Bitcoin Forum

Stablecoin exists to address volatility associated with bitcoin and altcoins.

We have collaterised coins which are in form of crypto-pegged coins, commodity-pegged coins and fiat-pegged coins with the goal of bringing stability to crytocurrencies.

My question are:

1. Can this new digital solution address volatility and stop economies from having hyperinflation?

2. Which of the collaterization do you think will be feasible in achieving stability?

3. Which coins have achieved this feat so far?

4. What's bitcoin effort in trying to solve volatility problem?

Kindly, share your thought on this important subject. Thanks

First of all it's not inflation. Inflation would mean the value drops, which is not the case for Bitcoin and such.


Keep in mind that not all stable coins are the same. They are pegged to different "values" and they should be backed by an equivalent reserve of those "values".

But not all do this, most notable example is the well-known USDT/Tether which never allowed a trusted 3rd party make a proper audit, so it's safe to assume that their coin is not actually backed. And here the problems come.
If all the stable coins would be backed properly, they would not change anything at all in the price evolution of the main coins (the world would be the same - with or without them, they'd just make the arbitrage and other transactions faster).
But the not-backed stable coins are dangerous. They are "made of thin air" and transfer value into the hands of the issuer by "stealing" value from the actual coins (I'm not sure how to word it better).

1. No. If anything, stablecoins might actually be helping speed up inflation. Because we don't even know for sure if all stablecoins currently exists are actually backed up 1:1 with the US Dollar. Some of these stablecoin companies(like Bitfinex) might actually be insolvent and are just printing out Tethers for the sake of it.

2-3. Don't expect stablecoins to help price stability by much. If anything, stablecoins just provide more market liquidity, but that itself wouldn't make bitcoin stable. We simply need more buyers and sellers, or time in general.

4. Nothing. Because Bitcoin is a protocol not a living entity. Stability will come with time. You really don't expect an 10-11 year old asset to be stable; especially in an unregulated market where manipulation occurs and people can simply dump huge amounts at will. That would simply be very realistic.

You made a very cogent point here that all should consider keenly:
1. Do you Stablecoins backed by other assets is not different from altcoins and bitcoin in terms of volatilities?

2. Why is the US dollar a fiat currency stable overtime? I believe one of the reasons is due to the backing of the gold standard.

3. Don't you feel that a crytocurrencies backed by fiat currency like USD will be more stable than dollars?

Although, the market force is a powerful market trend force.

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You mean stablecoins might help to speed inflation? Well, still pondering over it. Well stability and inflation can not take place simultaneously. The equilibrium point of deflation and inflation of coins is stability.

My observation is what now make stablecoins different from altcoins and bitcoin?

[moderator's note: consecutive posts merged]

Stablecoins are valued at 1 USD, and SHOULD be backed 1:1 with real US Dollars, but we really can't prove that it's actually really backed 1:1.

As you can see on crypto price sites like coinmarketcap, stablecoins are pegged to the USD whereas bitcoin and altcoins are just priced through supply and demand, hence why bitcoin/altcoins can rise and fall as much as the market wants, whereas stablecoins are almost always $1.

Thank you.



Properly backed stable coins are not much different from the assets used for backing them (no big relation to Bitcoin).
They are usually different from Bitcoin and altcoins. They are usually backed by fiat currencies where the supply is not finite, while Bitcoin supply is finite and rather small.
This means that the value of fiat currencies usually decreases over time (inflation) giving the impression the value of Bitcoin is rising.

What I said was that if only properly backed coins would be used to buy Bitcoin its volatility could be smaller.
But the current high volatility is also caused by the fact Bitcoin (and altcoins too) is a young asset and its markets/exchanges are not properly regulated.



US Dollar is far from being stable. What tricks you is the point of reference. Remember that ancient people thought that Earth sits and Sun is travelling around it.
US dollar is now about 20 times weaker than it was in 1800. See on this website (https://www.officialdata.org/us/inflation/1800?amount=1) the Year/Dollar Value table on that page. Or search for other ones, this was just a search result, I don't know how accurate it is, but you'll get similar results.



In theory an USD backed stable coin has always the value of 1$, so it can't be more or less stable than dollar.
In reality some small fluctuations happen, but I think that the reasons are fees, supply issues and maybe bigger problems. I tend to avoid USD related stable coins because of this. They don't bring me any benefit if I don't arbitrage.



