USDT, PAX, USDC, TUSD, GUSD en alle andere Stablecoins

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USDT, PAX, USDC, TUSD, GUSD en alle andere Stablecoins

Berichtdoor neku » 26 Nov 2017 20:25

http://www.the-blockchain.com/docs/Teth ... epaper.pdf

https://themerkle.com/us-dollar-vs-usdt/

https://www.cryptocompare.com/coins/gui ... -to-use-it

"USD are difficult to move among certain exchanges. For example, Poloniex doesn't accept any fiat deposits at all. To get around bank wires and deposits entirely, you can use USDT in lieu of fiat to ease transactional difficulty in the cryptocurrency world."
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Re: USDT

Berichtdoor reteiP » 27 Nov 2017 10:27

Tethers zijn een erg wankel digitaal IOU papiertje.
Ik zou ten zeerste afraden daarmee te werken.

Als Bitfinex valt, valt Tether.
neku liked last!

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Re: USDT

Berichtdoor neku » 29 Aug 2018 23:13

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Re: USDT

Berichtdoor neku » 04 Okt 2018 17:43

Is Tether’s Bank Insolvent? Should We Be Worried? (News & Analysis)

According to some in the crypto space all negative publicity about USDT (USD Tether) is FUD and according to others USDT is a complete scam that will inevitably collapse and pull the whole crypto market down with it. The least we can say is that USDT is highly controversial. If you want to learn more about the background of USDT, please read our explainer article.

Noble Bank is the Puerto Rican bank that currently services Tether Company (issuer of the USDT token) and Bitfinex (the exchange that has very close affiliation with Tether). It is supposed to hold the USD funds in reserve that should be backing a large portion of the USDT circulating supply. Now news has come out that this bank has turned insolvent and if it doesn’t acquire funding, it could be a matter of days that the curtain may fall for the bank.

Another rumor is also going around that on Kraken Exchange, a trader has converted about $5 million from USDT into USD. Considering the relatively low trading volume in the trading pair on Kraken, this is quite remarkable, especially because it apparently has not affected the price on the exchange more than usual. Kraken is about the only feasible method available for the average crypto investor to actually exchange USD for USDT and vice versa. Does this large trade (if true) mean that somebody has insider information?

Also, could the financial trouble of Noble Bank (if also true) have impact on the continuation of Tether Company and/or Bitfinex? Or could this just be FUD (Fear, Uncertainty and Doubt)?

One of the articles on this topic suggests that Noble Bank is indeed Tether’s bank and explains that the bank is indeed in financial trouble. If that suggestion were to be true, this could have a serious impact on investors’ trust in the crypto market, because if one of the banks of Tether turns insolvent, that means that per default 1 USDT is not backed on a 1:1 basis to the USD anymore (if that is not already the case). It is worth mentioning that currently around half of all Bitcoin traded worldwide is against USDT, this chart shows the 24 hour money flow of Tether vs. Bitcoin, so the healthy state of USDT does have impact on the crypto markets.

On the other hand, a Bloomberg article was published that stated that Noble Bank actually got into financial trouble because Tether and Bitfinex plus many other customers ended their relationship with the bank, by which they lost huge client accounts. In that case if indeed Noble Bank gets insolvent, Tether and Bitfinex might not be affected as they most likely have already withdrawn their funds.

Noble Bank is trying to find a buyer, but has not been able to find one yet, and the clock is apparently ticking. It seems however that this specific issue is not going to have a major effect on Tether and/or Bitfinex. This doesn’t mean they are off the hook for all other suspicions and conspiracy theories that may or may not be true (however, when we do find out, it is probably going to be too late). The crypto community however has gotten used to all the FUD news around Bitfinex and USD Tether – so far without resulting in any catastrophes.

However, please be aware of the fact that as long as nobody has seen an official audit of the funds that Tether is holding, the possibility does exist that an inconvenient truth one day comes out and causes a shock wave in the crypto markets. Many regard Tether one of the potential Black Swan events that hangs as a cloud above our heads.

