Stablecoins have become the crypto ecosystem’s backbone, supporting crypto trade and decentralized finance. Their market value has quadrupled since January 2021.
But the lack of transparency around stablecoin reserves has many questioning whether their rise is sustainable. Recent disclosures by Major Stablecoins revealed that most of their reserves, held in riskier assets like commercial papers rather than cash.
Stablecoins backed by fiat, considered the most stable. However, their long-term stability is not lucrative. As a result, the value of fiat-backed Stablecoins, expected to decline over time, discouraging investors.
Some experts fear that stablecoin issuers may be unable to fulfill customer redemption demands in a market slump. This may cause a loss of investor confidence in stablecoins, affecting the whole crypto market.
Like casino chips, stablecoins are valuable as long as they can be redeemed for real money. Stablecoins are decentralized and may be stolen. And since the collateral system, fully decentralized, the owners are anonymous. Thus, raising trust issues.
Frances Coppola, financial commentator, and vocal stablecoin critic said:
“The whole thing holds up as long as everybody believes it’s fine and they’re all using it for their own trading and nobody’s ever trying to cash out.”
Secure Long Term Investment
The pricing of stable coins relies on secured assets. So the initiative is more likely to fail. Unlike Cryptocurrencies, Stablecoins, not intended to increase in value quickly. Global governments, worried that a stablecoin collapse might affect conventional financial systems and push for more regulation.
Stablecoins, seen as a secure long-term investment, but it has its pros and cons like all others. Experts say Gemini Dollar, Dai, and PAX are the safest Stablecoins. Therefore, do consider both sides before investing in Stablecoins.
