Stablecoins, by definition, are meant to be stable. But the growth in their aggregate offerings over the past year has shown anything but stability, which some market participants believe is a long-term signal for greater success and innovation from existing stablecoins.
“I think we are witnessing this Cambrian moment for stablecoins,” Marco Santori, chief legal officer at Kraken Digital Asset Exchange, told Marketingwithanoy. “They have really come into their own when it comes to finding a foothold in the market.”
Stablecoins circulating on public blockchains have seen tremendous demand and scale, with the supply of fiat-backed, crypto-backed and algorithmic stablecoins totaling more than $180 billion on April 26, up 112% from $85 billion. as of one year ago, according to data collected by The Block.
There have been discussions between government agencies, the private sector and institutional players about how this sub-class of assets can continue to grow within current use cases – and perhaps unlock more over time.
Despite the increasing focus on stablecoins, a number of concerns have also been raised by skeptics concerned about the stability of their PINs and consumer protections, according to a January 2022 report from the US Federal Reserve.
Due to a 1:1 ratio, the value of a stablecoin is fixed to an external peg such as the US dollar, but can also be pegged to other assets, such as the stablecoin’s competitor US Terra (UST) is for bitcoin and Avalanche (AVAX). ). Simply put, every stablecoin in circulation is backed by $1 equivalent of its relative reserve, be it a US dollar or another asset.
While the majority of stablecoins are backed by the US dollar, cryptocurrency-backed and algorithmic stablecoin inventories have skyrocketed 255% from $9.6 billion to $34.09 billion in the past year, data from The Block shows. .
Algorithmic stablecoins have been receiving more attention lately because unlike stablecoins backed by fiat currencies or any other cryptocurrency, they are backed by computer code or algorithms that provide incentives to traders to maintain their price by burning or creating tokens to keep the token stable. UST is the largest crypto-backed and algorithmic stablecoin by market cap, and the third largest stablecoin overall, according to CoinMarketCap data.
“Algorithmic stablecoins are quickly becoming the norm – protocol-issued dollars are coming to every blockchain,” said Do Kwon, the founder of Terraform Labs, which created the crypto tokens LUNA and UST, in a statement. tweet on April 21. “Opponents can’t see it – currencies are ultimately backed by the economies that use them, and the future is clearly choosing to use decentralized and self-sovereign stablecoin.”
But not everyone is a fan of stablecoins because they are a relatively new innovation that has the potential to grow – in two very different ways.