The digital assets market, however, tends to fluctuate steeply from minute to minute, making the realm of cryptographic assets fertile ground for speculative investors and market manipulators looking to take advantage of the volatility of virtual currencies.
As a result of the crypto market’s volatility, digital assets pegged to safe-haven assets (Gold, Silver etc.) or fiat currencies have proliferated the scene in recent times. These so-called stablecoins offer investors a short to a midterm unit of account that maintains a more stable value. Stablecoins are set up to hold value independently of traded markets, and therefore offer a way for traders to weather market turbulence.
Cryptocurrencies, in their current volatile state, miss the mark in terms of the purpose for which they were designed. The deflationary nature of crypto assets don’t incentives their use as a medium of exchange and, as a result, have become increasingly used as speculative tools. This has become the cryptocurrency market’s Achilles’ heel in the bid for mainstream adoption.
“Any application which requires a low threshold of volatility to be viable on a blockchain, consumer loans for example, simply cannot be denominated in a currency which fluctuates 10–20 percent in a day, like Bitcoin and Ether.” Gregory DiPrisco – MarkerDAO
The Future of Stablecoins
“The next wave of the crypto market will be driven by real-world value and real-world use cases,” stated Tory Reiss, co-founder and head of partnerships at stablecoin TrustToken, in a conversation with Inverse.
“This is the true excitement that traders are feeling around stablecoins in 2018: the promise of trillions of dollars of value being easily accessed and traded by anyone with a smartphone, anywhere in the world”.- Reiss
According to the cryptocurrency exchange, Binance’s research arm, stablecoins will increasingly be used as quote currencies for crypto-assets and may grow to overtake Bitcoin as the leading quote currency. Despite currently having low trading volumes and market capitalization, stablecoins have overtaken Bitcoin and Ethereum trading pairs and now represent about 60% of all trading volume (a significant jump from the 35% they represented a year ago.
Controversial Tether controls the majority of stablecoin trading volume while exchange coins are also experiencing an uptick in user patronage. The Winklevoss twin’s Gemini Dollar gave up “nearly half of its market capitalization in the first four months of 2019” but that does not necessarily give us a clear picture of the whole industry, as Coinbase’s USDC stablecoin has seen the largest gains with regard to circulation.
Stablecoin issuers have also begun to diversify into other fiat currencies.
Binance has announced plans to release a stablecoin pegged to the British Pound (GBP) aiming to offer an alternative to TustToken and eToro’s sterling backed crypto assets. This is an indicator that stablecoins fill an important gap with the digital assets space and may continue to be relevant for as long as regular digital currencies’ prices remain volatile.