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Stableсoin As The Obsession of Digital Community

13 September 2018 18:54, UTC
Stableсoin As The Obsession of Digital Community
By Daniil Danchenko

Stabilized digital asset is a dream type of any virtual money, and being chased by pretty much everyone on the digital market. The reason behind it - pretty much a holy grail of the virtual money that allows forgetting about such things as volatility while maintaining one of the central edges of the coins - is decentralization. And it also pegged to the stable assets as well!

So, when you think about it, you will present it as a solution to the most of the virtual money issues. It’s secure, scalable and safe for the holders of the internet money since they do not risk to end up with useless bits of code on their hands if “digital gold” dips or Goldman Sachs changes its opinion about virtual currency trading. However, there is a reasonable question - if it’s so good, why stabilized digital assets are not everywhere? We, at Bitnewstoday, decided to analyze the situation.

For starters, let’s look at the history. Back in 2014, which is pretty much ancient history when it comes to digital money markets, bitshares, financial open source company came up with an idea to create BitDollar. This idea was received with high level enthusiasm. It was so high that this whole thing dived head within first hundred hours since it’s launch.

This idea is good. But it’s not compatible with cruel reality - from the standpoint of real economy, stabilized digital assets are pretty much just a derivative ( in case of bitdollar, it’s a derivative of BTSX, Bitshares native digital money), which means that its price can be stable only in one case - when its main asset keeps going up nonstop. Which is impossible because due to the contradiction with fundamental laws of economics, even if creators of the virtual money will perform dark economic rituals, praying to the almighty Satoshi and Vitalik.

But that was not the end of the stabilized digital assets saga. In fact, it’s far from it, this whole idea seemed now too good to be abandoned after the first failure. But it’s a false feeling -  there are good examples in the history, indicating that the idea of the stable coin is not as good as many think. Back in 1990, the UK was trying to keep the pound stable. As a result the British got a pure disaster that formed the basis of the long term economic crises, called by many british economists a national economic catastrophe. Here is the thing - a lot of digital money enthusiasts see this new asset class as a bridge between the old world economy and a nascent new world of digital economy. And for them, all efforts to push stabilized digital assets forward are pretty much like a new kind of a “space race”. But digital currency history shows that it’s not a good idea.

There is another excellent example, called DAI, another stabilized digital asset issued by MakerDAO that was supposed to get rid of the bad aspects of the asset class and to become one big advantage. However its principal is not viable since it’s pretty much a perpetual motion machine and even magic of internet money was not able to make it work.

DAI has some flaws, but the main one is pretty simple and fundamental - it works as long as Ethereum continues to grow. Which is not realistic (at least for now) - even though a lot of people in the industry considered Ethereum as the “next big thing” and utterly independent virtual currency, that never really happened. Just like pretty much every digital asset, it is tied to the “digital gold”, and as we all know - the “digital gold” doesn't feel good itself.

There was a number of stablecoin oriented projects throughout the time, in fact, some even managed to relaunch and rebrand, so the stablecoin train as strong as it can be. As a matter of fact - Winklevoss brothers decided to give it a shot and created their own stablecoin with one huge advantage - it was approved by the New York Department of Financial Service.

It is entirely possible to change everything - since Gemeni Dollar is one of the first regulated stablecoins that can potentially  “marry” digital assets and USD, which is a theoretical dream come true for virtual money. But it also can end up just like another dead one on arrival of the project that will get its test run - show mediocre results and then end up being lost and forgotten, just like Tether. Which was also “The next big thing” that supposed to “fix issues with virtual money”.

The above mentioned issues with stabilized digital assets are not the main ones, it also contradicts the main idea of digital currency. Satoshi’s digital gold and DLT are supposed to give people an alternative economy and free them from the burdens of the over-institutionalization or parasitic business practices (like certain energy brokerage companies). If be short - this technology should’ve made people free from the shackles of the traditional economy.

But most stabilized digital assets, are highly institutionalized due to their nature and can’t work without dabbing into the very economic system that digital gold and ICO promised to eradicate. So, considering this whole conundrum, stabilized digital assets are one of the most exciting things in the digital money world right now. From one side we have super generic members of startup culture in its worst, that keep inventing the bicycle with square wheels, completely disregarding perfectly fine regular bike of fiat money, which they call inefficient.

Let’s take CitiGroup with their CitiCoin as an example. They would’ve been the first to jump on the bandwagon of the stabilized digital assets if their vast teams of researchers and analysts haven't said that there is a potential for it. Sure, there is always a chance that they would’ve been skeptical or stayed in the state of FUD for too long as many like to think. However, it’s a cold, hard fact that should be kept in mind when one forms an opinion about this type of digital assets.

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