Furthermore, even though Tether currently still has a dominant position in most crypto exchanges as the most used stable coin, recently more stable coins have been launched. And these stable coins do have certain levels of regulations behind them, such as the Gemini Dollar, Circle’s stablecoin and Paxos. These stable coins will have official audits and might therefore become better alternatives for exchanges instead of the controversial USDT. It could be the case that Tether might soon have to defend its market share as well.

For as long as exchanges don’t offer better alternatives for stable coins except USDT, we encourage crypto investors to perform their own thorough research on all aspects around USDT and keep the controversy in mind if you need to trade or transact using USDT (or any other) as a stable coin in your trading/investing.

https://www.bitcoinforbeginners.io/cryp ... ency-news/
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Re: USDT

Berichtdoor neku » 20 Okt 2018 21:17

Tether is exiting and nobody noticed

Here’s a theory for you: Tether is exiting — and that’s a good thing. But before we dive in, here’s a quick summary of what happened so far.

The rumour mill starts grinding and the peg breaks

For the last month, negative sentiment about Tether and Bitfinex built up on social media. It started with Noble, Tether’s old banking partner. Rumours had been circulating for a while when, in their quarterly analysis, Bitmex research found that Tether had stopped banking with Noble and moved the funds out of Puerto Rico - destination unknown.

On October 6, some users noticed Bitfinex was now banking with HSBC. The next day Bitfinex responded to the rumours about their financial situation and said things were largely fine. On October 10, The Block broke the news that Bitfinex had paused USD deposits (not withdrawals) but expected the situation to normalize within a week.

These news spooked the market. Tether started trading at a premium against Bitcoin and other stablecoins as more and more people tried to get rid of their USDT. Sellers temporarily accepted as little as $0.92, but the price quickly recovered and has since been trading at a relatively stable 3–4% discount. Finally on October 16, Bitfinex announced a new “improved and increasingly resilient system for depositing fiat currencies” and Tether found a new home in the Bahamas.

Weaponized FUD and a lot of buybacks

Before we move into the theory, I want to establish some key observations that many people seem to have missed.
October has been great for competing stablecoins.

Paxos managed to sell $63m of their tokens, TUSD $55m, USDC $34M and GUSD $4m. PAX was listed on Binance, while TUSD was listed on Huobi, OKEX and Kucoin. OKEX even panic-listed four new stablecoins at once.

To put this into perspective, I wanna emphasize how large Tether’s network effects are and how difficult it is for a new stablecoin to make progress against that. In a previous piece I argued that there are only two ways a competing stablecoin can replace Tether. Either they can offer a distinct value proposition or wait for Tether to suffer from an inside (insolvency) or outside (e.g. regulatory) shock.

While the competition is not as distinguished as it may first appear (they still rely on attestations or allow censorship), we saw instead a shock applied to Tether from the outside. The public confidence in Tether was shaken by strong rumours and negative press on social media. Travis Kling called it “weaponized Tether FUD”.

Tether has retired $600m in the last 9 days.

Tether hasn’t burned tokens for a while now after they were redeemed. Instead, they remove them from circulation by sending them to their treasury address.

Over the past 9 days the treasury has received five major deposits, meaning these tokens have been retired from circulation. $100M, $200M, $200M, $50M and $50M for a total of $600M.

So, why did this happen? To me it’s a strong indicator that Tether themselves are arbitraging the current discount in USDT.

I know of several “non-Tether” arbitrageurs so Tether is certainly not the only one at it. But it’s not conceivable to me that $600M would have been withdrawn from Bitfinex in such a short time frame. If my assumption is correct, Tether is buying up USDT on the market for a discount, retiring them and internally crediting itself $1. That is fine and there is nothing shady about it. It’s no different from public companies buying back their shares when they think the market undervalues them relative to their fair price.

Where did Tether go?

Here’s where it gets interesting. Naturally these redemptions lead to a massive decline in Tether’s supply.

Coinmarketcap has correctly decredited the recent redemptions from the Tether market cap, but it still went largely unnoticed. Tether’s mcap is now $2B, down from $2.8B just two weeks ago — they redeemed almost 30% of their entire token supply. Even if we assume that $200M was withdrawn by non-Tether traders, that would mean Tether still managed to buy back $600M worth of tokens. With a 3–5% discount, this buyback made them between $18M and $30M. If they want, there’s $2B more to go and the discount has been relatively stable at 3–4% for the last few days.