Always keep this in mind, whether you talk about inflation, volatility, halving or speculation.

There can't be a point of equilibrium in a free market mechanism because it's either SS>DD or SS<DD.  In that case a pegged coins may likely achieve stability.

Sure it's not perfectly 1:1 because the "prices" of these stablecoins frequently rise and drop from $1 flat to around $0.998 to $1.102 depending on how much people are buying/selling, but they're MOSTLY really close to 1 USD. And of course they're stable, that's the point of stablecoins. They're pegged to the USD. It's pretty much just a blockchain version of the USD.

No. Even stable coins are under investigation of inflation. For example, they said one USDT is backed by one US dollar but in reality can we have proof of this?
If there is a collateral that can help price stable, it is something relates to physical stuffs, such as gold. However even gold has its extremely high volatile period like last month. I know it does not often occur with gold but I take it as an example for the statement, there is nothing can play as a collateral to help other assets more stable.
The scheme of bitcoin block rewards does it. When there are not significant available mineable bitcoin left, the price will become more stable. You can see the curve will become more flattening since the coming halving. The bitcoin network has still moved till next four years to see the real flattening phase but we have been so closely to that phase.

There are 87.26% of bitcoin total supply has been mined as of writing (18,324,150 has been mined per 21,000,000 total supply of bitcoin), according to coinmarketcap (https://coinmarketcap.com/currencies/bitcoin/).

Remember, with whatever happen in the future, bitcoin will not be completely stable because we have one thing is called Market. Market means volatile.
Image source: https://www.coindesk.com/bitcoin-halving-explainer

Very great analysis and graphical demonstration.
There is no utopian market system which means the market will also be volatile.

My question is what if we peg 1coin: $2-3 won't it help to solve volatility problem to a considerable extent?

Volatility of what specifically? Bitcoin? The cryptocurrency markets in general? Or what?

But the answer regardless is: no. Changing the peg really solves nothing as it's just like creating a crypto-version of a $5 bill.

Thanks.

We have :
1.commodity pegging such as gold standard
2. Fiat pegging such as US dollar standard.
3. Cryro-pegging such as ethereum or bitcoin standard

What if we use god which is relatively stable to peg stablecoins, won't it be stable or decrease in rate of fluctuations?

We already have a cryptocurrency that's supposedly pagged to a gram of gold named Digix Gold Token(DGX). It literally does nothing to decrease the rate of volatility because what the markets need is liquidity, not new trading pairs.

1. Of course not. As mk4 said, stable coins are like printing fiat money. They will just speed up inflation.



They do not exist for that reason. Volatility is not a problem to be addressed and solved. It is just a consequence of the uncertainty of the future of cryptocurrency assets. As long as this future remains unknown, as being completely forgotten or mass adopted, the price will be very volatile.

You are thinking everythhing the wrong way ;)

This is the biggest problem not only with stablecoins pegged to gold but with every stablecoin that is pegged to something (fiat or precious metals). There are alternatives like DAI that is keeping it's price stable with algorithm. But those stablecoins too have their own problems.

How does that DAI keep its price stable through algorithm without being backed up by things with relative stability.  Pls, kindly explain how that work.

It's a simple Google search to find that answer. Here, I "googled" that for you: https://www.google.com/search?q=how+does+dai+keep+it+value+stable

There are several articles that explain that, but you'll have to read carefully because it's not that simple.

that is a weird question! how can something that supposedly is pegged to something that inflates (ie. fiat) prevent inflation? if anything when these companies print more and more of their coin they are contributing to inflation.

i don't think stability of a stable coin has that much to do with what it is backed by. in fact i believe that a stable coin is only as stable as the users of that coin perceive it. for example 1 Tether is only worth $1 as long users are not willing to buy/sell it at a higher or lower price. otherwise it doesn't matter. of course the very large supply and a huge number of users contributes to that stability but in the end it comes down to that demand. if some day that demand changes we see the price change too. we have already seen it crash to $0.9 and $0.85 before.

Yeap. But take note that whoever is handling the supply of Tether can also print/burn supply as to keep the price at least close to $1. The $0.85-$0.9 prices occurred just because of the sudden spike of people selling their USDT, but as we see it quickly returned back to the $1 range when the Tether company interfered.

that could work mostly for the case where price is higher and they print more otherwise burning coins is not going to be that effective if people decided some coin is not worth $1 (lack of demand can not be covered by burning some coins that may not have even been in use).
BTW i think the big drop was during the time when Bitfinex was hacked and again when FBI was looking into their affairs and again when their banks shut down their accounts, and people were worried that the company and the exchange were going to shut down.

