A professor from the University of Berkeley, Barry Eichengreen has asserted stablecoins are a “myth” in a scathing critique published just recently.
Taking the nascent market sector, which includes popular assets such as Tether (USDT), to task, the Professor of Economics claimed that stablecoins are not automatically “viable” just because they are fixed to reserves of, for example, fiat currency.
Eichengreen penned that “conventional cryptocurrencies, such as Bitcoin, trade at wildly fluctuating prices, which means that their purchasing power – their command over goods and services – is highly unstable,” while also adding:
“Stable coins purport to solve these problems. Because their value is stable in terms of dollars or their equivalent, they are attractive as units of account and stores of value. They are not mere vehicles for financial speculation. But this doesn’t mean that they are viable.”
The cryptocurrency industry continues to see more stablecoins emerging in the market, some of which come from or via conventional finance insitutitions.
This week saw regulators approve both the Winklevoss twins’ first stablecoin asset, the Gemini dollar, and an identical offering from Paxos. And right before that, a Liechtenstein bank declared its aim to issue a Swiss franc-backed stablecoin in August.
For Eichengreen, , such assets fall into three categories according to the fullness of tokens’ collateral — full, partial, and uncollateralized — and each has its faint points.
For Tether, the “disputed” claim its tokens are fully collateralized mixes with the “expense” of its issuance and circulation to raise questions about scalability.
Eichengreen ended the critique by saying:
“In other words, it is not obvious that the model will scale, or that governments will let it.”
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