By now we established several key observations.

-Stablecoin competitors have a strong interest in “weaponized FUD” against Tether to disrupt its massive network effects and liquidity
-The market currently considers Tether so risky that they demand a 3–4% risk premium for holding it
-Tether is incentivized by the discount to keep buying back their tokens, remove them from circulation and redeem them for fiat

The perfect time to go

So what if Bitfinex was tired of supporting Tether because the risk/reward ratio has turned bad? They would unwind it. Because it’s too much work. Because scrutiny on them is increasing or stable banking relationships are harder and harder to get. There might be subpoenas behind the scenes. Could be any or all of the above.

Bitfinex could think they no longer depend on Tether either. They acquired a new fiat banking system that they might deem stable enough. Most importantly, they are now able to pick from a whole bunch of new legal stablecoins to replace Tether on their exchange.

So what better time to gracefully unwind Tether than now? If my theory is correct, then Tether will continue buying up USDT from the market, slowly taking more and more of them out of circulation. I expect this process to go faster the longer the market offers them this discount. Traders will be happy, because Tether’s retreat breaks up the clouds for regulated stablecoins to emerge and become adopted. And that in turn will make Tether’s competitors happy. A lot of parties could leave this situation feeling like winners, and that is excactly what makes it likely in my opinion.

The legendary trader Ed Seykota once said that “Win or lose, everybody gets what they want out of the market.” Everyone sure got what they wanted out of Tether. Some people wanted to make money, some wanted new stablecoins and some just enjoyed the FUD and drama. Maybe it’s time to move on.

Do you agree with this theory? Let me know what you think in the comments or on Twitter! If you enjoyed reading, please leave a clap so more people can see it — thank you!

https://medium.com/@hasufly/tether-is-e ... 8451031157
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Re: USDT

Berichtdoor neku » 23 Okt 2018 19:23

safe_image.php.jpg

4D Chess: Tether Accused of Buying Its Own Tokens to Make Quick Millions

Ran NeuNer, CNBC Africa’s “Crypto Trader” host, has recently expressed his indignation on Twitter pertaining to Tether redeem and burn 600 mln of USDT tokens. He claims that Tether was able to make about $30 mln because of last week’s five percent discount.

Tether redeeming and burning 600m tokens, taking them out of circulation. Last week the average discount was about 5%... thats a quick $30m right there. pic.twitter.com/kYaBiZGlpr
— Ran NeuNer (@cryptomanran) October 21, 2018

His tweet immediately provoked a heated discussion with Twitter users agreeing that the company behind the world’s biggest stablecoin is not playing fair. They’ve seemingly reached the consensus that Tether is intentionally running and amplifying a FUD campaign in order to buy its own tokens at a lower price and later issue them at 1:1 ratio again.

-I'd laugh if it comes out that Tether is buying them back themselves...
-Sell your stable coin for 1:1 buy it back 5% cheaper, issue it for 1:1 again.
-Repeat.

Make money off of not only interest but also by collecting money from people that doubt your solvency.
— DonAlt (@CryptoDonAlt) October 21, 2018

Another user suggests that burning USDT tokens is necessary for an increase in demand that would subsequently allow Tether to get back on its peg.

They have to burn to keep the token at 1:1 peg. If less demand, price drops below $1. Hence you have to diminish supply.

The opposite is also true. In a bull market, more ppl want Tethers, hence it increases in value. To keep the peg, they raise supply.
— Samsara 111221 (@Samsara111221) October 21, 2018

https://u.today/4d-chess-tether-accused ... k-millions
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Re: USDT

Berichtdoor neku » 24 Okt 2018 21:09

tethercontroversy-e1539615609444.png

Tether, the company backing the Stable coin USDT has burned 500 Million tokens.

500 Million tokens were transferred from the Tether treasury to this address, from which the company has issued token several times before.

The transaction and the token burn have received 9 and 7 confirmations respectively at the time of press. The tokens are not only removed from circulation but also destroyed completely.

