Concerns Arise over Stability of Popular Stablecoins
Amidst the constant price swings and uncertainties that plague the crypto market, stablecoins have become an invaluable asset for investors and traders. However, analysts have revealed several stablecoins that have been struggling to maintain the esteemed stability reserved for these types of assets.
Volatility and the Role of Stablecoins
The inherent volatility of the crypto market and the persistent price fluctuations of cryptocurrencies are a constant experience in the crypto industry. Due to this, stablecoins like Tether (USDT), USD Coin (USDC), and Dai (DAI) have long been revered as a reliable bridge between the volatility and instability of cryptocurrencies.
A recent report by S&P Global has raised concerns about the stability of some of the most popular stablecoins. The report examined the top five stablecoins, including Tether (USDT), Dai (DAI), Binance USD (BUSD), USD Coin (USDC), and Paxos (USDP).
The research paper revealed that USDC and DAI have failed to maintain their dollar peg multiple times in the last two years, unlike USDT and BUSD. These de-pegging events have occurred more frequently for USDC and DAI, with Circle’s USDC experiencing the most prolonged de-pegging event, dropping to $0.90 for 23 minutes. In contrast, USDT dropped below the one-dollar peg for just one minute, while BUSD has not experienced any de-pegging events since June 2021.
The stability of stablecoins is crucial for market participants looking for a reliable value store and medium of exchange within the cryptocurrency ecosystem.
Possible Reasons for Stablecoin De-pegging Events
In March 2023, three prominent banks in the United States, Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank, experienced a fall. These banks had significant ties to the crypto industry, and their collapse had a considerable impact on the prices of digital assets in the space.
This banking crisis affected stablecoins as well. Circle’s USDC declined by 13% below the one-dollar mark after reports revealed that about $3.3 billion of Circle’s cash reserves were kept in Silicon Valley Bank. However, the stablecoin has since recovered and maintained its peg following an announcement that confirmed the Federal Reserve would endorse the banks’ creditors.
High-ranking officials, such as Michael Barr from the United States Federal Reserve, have raised concerns about the adoption rate of unregulated stablecoins like USDT and USDC, which are currently the top stablecoins by market capitalization.
Expanding Use of Stablecoins
Financial firms like PayPal have launched their own stablecoins, joining the trend of creating stable assets. Platforms like Binance and Huobi are already incorporating these new stablecoins into their cryptocurrency portfolio, and even Visa is taking advantage of stablecoins like USDC to expand into new markets.
As the broader crypto market closely monitors stablecoin discrepancies, it is clear that stablecoins play a vital role in providing stability and a bridge between traditional finance and the cryptocurrency industry.
Featured image from StormGain, chart from Tradingview.com
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About the author - J-S Tremblay
I've been involved in the cryptocurrency world since 2016 and trading since 2019. I started Moon and Lambo in 2021. I'm passionate about crypto and love to share my knowledge. I hate bankers and I hope that cryptocurrency will change the financial world for the better. View full profile...
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