Recently, the stable currency market has started to rise again.
Stabilized currency overlord Tether was exposed to misappropriate user funds, filling the $850 million loss of the crypto exchange Bitfinex; Tether and Bitfinex's general counsel Stuart Hoegner confirmed that 74% of the USDT was supported by cash and equivalents.
Other competitors are chasing after the victory. According to PeckShield data, the demand for stable currencies such as USDC and PAX surged due to the impact of the USDT fraud incident by the New York prosecutor Tether, and the increase of more than $50 million was made on April 26 alone.
On the other hand, there have been some new changes in the stable currency market recently. For example, if a stable currency is issued on a multi-public chain, will the public chain become the new main battlefield for stable currency competition? Who will laugh at the end of the stable currency that anchors different assets (French, cryptocurrency, and physical assets)? Can the use of stable currency be used only as a hedging tool, and can cross-border payments support a broader market? Tether was accused by the New York prosecutors, and the regulated currency such as GUSD and PAX was safe and sound. Will regulation be the key to future success?
First, the demand for stable coins is not big for the public chain.
Prior to April 2019, the mainstream stable currency in the cryptocurrency market was all issued based on the ERC20 standard (USDT is also based on the Bitcoin omni agreement), which was issued on the Ethereum public chain.
However, in April of this year, this situation was broken and the stable currency began to enter other public chains.
On April 4th, IOST announced the issuance of stable currency iUSD based on USDC and TUSD. In other words, iUSD is the IOST version of USDC and TUSD. On April 9, TRON announced the launch of TRC20-based stable USDT, the TRON version of USDT; May 1 On the day, ONT announced the release of the stable currency PAXO based on the ontology OEP-4 protocol, the ONT version of PAX.
Liu Chang, the founder of Zhimi University, believes that traffic is an important reason for the early stabilization of the choice of Ethereum. In addition, another reason for choosing Ethereum is that the selectivity is small, and other public chains have not yet come out.
Ontology CEO Li Jun believes that stable currency cuts into other public chains, mainly to obtain traffic. At present, the major public chain ecosystems have begun to develop, and DApp active users have increased rapidly, and some even surpassed Ethereum. According to Dapptotal's May 6th data, the major public chain active users ranked as follows: EOS (74132), TRON (43746), ETH (11597), IOST (7559).
In the case of Ethereum's full load, the other public chains are still a blue ocean, giving the stable currency ample competition.
"With the development of the public chain ecology, the DEFI (decentralized finance) and pledge custody of the public chain require stable currency to carry out pricing and legal currency deposits." Li Jun explained that following the exchange, the next stable currency The main battlefield will be the public chain. “The three major application scenarios determine the future of stable coins – which stable currencies are mainly promoted by the head exchanges, which stable coins are used by the big head public chain ecology, and which stable currencies are selected when traditional enterprises carry out decentralized business.”
However, Liu Chang does not recognize Li Jun's point of view. He believes that the public chain is only the carrier of stable currency. The public chain is open. The stable currency does not need to compete for the public chain. On the contrary, the public chain needs to compete for success that can bring huge traffic. Stable currency. "The mature stable currency is the object of the public chain competition. A battlefield of the public chain is a stable currency, not the other way around."
“Stable coins have less demand for the public chain, and the public chain has more demand for stable coins.” Linkvc founder Lin Jiapeng explained that the public chain needs stable coins to run on it, indirectly proving the commerciality and safety of its public chain, “ If the public chain technology is not strong, the stable currency above the public chain will soon be broken and falsified."
Lin Jiapeng added that due to the unequal relationship between the public chain and the stable currency, it may be necessary for the public chain to make profits. “The public chain may spend money on stable coins and then issue such stable coins in its own chain.”
At present, in addition to ONT, TRON and IOST, other public chains have not announced cooperation with stable currency.
"The success of the stable currency is mainly for the market, and the market is mainly the exchange, so the battlefield for the stable currency is still on the exchange." Liu Chang said.