The stable coin which is supposed to be pegged 1:1 to the US Dollar plunged as low as $0.85 on exchanges like Kraken earlier this month. This led to other stable coins selling at a premium after which many investors are opting out of USDT and moving to other stable coins like TUSD and DAI. Exchanges like Binance, Huobi, and even Coinbase recently have introduced other stable coins on their platforms.

The market cap of Tether has been plunging since the start of this month. It has dropped from an all-time high of $2.8 Billion to $1.99 Billion at the time of writing.

Bitfinex took more than 800 Million USDT out of circulation by transferring it to the Tether treasury. When the tokens are burned the actual dollars have to be redeemed from their treasury. But due to Tether’s reputation for not maintaining transparency, it is not known as to who redeemed the USDT to Dollars.

Tether Tweeted:

Tether has just destroyed 500M USDt from the Tether treasury wallet with the following tx: https://t.co/HTG52LaRVh
For more information see the announcement here: https://t.co/McLTCGzmJi
— Tether (@Tether_to) October 24, 2018

https://blockmanity.com/news/tether-bur ... 1uhsXS-WjU
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Re: USDT

Berichtdoor neku » 08 Nov 2018 19:39

Tether's new banking partner ALREADY under fire - accused of accepting illegally laundered funds...

Tether just can't catch a break. November was one hell of a month for the stablecoin from the creators of the Bitfinex exchange, that had them facing a new wave of accusations, snapping back at their critics, and then we broke the story that the top exchange Binance was actively seeking new Tether alternatives to add to their exchange.

Trying to calm the waters they announced new banking partner Deltec Bank & Trust, to act as an independent holder of the USD funds backing their cryptocurrency, which claims to have $1 in the bank for every 1 Tether token issued.

But today, news coming out of Brazil via the popular "O Globo" newspaper reports that bank is under investigation from Brazilian authorities.

The accusation however doesn't involve Tether, but rather a Brazilian official who is accused of transferring $25 million in laundered funds offshore, to another bank based in Panama, then having it re-enter Brazil through Deltec Bank & Trust - a transaction that some say should have been immediately flagged.

But here's what all this does call in to question: Tether's statements earlier this week, stating the high standards the bank has, and how taking Tether on as a client should be seen as a sign that their operation is on the up-and-up. As Tether said in that statement:

“This included, notably, an analysis of our compliance processes, policies and procedures; a full background check of the shareholders, ultimate beneficiaries and officers of our company; and assessments of our ability to maintain the USD-peg at any moment and our treasury management policies.”

Following this news, Deltec Bank & Trust's endorsement doesn't mean much - and the rumors of Tether not having the funds to back up the $1.7 Billion worth of tokens in circulation continues.

https://www.globalcryptopress.com/2018/ ... sRnkHoXkRU
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Re: USDT

Berichtdoor neku » 06 Dec 2018 09:49

Bitfinex and Ethfinex List 4 Stablecoins

The Bitfinex and Ethfinex cryptocurrency exchanges have listed four new stablecoins: Gemini dollar GUSD, -0.86%, True USD TUSD, -0.23%, USD Coin USDC, -0.22% and Dai DAI, 0.28%.

The four dollar-pegged stablecoins will of course be available in addition to the previously available Tether USDT, 0.00% and USDT. Tether Ltd, the issuer of USDT, has close ties to Bitfinex as the two entities share several top executives.

Bitfinex recently announced that it will no longer guarantee a 1:1 conversion between USDT and USD, but has instead opened markets between USDT and fiat currencies, allowing the market price of USDT to be established through trading. Tether, on the other hand, has re-instated direct redemptions of USDT for USD through its platform, although the minimum amount for redemption is 100,000 USDT.

USDT continues its dominance

USDT, which was the only stablecoin on the market for much of its existence, has been the centre of controversy for quite some time now, with parts of the cryptocurrency community questioning whether each USDT in circulation is actually backed by fiat reserves and whether USDT tokens were strategically issued to defend key price levels of cryptocurrencies. Even though Tether has made several attempts to clear its name, uncertainty continues to linger and this has opened the door for a new wave of stablecoins.

