
Back in 2017, when the first signs of trouble for the USDT stabilization fund had just begun to appear, a number of stablecoin projects were created that were prepared to follow the governments' rules to the letter: identify their users through KYC regulations, audit the reserve funds, etc. Despite these projects' association with commercial companies, they turned out to be more transparent and decentralized than Tether – for example, they allow the existence of several issuers. The most well-known projects are:
- USD Coin (USDC), with a market cap of $445 million.
- Paxos Standard (PAX), with a market cap of $223 million.
- True USD (TUSD), with a market cap of $148 million.
- Stasis Euro (EURS), with a market cap of $35 million.
The first three coins duplicate USDT functionally, tracking USD exchange rates and providing USD reserve funds. EURS is different as it is pegged to the euro, has an audited euro reserve fund, and operates under a relatively liberal Maltese jurisdiction.
All of the above coins can easily be found on the major regulated crypto exchanges, such as Coinbase, Poloniex and Paxos. However, be prepared for authentication procedures.
Solution Two: More Decentralization, Fewer Ties to the Traditional System
Those projects that do not require their users to follow the laws of any specific country keep their own niche. The greatest advantage is currently held by decentralized projects that are independent from both governments and corporations.
The most well-known such project is Single Collateral Dai (SAI) from a decentralized autonomous organization (DAO) called Maker. Despite the currency's exchange rate being pegged to USD, it has no actual USD fund, and uses Ethereum as a reserve fund. However, like the funds of USDC and similar projects, SAI's reserve fund is transparent to the public. SAI is considered a good example of a reliable independent project, and its issuer, Maker, has its own token, MKR, for those who want to invest in it. On the NASDAQ stock exchange this token is included in the DeFix index (leading DeFi assets), run by the EXANTE company. SAI's market cap is relatively modest currently – just $35 million – but MKR's capitalization has already reached $515 million, which is more than that of USDC.
Another stablecoin with a crypto reserve is BitCNY (BITCNY). It tracks the Chinese yuan's exchange rates and is reserved in the BitShares (BTS) cryptocurrency. Despite a modest market cap of $6.6 million, this stablecoin deserves being mentioned as one of the oldest. It was launched in 2014, when loyalty to governments was not as critical as it is now. Other pioneers were not as lucky. For example, the USD and euro stablecoins, BITUSD and BITEUR, developed by the same company, currently have market caps of $1.7 million and $122,000, respectively.
2019's New Stablecoins
Although the above projects have addressed many shortcomings of USDT and its earlier predecessors, the stablecoin market continues to develop. Some of the new coins became available in 2019, and some of them already have market caps of several million dollars:
- USDK (USDK). Market cap of $29 million. Traded since August. Pegged to USD. Issued by the OKLink company, associated with the OKEx exchange. Authentication required.
- CryptoFranc (XCHF). Market cap of $11 million. Traded since October. Pegged to the Swiss franc and reserved in actual francs. Reserves are audited regularly. Developed by the Swiss company Swiss Crypto Tokens AG. Authentication required.
- USDQ (USDQ). Market cap of $5.6 million. Traded since July. Pegged to USD, reserved in BTC. Developed by the Platinum consulting company, but is decentralized, as it functions through Q DAO with the QDAO token (market cap of $1.7 million) and its own mining community that runs the project.
Currently we can see new corporate stablecoins that follow the mold of TUSD and other regulated coins on one hand, and new independent decentralized systems more reminiscent of DAI on the other hand. The market has demand for both types of projects, and the future depends to a large extent on the attitude of the governments towards stablecoins and corporate currencies. While back in the fall it seemed decidedly negative, January saw a positive turn in TON's lawsuit, and perhaps the pendulum may swing even further towards liberalization.