Second, cross-border payment will become a major trend
Speaking of the role of the stable currency, it will first be mentioned as a bridge between the legal currency and the cryptocurrency.
The USDT publisher Tether was established as early as 2014, but its real growth is precisely to catch up with China's 2017 “Nine-four Notice”. At that time, he cut off the way in which the French currency directly purchased the cryptocurrency and the counter currency hedging function (previously there was a counterfeit currency transaction), and people had to turn to a stable currency such as Tether for trading.
(the time when the stable currency appears)
At present, the market believes that the future function of the stable currency may extend towards cross-border payment.
Cross-border payment through cryptocurrency will greatly save transfer time and cost. The transfer time depends on the network congestion, and the transfer can be completed in a few minutes. In addition, the transfer fee is greatly reduced. On May 1st, the Bitcoin whale "Loaded" used SegWit technology to transfer 40,000 BTCs ($230 million) in large amounts, charging only $3.93, while traditional cross-border payment fees were between 0.25% and 0.3%. $580,000 – $690,000).
However, compared to stable currencies, other cryptocurrencies are not suitable as carriers for cross-border payments because of the large volatility of prices, so stable currencies will dominate the future cross-border payments.
Some financial giants have also begun to get involved in this area. On February 14, Bank of America giant JP Morgan took the lead in launching a stable currency, JPM Coin, to support customers' instant payment services. In addition, Facebook is working with dozens of financial companies including Visa, MasterCard and First Data. Institutions and online merchants are in contact to launch a payment system based on cryptocurrency.
However, compared to traditional financial institutions such as JPMorgan Chase, newcomers need to address regulatory and compliance issues.
“More depends on the attitudes of governments and banks in various countries.” Hopex Chief Operating Officer Vincent Chen explained that since cross-border payments involve converting stable currency into legal currency, compliance and regulation are stable coins. Important conditions for business. "On the one hand, it is in the exchange channel of the French currency, and on the other hand, whether it will challenge the tax problems arising from the existing foreign exchange control policies and the entire cross-border services (e-commerce, logistics, transactions and other application scenarios)."
Previously, the OK Group also planned to enter the cross-border payment, but eventually the compliance issue (license) eventually ran aground. According to an early OK employee, OK's stable currency plan was introduced a few years ago, when the main direction was cross-border payment. In the end, the reason why the plan was dead was because the cross-border payment involved the issue of financial licenses, and the OK at that time did not obtain the license.
It is worth mentioning that on March 28 this year, OK Group announced the launch of the stable currency OKUSD. Prime Trust, the partner of the stable currency, was licensed by the banking regulator of the Nevada Financial Institutions Department.
"However, even if the stable currency is restricted by the legal currency, supervision and breakthrough supervision are always dynamic game development. The stable currency still has stronger cross-border liquidity than the legal currency." For the cross-border payment of stable currency, Liu Chang used performance. An optimistic mood.
Third, the French currency stable currency will eventually be proud of the rivers and lakes
The stable currencies in the market vary in form. In essence, it can be divided into two categories, namely asset-backed and algorithmic.
The so-called asset mortgage type, that is, anchoring various assets, including legal currency (US dollar, Japanese yen, euro), encrypted assets (ETH, BTC), physical assets (house, gold, diamond, etc.); algorithmic stable currency is used A series of rules for code writing, based on the need to stabilize the currency, dynamically adjust the supply to maintain the exchange rate.
(the ratio of two types of stable coins)
According to the Blockchain report, there are currently 54 stable currency projects on the market, of which only 26 (45%) are active and only 5 are algorithmic stable coins. The stable currencies on the major exchanges are all asset-backed, mainly anchoring the US dollar.
"The US dollar is the most globalized legal currency, and cryptocurrency transactions are all based on the dollar price, which is a user habit." Lin Jiapeng explained.