Nevertheless, USDT continues to be the dominant force in the stablecoin sector and has more trading volume and more coins in circulation than all of its competitors combined.

stablecoins.png


https://coincodex.com/article/2716/bitf ... aiNDsZCk6Y
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Re: USDT

Berichtdoor neku » 13 Dec 2018 23:18

How Do Stablecoins Make Money? [Complete Guide]

Stablecoins are kind of unique Cryptocurrencies, since they try to be like FIAT money and mentain a certain level of value.

But if they are trying to keep the value of their Cryptocurrency always at the same price, then how do Stablecoins make money?

The investors of Stablecoins make money by receiving dividends from the newly issued coins being given to them for holding the Stablecoin’s shares. Investors are hoping to buy a “money machine”, which will give them newly created coins that they can then sell.

In this article I am going to shed some light into the economics of Stablecoins and how they exactly make money. On top of that I am also going to present to you the advantages and disadvantages of Stablecoins.

Let’s dive right into the article.

What are the economics of Stablecoins?

Economics

Stablecoins are Cryptocurrencies that try to be, as the name already suggests “stable” and be used as a base value and means of exchange, same as the FIAT currencies we use day-to-day like the US Dollar or the Euro.

So, what are the economics of such a Stablecoin and how does it even work?

For a stable coin to function properly, there are often 3 essential components that make a Stablecoin work properly.

The first one are shares.

The second one are the coins.

And the third one are bonds.

I will go over each component in full detail and explain how they all play together to make a Stablecoin work. (or attempt to make it work at least)

First of all we have the shares. The shares are just the original set of Cryptocurrencies that are being created by the genesis block (the first block on the Blockchain) and which are then sold to investors and people willing to purchase those initial shares of that Cryptocurrency.

Until now a Stablecoin seems like a regular Cryptocurrency without any creation of new coins.

So, from that point onwards the price of any Stablecoin can go in 2 possible directions: Up or Down.

And as we all know, the economic principles supply-and-demand also play an important role in Cryptocurrencies, and that’s why coins and bonds are here.

When the Stablecoin becomes popular and more people are willing to buy the Stablecoin to make purchases, its supply increases which leads to an increase in price.

So the “smart bank” of the Stablecoin which is kind of the “head” of the Stablecoin and decides when new coins should be created, issues new, free coins to the holders of the Stablecoin’s bonds, and once there aren’t any bond holders anymore, the new coins are given to the share holders of the Stablecoin.

This leads to an increase in supply and is the driving force that tries to keep the price at a stable level, even when the Stablecoin becomes more popular.

Now, keeping the price of a Stablecoin down by just “printing more money” or issuing new coins, as it would be more relevant to say in the Cryptocurrency space is easy, as supply is effortlessly created if you are dealing with Cryptocurrencies.

But what if the price of a Stablecoin goes down due to anything that’s causing investors to sell their Stablecoins?

How does a Stablecoin exactly create demand to keep the price up?

This is were the third critical component of a Stablecoin comes in: bonds.

Essentially, whenever the Stablecoin is falling in price, the “smart bank” is offering bonds at a discount, which should incentivize people to sell their Stablecoins to the “smart bank”, which promises them to pay back those Stablecoins some time in the future, ranging from months to even years.

Now, that is the basic economic model of a Stablecoin and in order to really explain this whole concept in full detail, I would like to show you an example of how such a Stablecoin economics model can look like.

So, let’s say there is a Stablecoin that is being created and it issues shares of their Stablecoin at a certain price.

These will be the first Cryptocurrencies of that Stablecoin being created.

Then, due to happy users and a good press, more people want to see how that Stablecoin is working and want to try it out for themselves.

This creates a big demand for these Stablecoins, which causes the price of the Stablecoin to go up.

Because of the increase in price, the “smart bank” of the Stablecoin gets triggered and it starts issuing new coins, for free, to the owners of the Stablecoin’s bonds, and afterwards share holders.

The price is stable and at a good rate again, but suddenly one of the Stablecoin’s founders leaves the project and investors are unsure what is going to happen next with the Stablecoin project, so they start selling their Stablecoins.

This, in turn, causes the price of the Stablecoin to go down significantly, which again triggers the “smart bank” of that particular Stablecoin and makes the prices of the Stablecoin’s bonds go down.

