In recent years, and with increasing frequency, a new type of virtual currency has made headlines around the world. We refer to stablecoins, stable virtual currencies with a high level of centralization and stability in their price. For this reason, and given its growing importance, it is normal for us to question whether a global stablecoin is possible. Subject that was covered during the Cripto Latino Fest today.
The importance of stablecoins
If one word has been associated with cryptocurrencies to this day, it is “volatility.” And is that, since it began to gain relevance worldwide, the price of Bitcoin has suffered a series of surprising increases, followed by sharp collapses. Which has led many investors to consider cryptocurrency too volatile to invest in the long term.
Faced with this problem, stablecoins were born, virtual currencies whose value is backed by a traditional asset. Be it Fiat money, natural resources or, in some cases, a basket of cryptocurrencies. Therefore, each token issued from a stablecoin would have its value guaranteed by a fund of its base asset. Varying its price to the same extent as its base asset.
Thanks to this stablecoin was born as Tether, BUSD or USDC. Which, although they have a higher level of centralization than cryptocurrencies, since the fund with the reserve asset must be managed by a centralized entity. They have become popular within the crypto community, providing a guarantee of stability for traders and crypto users.
A global virtual currency
For this reason, and within the framework of the Cripto Latin Fest, the analyst of our house, Claudio Quinonez, commented on the possibility that the growth of stablecoins reaches a point where one of these virtual currencies will become a common currency worldwide. And in this regard, for Quiñonez this is not just a possibility but practically a certainty.
Which does not prevent it from warning about the risks of stablecoins, and especially those issued by central banks of the countries. Well, as Quiñonez commented, the problem with these stablecoins is that they provide governments with inordinate power to do and undo with the virtual currencies they issue. Ending the advantages that cryptocurrencies bring to the financial world thanks to the decentralization of the Blockchain.
Thus, Quiñonez defends a third possibility, with Bitcoin-backed stablecoins. Which, for the crypto analyst, would be reaching a point of maturity, with different mechanisms to avoid the volatility of BTC itself. As for us to consider using cryptocurrency-backed stablecoins, to combine the decentralization that Bitcoin offers with the stability of stablecoins.