What benefits can a stablecoin pegged to the US dollar bring?

How can a USD-pegged stablecoin prove advantageous?

Author: Daniel Wheeler, CoinDesk; Translation: Song Xue, LianGuai

On Tuesday, ratings agency Standard & Poor’s released a report reviewing eight leading stablecoins and found that many of them have flaws.

It can be said that stablecoins pegged to the US dollar not only safely increase the money supply, but actually improve it. In fact, it will promote economic growth in the United States by dividing our money supply in two.

One part – the tethered stablecoins – will be used for faster and cheaper transactions. The other part – the US dollars held in bank accounts – will be used to lower the cost of borrowing US dollars.

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Only specific types of stablecoins can generate these economic benefits. Any token that promises “returns” or “dividends” may be considered a security, and any trading involving that token will trigger capital gains tax.

Even if the structure of stablecoins is similar to Tether (S&P’s negative assessment), and there are no promises of returns to holders, if the asset portfolio of stablecoins is not strictly limited to US dollars held in bank accounts, then there will be little benefit to the US money supply and economy.

Stablecoins like Tether also have serious and potentially fatal flaws, such as the possibility of a “bank run.” Any stablecoin invested in anything other than US dollars in bank accounts cannot guarantee its holders the ability to redeem their stablecoin at any time, in full, at 100% of its face value.

Tokens like Tether can only hope that black swan events will never occur. True stablecoins can be sold and redeemed at a price of $1, assuming their value never fluctuates. They do not pay returns or appreciate. There is no reason to “hold” such stablecoins.

However, people believe that stablecoins are faster, easier to trade, and have higher transaction value than fiat currencies. This superior functionality will drive demand, meaning stablecoin issuers/sponsors can profit by retaining the fiat currency interest earned on US dollar deposits held in custody banks.

At the same time, true stablecoins will not track the same goods and services as fiat currencies, as they are a high-speed currency used solely for transactions. The US dollar deposits held in bank accounts to support stablecoins will be stable long-term deposits, which will enable banks to lend at lower rates.

Therefore, true anchor stablecoins will (1) expand the money supply without causing inflation, and (2) lower the cost of borrowing fiat currency.

This type of stablecoin does not pose any problems with central bank digital currencies (CBDCs). It easily complies with existing laws, does not harm the banking system, and prevents governments from using currency as a weapon of surveillance and control.

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