Introduction
At the core of it, cryptocurrencies and stablecoins are being operated with public ledgers which is holding the record of who owns how much of the token. One thing to note is that the value of these tokens comes from their users.
The main difference between them is the issuance authority. A cryptocurrency like BCH has no one issuing authority except miners who will get rewarded for producing a new block in a predictable timeline, I'm not going to get on why we need that, The reader is free to search more about this design. On the contrary stablecoins have one issuing authority which is also responsible for maintaining the value of the token to one dollar.
This one key difference changes the power structure quite a bit. And I believe stablecoin should not be regarded as neutral tokens with no influece in the crypto market. The operators of these tokens have the power to invest in another business as long they are able to maintain the peg of their token to one dollar. And apparently they are doing that.
In this article I will try to make the case that the current major stablecoins are in direct conflict with the cryptocurrencies that are intended to be used as cash.
Comparisons
The following are the common arguments for BCH as cash.
- BCH is a well-known crypto token with liquid markets
- It has fast settlements
- It's easily accessible
- Low fees
- Limited supply
At this time USDT is ahead of BCH for the first three arguments. It has deeper liquidity with near-instant settlements, Fees are low enough for average users and also It's more accessible. The only advantage left for BCH is the limited supply.
And I don't think having a token with a limited supply is a strong enough advantage for competing with stablecoins as money. If things continue like this, BCH may turn into yet another speculative asset to speculate on.
Stablecoins should be considered as a form of investment
As the current major stablecoins shown us, They are willing to invest some of their assets up to a point that it will not hurt their core business.
Basically stablecoins are very liquid form of investment vehicle with zero benefits to token holders other that the ability for you to redeem your money.
And if you look at it, They are investing selectively, For example Tether would lend USDT to exchanges, Which is mostly used to speculate further in the crypto market. And guess what majority of these investments are not going to further the goal of using cryptocurrencies as a means of payment.
Conflict of interest
Tether and Circle are openly advocating for their token to be used as a medium of exchange. So basically it is not in their interest to invest in things that will further the goal of using cryptocurrency as money.
And that's why I claim it is against your interest to invest a significant amount of your wealth in cryptocurrencies and stablecoins at the same time.
Conclusion
The rise of stablecoins has significantly reduced the usefulness of cryptocurrencies as money. And the convenience of using stablecoins has diverted investments away from using cryptocurrencies as money. Which is a big problem for those who would like to see cryptocurrencies to be used as money.
I believe there's a solution for this problem. There should be a marketplace for selling stable token liabilities which is designed to further cryptocurrency adoption.
And that is my goal as software developer in the next six months. My next article is going to be about my vision on how we can change the power dynamic by raising awareness and providing solutions for those who want to see this happen.
Link to the original article: read.cash/@Hossein.Zoda/stablecoins-are-directly-competing-with-cryptocurrencies-559895f8