Stablecoins: new revolution or next financial crisis?

Tether, USD Coin, Binance USD… Names that may not mean anything to you, but in the last 24 hours almost $90 billion has been traded in these virtual stablecoins.

The best known are, theoretically, indexed to a fiduciary currency. For example: a USDT (Tether) is worth one US dollar. A ERS (Stasis Euro) is equivalent to one euro.

These currencies protect their users against market volatility, seen with tokens like the Bitcoin.

The stablecoins are used to buy and sell cryptocurrencies or to save at attractive rates on virtual platforms.

Albertan Kelly Sullivan first invested in this universe three years ago. stablecoins make up half of my wallet”,”text”:”I use them every day. Stablecoins make up half of my portfolio”}}”>I use them every day. The stablecoins make up half of my portfolio, he admits.

$209 billion

The volume of the three most famous (USDT, USDC and BUSD) has increased fivefold in 2021. The total capitalization of all stablecoins currently in circulation reaches $209 billion, which is more than the GDP of Ukraine or Hungary .

They became so popular that Facebook wanted to create their own. Visa and Mastercard have announced the establishment of partnerships allowing their cards to be used to make purchases with stablecoins.

Stable cryptocurrencies have all the advantages, believes Sean Stein Smith, associate professor at the City University of New York.

They are traceable and offer faster, easier, cheaper transactions than with banks. They are much more suitable for use in our daily lives, to buy a pizza or a coffee.

Stablecoins are widely used to buy or sell other digital assets like Bitcoin.

Photo : Getty Images / Chris McGrath

2022, according to Laëtitia Bonaventure, independent analyst. the stablecoin could attract more people and especially the most skeptical […] those who do not want to bear sometimes quite high risks”,”text”:”These cryptocurrencies are among the major challenges of 2022, according to Laëtitia Bonaventure, independent analyst. The stablecoin could attract more people and especially the most skeptical […] those who do not want to bear sometimes quite high risks”}}”>These cryptocurrencies are among the major challenges of 2022, according to Laëtitia Bonaventure, independent analyst. the stablecoin could attract more people and especially the most skeptical […] those who do not want to bear sometimes quite high risks, she judges.

But, according to experts, a danger exists for users and the traditional financial system. Some cryptocurrencies are based in opaque tax havens. It is difficult to know their true state of health.

The Scary Crypto

Tether (USDT), which alone accounts for almost half of the market, is worried. Based between the British Virgin Islands and Hong Kong, the company behind the project would not have as much money as they claim.

In February 2021, following an investigation, the New York State Attorney stated that Tether, ensuring their virtual currency was fully backed by dollar funds, there have been times when this was not the case”,”text”:”contrary to Tether’s claims, ensuring their virtual currency was fully backed to dollar funds, there were times when this was not the case”}}”>contrary to the assertions of Tether, ensuring that their virtual currency was fully backed by dollar funds, there were times when this was not the case.

This sentence insinuates that the value of cryptocurrency could potentially collapse. Tether denied the prosecutor’s charges and has since published a quarterly report detailing the company’s funds. But the doubt persists.

Letitia James during a speech.

Following an investigation launched by New York Attorney General Letitia James, the public discovered that Tether is not 100% backed by US dollars.

Photo : Associated Press / Seth Wenig

Several figures in the cryptocurrency community are raising the red flag. The French Owen Simonin, of the chain YouTube Hasheur, confessed to his 475,000 followers on November 4: I trust USDC more [qu’en USDT/Tether].

Hendrix Vachon, senior economist at Desjardins, calls for caution. stablecoins, if their reserves have collapsed. If they are heavily used, it can have impacts on other financial sectors.”,”text”:”We could have a collapse of some stablecoins, if their reserves have collapsed. If they are heavily used, it can have impacts on other financial sectors.”}}”>We could have a collapse of some stablecoins, if their reserves have collapsed. If they are heavily used, it can have impacts on other financial sectors.

Avoid a new financial crisis

To evolve, the environment will have to be transparent. It must be able to be verified by third parties with some regulation, adds Hendrix Vachon.

Charles St-Arnaud, chief economist at Alberta Central, believes the future of cryptocurrencies is probably on the stablecoin side, but not without government oversight.

stablecoins in order to avoid a crisis.”,”text”:”It’s like what we ask banks, who must hold a certain amount of banknotes so that we can have our money if we want to withdraw it. It is the same regulation that we want for stablecoins in order to avoid a crisis.”}}”>It’s like what we ask of banks, which must hold a certain amount of banknotes so that we can have our money if we want to withdraw it. It is the same regulations that we want for stablecoins to avoid a crisis.

According to Gary B. Gorton, professor of finance at the University Yale, without regulation, stablecoins could cause chaos.

Dozens of governments are studying the issue, including in Canada. Regulators are between the devil and the deep sea, most they recognize that they have to do something, acknowledges Gary B. Gorton.

Let them stablecoins alone carries dangers, but intervening too much could stifle innovation. In the meantime, billions of dollars continue to be exchanged every day.

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