The stablecoin market continues to surge explosively this year, hitting record highs. Total supply for all stablecoins has surpassed the $11 billion benchmark, representing 100% growth in four months.
A stablecoin is defined as a price-stable cryptocurrency, where the market price is pegged to a stable asset, like the US dollar. In the volatile world of blockchain, stability was alluring to many. However, the past few years have given enthusiasts plenty of reason to be wary of stablecoins, despite the fact that they are one of the top five crypto assets.
For one, they’re not always stable.
Take a look at bitUSD, sUSD or Digix Gold over the course of January 2018 to December 2019, when stablecoins were particularly popular. The volatility throughout that year -- moving more than 40% from low to high -- stood in stark contrast to the promise of a stablecoin.
If you need another reason to distrust stablecoins: they’re mostly illiquid.
Backed stablecoins are redeemable in currency, commodities or fiat, as opposed to the unbacked, or seigniorage-style algorithmic ones. Though the market still prefers backed stablecoins, one prominent attempt is NuBit, the only live example of a Seigniorage-backed stablecoin so far. NuBit suffered from two infamous crashes, with extended peg breaking.
In 2016, NuBits’ peg broke, and stayed broken for 3 months. One plausible explanation was that the stakeholders sold their NuBits in large quantities in order to capitalize on the spike in bitcoin’s price. This suggested that extended sell-offs broke the peg by causing strong downward pressure on the price of Nubits. Six months later, their market cap grew 1,500% while Bitcoin was crashing. Supply couldn’t keep up with demand, hence driving the price of NuBits up. It seems as though the volatilities in Bitcoin’s prices and NuBit’s are interrelated.
NuBits’ first crash demonstrated how crucial a proper management of supply and demand is to maintain the peg. A diversified collateral will provide the needed buffer to market fluctuations. By design, NuBits did not maintain large reserves. As a result, its price was affected greatly by the variance in Bitcoin’s price. The second crash they suffered was also due to insufficient reserves -- this time, because their reserves were stored in Bitcoin. When the price of Bitcoin fell, the value of the NuBits reserves fell as well.
Despite these crashes, however, new stablecoins continue to be merrily rolled out, all with the same high ideals -- hoping a stablecoin could actually keep the promise of stability, if unfulfilled. The decreasing relative market share of Tether (down from 75% in 2019), along with the aggressive emergence of “challengers” like DAI, TrueUSD, USDC and Gemini, show that the stablecoin contingent is still growing. It remains true that Tether still maintains the greatest market cap and circulation across all stablecoins. But still, this should raise the question: what have we learned from stablecoin crashes, and why do we continue to trust them?
Stablecoins exhibit high volatility that fundamentally stems from poor adjustment to supply and demand, because they overlook what the fintech market is after.
To address that, Sperax designed a backed fiat-pegged stablecoin. By partnering with regulated financial service providers, Sperax stablecoin could also ease the barrier by on-boarding users holding fiat. While these are similar to Tether’s initial claims, their validity have come under criticism of late. The trouble is, Tether isn’t held to those promises because it’s not intended for use by regulated financial service providers.
Regulated financial service providers and OTC desks are best at interacting with end users and helping consumers understand their products and services. By leaning on these providers, Sperax can focus on providing liquidity for the token. By issuing geography-specific stablecoins, Sperax can support cross-border transactions in conjunction with financial service providers.
In order to further ensure stability, Sperax manifests for the consumer in a stabilization fee charged each time users exchange fiat for stablecoins. This in turn is used to reward financial nodes, as well as for buyback of the SPA tokens.
Finally, where other stablecoins have failed due to external factors like protocol incompetence, Sperax stablecoins have diversified dependencies. Where a decentralized stablecoin issued with Ethereum-centric collateral rises and falls with Ethereum, Sperax provides an extra layer of stability for the SPA token holders by being the first native stablecoin in the public blockchain ecosystem.
In conclusion, the ideals behind a stablecoin require a platform to prioritize and optimize stability. Because the existing attempts fail to address these concerns properly, we’ve gone through the trouble of designing our own stablecoin, sCOIN.
To us, it is clear that the market drivers behind fluctuations will be the key differentiator in a stablecoin market longing for change. And that is how Sperax stablecoins are fully capable of guaranteeing stability.
To learn more, visit https://sperax.io/ and join us on Telegram, Twitter, Facebook and Linkedin.