Because now people see that they could just pay 0.8 Stablecoins to buy a bond and will then get 1 Stablecoin back after some time, they choose to buy the Stablecoin’s bonds and because they send their Stablecoins to the smart bank, coins are taken out of circulation again, which lowers the supply and tries to bring the price of the Stablecoin back up again.

In our example, people realize after some time, that the Stablecoin is still functioning very well, even when one of the founders isn’t there anymore and buy their Stablecoins back.

After some time, the “smart bank” pays the owners of the Stablecoin’s bonds their coins back, thus issuing new coins again.

Everybody is pleased with the Stablecoin and we all live happily ever after!

Well… not so fast.

There are still some pretty significant drawbacks to Stablecoins and some very good arguments why they can’t work in the long-run, specifically at this point in time in the Cryptocurrency market.

I will address some of the most significant disadvantages of Stablecoins at the end of this article, but let’s first look at how the people who invest in Stablecoins make money and why they would invest in an asset that claims to be “stable” and suggests no growth.

How do the the investors of a Stablecoin make money?

Investors

When investors are buying Stablecoins, they are essentially buying “money-printing” machines and hope to profit off the dividend that they will receive once new coins are issued.

Basically, they are trying to profit by hoping that the following statements will be true.

First of all, investors in Stablecoins hope that many of the Cryptocurrency exchanges will use their Stablecoin, as many exchanges do not provide a way for people to deposit FIAT money.

That’s why people often use Stablecoins to “park” their money short-term on exchanges, when trading between Cryptocurrencies.

Because Stablecoins try their best to offer the service of a “stable” Cryptocurrency, people exchanging Cryptocurrencies will want to park their money in an asset that they have confidence in, that it will not lose a lot of value during the time they chose to park their money in that asset.

So, investors hope that because Stablecoins provide such a cool service on exchanges, they will be used by lots of people, which in turn increases demand.

And what happens when demand is increased?

Exactly, first the bond holders are paid the newly created coins, and after that the share holders are being given the newly coins, which they can then sell again for a profit.

These share holders are the investors and by investing early on, they hope to have bought a money-printing machine, that will give them money once the demand rises.

On top of that investors in Stablecoins hope that the initial purchases of the shares will help to hold the price stable for a long enough period of time, for them to successfully cash out their investment.

And of course, all Stablecoin investors hope that the demand for that Stablecoin will rise for a long period of time, since that means that they can sell the printed money (newly issued coins, of course) for a long time, and make them a good return on their investment.

These are really the incentives for people to buy the Stablecoin’s shares and invest in them from the beginning.

They are essentially all trying to buy a “money-printing” machine to make money.
What are the advantages of Stablecoins?

Advantages

Now that I showed you the economics behind Stablecoins and how its investors make money I would like to show you all the advantages Stablecoins have and why they are a great invention in the Cryptocurrency space.

Later on we will discuss all the negative things about Stablecoins, but let’s look at the positive side first, here.

First of all, the problem Stablecoins are trying to achieve is a pretty big and complex ones, and even a lot of governments all over the world fail to make a currency which is stable and doesn’t suffer from too much inflation, or deflation.

It is really a challenge to create a stable current in by itself, and even more in the new world of Cryptocurrencies, which is very complex and wild.

Also, a lot of Stablecoins are acknowledging all the problems they do face, and it’s not like they are too stupid to recognize and fix these problems, but just that it is really, really hard to create a fully functional Stablecoin at this point in time.

Some of the countermeasures Stablecoins take to reduce the negative effects are for example an expiration date to the bonds, and a bond price floor.

These countermeasure have been taken to avoid a never-ending “death-spiral” of a Stablecoin, which could happen if the prices sink further and further and don’t recover again, which means that the “smart bank” will not be able to pay the bonds back and in turn lead to the price of the Stablecoin to crash drastically.

But maybe Stablecoins are a fantastic invention in the Cryptocurrency space, but it’s just too early for them to really succeed.

Maybe Stablecoins will really experience a wide adoption, once the Cryptocurrency market matures as a whole and becomes less volatile and “crazy” as it has been in the past years.