You said that's a weird question? Well I don't think it is if you're familiar with the way money work.

Think over this:
Why is the USD the global reserve currency? It is because it is stable and that stability comes from the fold that the currency is tied to.

So, the items a stablecoin is tied to affect its stability in a technical way.

What we should agree on is that there are many variables that affect the stability of a stablecoin. They are:
1. Demand for stablecoin
2. Supply of stablecoin.
3. The mode of collaterization
Among other factors.

Why do so many people have such a weird conception of what stablecoins are?

All they are are dollar tokens with dubious means of redemption. They are 100% tied to whatever policies are imposed on the dollar with the added spiciness of not knowing whether certain ones are backed by proper dollars and the possibility the person controlling them will tell you to piss off if you try to exchange them for real dollars.

That makes them multiple times crappier than a real dollar. They're a creature of cryptoland with huge added dangers and uncertainty. They ain't changing anything for the better and may change other things for the worse.  

But there are stablecoins not pegged to a dollar, but to a gold or some other precious metal. At least their creators say they are pegged. But like with stablecoins pegged to a fiat, stablecoins pegged to precious metals are being audited regularly so there shouldn't be an issue.

But once again that doesn't make them anything special. They're tied to the value of a much larger market with added risks too.

Some seem to believe they solve a financial problem like a proper cryptocurrency. The only one they do solve is trading shitcoins in more shitholes.

No one said (at least not me) that they solve any financial problem. They don't solve anything except giving traders a way to escape to some stable coin (that has less volatility) when they expect price of BTC or any other coin to fall.

I think there are many misconceptions in this discussion.

Stable coins are private debt.

A company says: "Give me 1 USD and I will give you back a cryptocurrency which, if you bring it back to me I will pay you back your 1 usd with ZERO interest rate".

People who hold stable coins are just lending money with zero interest rate. It is much better to have dollar itself.
The problem is that you don't know if Tether or whaever company can really pay back that loan.

About GOLD stable coins that's exactly the same. Actually, it is exactly the same as buying a Gold ETF.
The major problem is that if you buy an ETF there are much more regulations on them, so you are safer. Do you think any stable coin will spend millions of dollars per year in auditions and stuff like that, such as ETF GLD or IAU?

Of if a stable coin is holding an ETF, which is possible, that is just double risk.

Stable coin idea is really amazing. However, for that to work we really need strong regulation. Otherwise, stable coins issuers will just run away with people's money. Technology is here to stay, so I believe in future even those gold etfs, stocks, etc may use blockchain transactions. It would be cool if GLD or IAU itself made their own cryptocurrencies, for example.

there are two fundamental problems that bitcoin solves:
-3rd party trust
-inflation

stablecoins pegged to gold may not address the first problem, but they do address the second one. it's like paper gold 2.0---it's still paper gold, but you can transfer it instantly/electronically, trade it on non-custodial exchanges (avoid KYC), easily hedge crypto or fiat value.

as someone who still regularly uses centralized brokers and exchanges for needed liquidity, i see some value in that. i'd much rather trade a liquid gold stablecoin than trade physical gold or use a traditional broker.

i wouldn't say that is the reason, USD became world's currency in the midst of world war 2 crisis and one of the main reasons why that agreement took place at that time was the crisis and also the fact that USD is backed by the largest gold reserves. not to mention that no fiat currency can be stable ever due to their unavoidable inflation.
this is exactly why US is afraid of any country that shows any major growth, that is why they have been at war with China for some time now.

I agree with you that no one can really be sure that issuers of stablecoins have enough fiat/gold to pay back the loan. But they do have audits. USDC has monthly audits by a company that checks their USD balance and if they issued more USDC than they have fiat. But I definitely agree that more regulation is needed in stablecoins.

I think you mixed up the role of the stable coins
Stable coins have no role in the volatility of bitcoin or altcoins.

Stable coin role is in itself to remain in a stable price either in a bull or bear season.

The volatility in crypto currency will continue because that's the only way bitcoin can be 7000$ today, and 20,000$ tomorrow.

The most important, always do your own research

Great comment.
But I don't agree with you on your opinion because the economic concept of stability means anti-volatility.

The more stable a coin is the more confident a potential investor be to invest.