Stablecoins place on the market is well deserved; the symbiosis of fiat currency and blockchain technology does great for avoiding the market volatility when it is necessary. What is the stablecoins performance of late?
Market Situation
Due to the recent situation in the stock and crypto market, the stablecoins reserves value shrinks. What’s reassuring is that tokens can still be redeemed. Stablecoins issuers face difficult situations and have to resort to greater risks when looking for new reserves in order to keep their token afloat. If stablecoins lose their peg, which means they are not fully backed any longer, they simply collapse.
In that regard, stablecoins issuers could offer interest earnings on the token reserves to crypto holders on a P2P basis. If interest rates are acceptable, stablecoins can be considered competitive again in terms of liquidity. However, stablecoins will remain sustainable at any offered interest rate.
What about Central Bank Digital Currencies?
No matter how scary the perspective of government regulations coming with a CBDC is, this currency could bring physical cash on a more efficient path in terms of usability – digitalization. Those people who have a bank account, debit cards and digital wallets think of them as cash money. Nonetheless, this money is no central bank concern, but the private sector issuers. Cash and its further prospects belong to central banks only.
A Central Bank Digital Currency will make digital cash available to regular people who’ve not yet fallen for blockchain technology, thus bringing mass adoption. Whether a digital dollar is needed or not is up to debate, but this is not the main concern. The main question is how it will be distributed and will it be able to accumulate interest or not. At the same time, it shouldn’t affect the benefits it will bring for the crypto market.
Final thoughts on stablecoins and CBDC
The blockchain technology was intended to reload the financial market and raise competition for many digital currencies. A CBDC is an example of such currency, being the only way for most consumers to digitize their portfolio and open up to distributed ledger technology.
An ideal scenario for the future of digital cash is to focus on keeping stablecoins afloat first, and if they will prove themselves sustainable enough (which they certainly will), implement a CBDC to compensate for potential insufficiencies. Private sector needs interoperability, immutability and privacy which can come in handy when promoting the new financial solutions to the masses.
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