So, I think that as an idea Stablecoins are really cool and exciting, just that the Cryptocurrency market might just not be ready for them yet, and that they are still ahead of their time.

Now, in the last part of this article, I would like to show you all of the problems that Stablecoins have and why most of them will probably fail.

Many of these disadvantages have already been talked about above, but now I want to really explain to you all the major drawbacks Stablecoins have.

What are the disadvantages of Stablecoins?

Disadvantages

Stablecoins wouldn’t be so criticized, if there weren’t a ton of issues with them, right?

And yes, Stablecoins have lots of disadvantages, which are hard to fix, but are nonetheless critical problems that Stablecoins have to face.

The big problem with Stablecoins is, that they always keep adding more and more coins to the system.

Unlike Bitcoin, where you know how much coins there will ever be, the coins of a Stablecoin are ever increasing.

If you want to learn how many Bitcoins there are, and will ever be created, check out this article.

To keep the Cryptocurrency “stable” while always adding newer coins, a Stablecoin constantly has to add new participants to the Cryptocurrency, meaning there must always be new money coming in to the Stablecoin, for it to mentain a stable price.

In the early stages of a Stablecoin this could be possible, since lots of people are getting to know the Stablecoin and getting involved in it, but once a Stablecoin has reached a certain size it will be harder and harder to get knew money coming in constantly to the Stablecoin, just to make it stable.

In order to explain this to you in greater detail, I would like to present you this idea in the form of an example.

Let’s say the price of a Stablecoin goes down, which means that the bonds will get cheaper.

Now, let’s ask ourselves why they get cheaper.

They get cheaper because the “smart bank” and the buyers of the bonds hope, that in a few months more money will come into the Stablecoin, which means that then the price goes up and new coins will be created which will be used to pay the bond holder back.

I really do not want to call Stablecoins Ponzi schemes, but the whole thing only works, if more people join, so the bond holders can be paid back.

Now let’s look at what would happen if the Stablecoin doesn’t manage to get new investors and thus fails to pay back its bond holders.

When a Stablecoin doesn’t manage to get new investors and money coming in, then the line of bond holders will grow and grow.

In a Stablecoin, the bond holder who waits the longest will get paid first when new coins are being issued.

So, when the line of the bond holders gets longer and longer, and the price of the Stablecoin shows no sign of recovery, concerns will rise that some of the bonds will never get paid out.

A typical expiration date for Stablecoin bonds is 5 years, and when it’s obvious that some of the bonds will not get paid out, the prices of those bonds will fall drastically, as the risk of not receiving your money grows too.

So, this leads to the bank printing even more bonds, which eventually leads to a death spiral, as the more people pick up bonds rather than investing in the actual Stablecoin. The more this happens, the lower the prices will get.

This is really the big massive problem that Stablecoins are facing. The problem that the bonds cannot be paid back if there aren’t new people investing in the Stablecoin, and causing the price to go up again, so new coins are issued and given to the bond holders.

That’s the humongous problem of Stablecoins!

Conclusion

All in all, I would like to say that Stablecoins are pretty interesting in theory, but do still have a lot of problems to be thought about.

The economic model of a Stablecoin, which is printing more money to keep prices down and taking back coins in order to keep the prices up is only working when more participants and money flows into the Stablecoin, as new coins are constantly created and the only way to keep prices stable is the add more money to the system.

Investors hope to make money when investing in Stablecoins by profiting from the “money-printing” machine they have created for themselves, where they can sell the new coins issued to the shareholders, once the bond holders have been paid back.

So, the problem Stablecoins are trying to solve is actually a very big and complex one, which also governments all over the world are struggling with, and that is to create a stable currency.

Stablecoins are probably still ahead of their time, and will only really start working when the Cryptocurrency market matures and gets adopted by more people and investors all over the world.

Now I would like to turn it over to you: Do you think Stablecoins are here to stay or will turn out to be a big scheme?

Let me know in the comments below and I am eager to have a discussion with you in the comments.

Thanks a lot for reading all the way to the end of this article, and I wish you an awesome day!
Adrian Trummer

https://flagshipcrypto.com/how-do-stabl ... Rk2MdfUJ7w
The aim of education is the knowledge, not of facts, but of values!