"The stability of anchoring the US dollar comes from the stability of the US dollar, and it is difficult to obtain such stability by anchoring the crypto assets. Once the crypto asset market fluctuates greatly, the whole system may face a collapse." Liu Chang said, "The main body is anchored." The problem is that the liquidity of collateral is too poor to achieve effective redemption. Historically, land-based collateralized banknotes have actually failed and are not feasible."
"The stable currency that anchors the cryptocurrency is equivalent to a stable currency with a high volatility "leverage". In fact, it is not so stable," Lin Jiapeng explained.
Take DAI as an example, it is a stable currency that is anchored by ETH assets. As the bear market ETH pledge increased, a large amount of stable currency DAI was generated and flowed into the secondary market to realize the price of DAI for a long time below US$1. In order to encourage users to repay loans and reduce the liquidity of DAI in the market, DAI's issuer MakerDAO has raised the stable rate five times in the past two months – the rate was 3.5% at the beginning of March and is currently 19.5%.
Bibox co-founder Ma Wei believes that the legal digital currency issued by the state is the best stable currency compared to the existing legal currency. "Because the legal digital currency is based on the national credit issue, it has the strongest credibility, the widest range of acceptance, and is not prone to negative externalities. Therefore, the stable currency issued by the state should be an ideal form of stable currency."
Fourth, keeping the legal currency channels unblocked is the lifeblood, and we need to embrace supervision.
According to PAData data, Tether's market share fell by 25% in 2018. Currently, Tether has a market share of 79%.
Relative market share of mainstream stable currencies; source: CoinMarketCap
The USDT issued by Tether was originally the world's overlord of stable currency. It has been questioned for opacity, but it still ranks first in the market.
Lin Jiapeng admits that as an exchange, they are actually more willing to choose a stable currency for compliance, because compliance will make the stable currency more transparent and the fluctuation of the currency price will be smaller.
“At the moment, we are still more optimistic about the stable currency regulated by the government, such as GUSD. Because GUSD is regulated by the US government, it has anti-risk ability in other currencies in the cryptocurrency market.” Ma Wei also believes compliance. The stable currency will have a market in the future. “The stable currency that is regulated on the line is also a safer choice for users.”
On September 10, 2018, the New York Financial Services Authority also approved two types of stable coins issued by Ethereum, namely Gemini Dollar (GUSD) issued by Gemini and Paxos Standard (PAX) issued by Paxos. This is also one of the few regulated stable currencies on the market.
Conversely, Tether, which did not receive a local license, was restricted by the New York authorities to stop borrowing from Bitfinex and requested disclosure of USDT related documents.
Postscript: Will USDT withdraw from the rivers and lakes?
Although Tether has been accused this time, there are documents showing that only 74% of USDT is supported by cash and equivalents.
However, both Liu Chang and Lin Jiapeng believe that the current 74% reserve is a good news.
"There was a psychological expectation that the market would be over-expected, and even expected to be 2 to 3 times higher than the results. The results confirmed that the over-issue was quite serious." Lin Jiapeng explained.
Liu Chang used that the rational attitude is to recognize part of the reserve system, and 100% of the reserve is not the key to the success of the stable currency. "If 100% reserve is required, blocking the normal profit channel of the issuer will force it to falsify."
What's more, Tether is still the most stable currency for users. For the exchange, it will not rush to the USDT.
"USDT still dominates the cryptocurrency, it is still the choice of many users, and it is also the main component of liquidity, so we will not have this consideration." Ma said.
Liu Chang believes that USDT really faces two risks: the regulation of the legal currency channel and internal operational errors.
“USDT is based solely on the cryptocurrency of private credit issuance, and lacks in-depth external supervision. The robustness of its operations depends mainly on its own decision-making.” He believes that “USDT is anchoring the US dollar, keeping the flow of the US dollar channel is the lifeblood. However, the US dollar authorities have strong regulatory capabilities on a global scale. Once the US dollar channel is cut off, US dollar assets are seized and it is fatal to the USDT."
Produced by Odaily Planet Daily
Author | Qin Xiaofeng
Edit | Lu Xiaoming