Its Happening: The Exponential Rise of Stablecoins
We are going to see things get crazy in the stablecoin market.
This is something that was predicted. Ultimately, we are going to see tens of trillions of dollars in stablecoins out there. Most of them are asset backed, something that is likely going to be in compliance with regulators. Ultimately, I think algorithmic stablecoins are going to realize most of the market but that requires a lot of maturity.
For now, the market is expanding. We are seeing different variations emerging, some that are not being called stablecoins yet seek to maintain a peg.
What this means is the expansion could be massive. Of course, we are also looking at this coming from the traditional players.
US Treasury Backed Coins
Most are familiar with USDC and Tether (USDT).
These are the two most popular (and largest) stablecoins. They basically create a token for each dollar invested. The currency is then used to back the token either in the form of cash or a US Treasury.
It is the most common structure and is still being followed.
What is taking place now is some experimentation. Here is where things get very interesting.
BUIDL
The first is BUIDL. This is the product of the world's latest crypto bull, Larry Fink and Blackrock.
It was launched a week ago and, in that time, pulled in $245 million. This is technically being called a fund yet it aims for the 1:1 ratio with the US Dollar.
What does it do with the money?
BlackRock said the fund invests 100% of its assets in cash, U.S. Treasury bills, and repurchase agreements.
Will this be used as a medium of exchange? There is no guarantee. That said, it does offer the same potential if the peg holds. There is no reason why the tokens, which are ERC-20, cannot be swapped similar to USDC.
This is geared towards institutions, hence average individuals are not involved. Things could change in the future as regulation emerges and market conditions change.
The difference here is what happens to the yield paid from the Treasuries. With Tether and USDC, the companies keep all the profits. That is not the case with BUIDL. The investors are putting up money seeking a return. Blackrock will pay out the profits to the fund holders, minus whatever fees they charge.
USDA
For those who are outside the United States, a new player is emerging that could be of interest.
Angle released its stablecoin USDA. Like BUIDL, this one aims to pass on the yield. It also offers a slightly different twist.
It too is backed by US Treasuries. However, it also allows for the purchase of tokenized T-bills as their backing asset. This is the first time I came across this.
This company is also focusing upon the FOREX market. The goal is to provide a seamless swap between the dollar and EURO, eliminating fees and slippage.
To help matters along, the company decided to convert USDC.
To boost liquidity for USDA, users will also be able to convert Circle's USDC stablecoin to USDA and back without incurring fees or slippage.
This is on top of Mountain USD and Ethena's USDe raked in $300 million and $1.3 billion in deposits.
More Than Payments
Notice how we are dealing with a lot more than just payments. Stablecoins offer so much potential, something that Wall Street institutions are fully knowledgeable about.
In these instances, we see how there are going to be stablecoins designed for specific purposes. BUIDL is for institutions while USDA is focusing on the FOREX market. We will continue to be see tokens designed with use cases in mind.
This is also just the beginning.
Angle is showing how the layering works. By using tokenized treasuries as the backing, it is moving things to another level. Here we see the lines blurred slightly since the asset backing it is really only the value. This is an asset backed by an asset.
Here is where we are starting to see the tokenizing of real world assets. Consider what can be done with different funds, tokenized and then incorporated into a stablecoin in some manner.
We also have another reason why cryptocurrency is not going to disappear. As mentioned before, Wall Street is in the process of hijacking bitcoin. The most recent activity with ETFs proves this point. Where is the BTC ending up? In the hands of Wall Street institutions.
Thus, we see counterparty risk arising.
Now we are watching Wall Street positioning itself to "hijack" crypto. Naturally, the limitless nature of crypto means it cannot take over. However, it is inserting itself right in the middle of the innovation. This will likely accelerate as other institutions follow Blackrock's lead.
It will not be the last investment bank to enter this game.
We are going to see trillions of dollars in stablecoins created over the next few years. It is a market that is roughly $150 billion as of this moment. As more products are built in a similar manner, the need for the coins will expand.
According to Gemini, the total money market funds in the United States is $2.5 trillion. This is the first level to watch with stablecoins (in all the forms they will appear).
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Crypto is not going to disappear soon, but there would be something to compete with crypto and on the race stablecoin would take place most probably.
