Will CBDCs be the end of stablecoins?
All of us who are related to the crypto world are in contact in one way or another with stablecoins. They basically became the pillar that allowed exchanges to establish themselves and made life so much easier for traders. But will they be here for much longer, or is his life drawing to a close?
Image form Unsplash
Truth be told, stablecoins exist because it is very difficult to link the traditional financial system to the characteristics of cryptocurrencies. Mainly the autonomy of the user to manage their money without the intervention of a third party.
However, the impact of stablecoins may fade with the rise of central bank digital currencies (CBDCs). Although these may have greater control by the Central Banks, they will also have greater support and confidence from the general public.
The reason is that it is not the same to be backed by the authority in charge of issuing money than to be backed by a private organization with little transparency. And it is that, although the stablecoins are relatively new, just the first one appeared in 2014, some scandals associated with their support and their creators have already arisen. Here I give you some examples:
Tether: the most popular stablecoin, designed to maintain a stable value against the US dollar. However, there are concerns about the transparency of Tether and its financial backing. In 2019, the New York attorney general filed a lawsuit against Tether and its parent company, accusing them of concealing a loss of around $850 million in customer funds.
This lawsuit came about due to the 2018 scandal where it was reported that Bitfinex (a cryptocurrency exchange) had lost access to some $850 million in funds from its clients, and that it had used Tether funds to cover the loss.Circle: is a company that issues various stablecoins, including USDC, which is (allegedly) backed by US dollars. Well, in 2020, it was reported that Circle had scaled back its operations and laid off a third of its staff due to declining demand for its stablecoins. And the company was suspected of using USDC funds to support its cash shortfall in a bank account, raising concerns about the currency's solvency.
These scandals (without count algorithmic stablecoins disasters like LUNA y UST) have raised concerns about the transparency, financial backing, and regulation of stablecoins. Therefore, the introduction of CBDCs and their integration in some Exchanges may cause stablecoins to disappear, since everything is based on trust.
Image from Unsplash
And here we return to the point in question, if the investors have in the CBDC digital currencies issued by the central banks and backed by the government authority that issues them, that they can self-manage without needing a bank and that are integrated into the Exchanges, for what would they need a stablecoin from a private company with no transparency behind it?
After all, for privacy, decentralization and anonymity, Bitcoin and the other cryptocurrencies will remain. So the debate is served:
Will CBDCs be the end of stablecoins?
Let me know your opinion in the comments.
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*Originally posted in Hive