More of other business operations, trades and online marketing will take place and economy would be far attractive and timely with crypto in other financial exchanges. We have to look for updates and then make decisions regarding different policy matters.
Till then satisfied with the current shape tbh.
I agree. The tokenization of real world assets is going to be a major shift. While they will still be, for the most part, under the control of the massive institutions, we will see things changing. That opens the door.
Honestly, collateral backed stablecoins are the way to go. I am not a fan of the algorithmic stablecoin. Even HBD has its issues with price volatility due to Hive price fluctuations. That is what keeps many in the space away from it. I have talked at length with others that are not Hivers that look in at HBD and get the same PTSD that I do from losing our asses on UST. The only main difference is there is not any futures trading around Hive so it can’t really be shorted like LUNA was.
So most people are going to have more trust in the collateral backed stablecoins, whether centralized like Tether or USDC, or based on lending models like Maker’s DAI.
Just my dudely opinion on the matter.
And what happens when the backing drops in value. Or completely collapses.
US Treasuries took a bath in value, that is what helped to sink banks such as Silicon Valley Bank. We saw the same thing with MBS in the GFC.
So do not be lulled into thinking that asset backing is any more stable or secure. They can fluctuate greatly too.
This is not true since no matter what the price of HIVE, it is still worth $1 on conversion.
Volatility comes from the size. This is similar to penny stocks. HBD is traded mostly on one exchange that is closed to most of the world.
In a collateralized protocol like DAI or any of the lending platforms works is that if the backing drops, it takes the collateral needed to satisfy the loan, same as any margin call. So far these protocols are still working and there is plenty of liquidity in them.
The biggest issue with the conversion mechanism is that it takes 5% as a fee, so really, no you are not getting a dollar’s worth, you are getting .95 worth. I tried playing the conversion game as a trade until I realized that I was losing more than it was worth using it.
That is a lending platform, not a currency.
Yes if the value of the collateral drops 50%, then more collateral is required. This is true no matter what the currency.
But that is not reflective of the currency itself. If a currency is backed, then it only has 50% backing.
I believe that is going from Hive to HBD. I do not believe there is a fee going the other way. I will have to look into that.
Take a look at Maker DAI. It’s a stablecoin that is built on a lending platform. It’s been around for quite a while now… Loans against the supply in DAI is what creates the currency.
You have to get outside of Hive sometimes man… Where USDT and USDC are centralized as far as rheir backing, DAI is a decentralized stablecoin backed by the lending supply.
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I only knew about one stable coin before reading this post and that's tether.
@taskmaster4450 The rise of stablecoins is indeed a fascinating trend to observe. As an analyst, I completely agree with the points made in the post. The increasing adoption of stablecoins not only reflects the growing interest in cryptocurrencies but also signifies a shift towards a more stable and reliable digital currency ecosystem. Stablecoins offer a level of stability and security that many traditional cryptocurrencies struggle to provide, making them an attractive option for both individuals and institutions. Additionally, the potential for stablecoins to bridge the gap between traditional finance and the crypto space is a compelling prospect. This trend has the potential to reshape the financial landscape, providing greater accessibility and efficiency in the transfer of value. Overall, the exponential rise of stablecoins presents a significant development of digital currencies, and it will be interesting to see how this trend continues to unfold in the future.
I'm not familiar with these new stablecoins. I would assume the slow acceptance of different organizations and the government of crypto tokens is a welcome sight.
Blackrock is an institution coin so not open to the average user. The other is in the FOREX market so unless in there, might not be aware of it.
The other two I never looked at.
What do you mean by this? How can HBD demonstrate such maturity?
Good to hear that USDA is also something new for you.
How about HBD? What should be its focus?
From $150B to trillions, that's a very promising future for stablecoins.
HBD requires size and other utility. Maturity means building an ecosystem around it, more than just payments. It needs to be involved in lending, funding, and have derivatives in addition to just being a payment vehicle.
Yes, lending and derivatives. Is HBD not involved yet in funding?
The rise of stable coins means we are able to exchange our unsteady cryptos near the peak if possible and transfer to stables to safeguard our dollar value when there is the inevitable corrections.
I really think one of the things that is making a lot of stablecoins to keep moving is the fact that it helps to actually sustain the value irrespective of the volatility