Let’s change, or why stablecoin is better than bitcoin

Cryptocurrency is still something incomprehensible and unattractive for most Russians in terms of investing funds – the probability is too high not only to greatly increase their savings, but also to lose them. Relatively recently, a new format of crypto money has appeared – stablecoins. And their total capitalization already exceeds $137.2 billion. What are stablecoins, is it worth buying them and why – Moskovskaya Pravda learned about this from experts.

There are various digital means of payment in the world – this is a currency that is available exclusively in digital form. However, it is necessary to distinguish between its types, says Sofya Glavina, Candidate of Economic Sciences, Associate Professor, Head of the Digital Economy program at the Institute of World Economy and Business of RUDN University.

“Do not confuse electronic currencies, cryptocurrencies and digital currencies,” the expert explains. — Today we see that electronic versions of the currency already prevail in the financial systems of most countries in the form of non-cash payments. In addition to electronic money, there are three main varieties of digital currency: cryptocurrencies, stablecoins, and the central bank digital currency known as CBDC (Central Bank Digital Currency). Stablecoins are a digital currency whose stability is ensured by pegging to the value of another, less volatile asset. In fact, they represent the digital format of fiat currencies during the Bretton Woods financial system (fiat currency in simple words is the official currency of the state, which has its own nominal value, for example, the Russian ruble, US dollar, Chinese yuan, and so on – approx. ed.). Due to their availability and stability, stablecoins can act as a tool for saving capital. This is especially true in countries with high inflation. This tool becomes much more profitable than a bank deposit – due to interest. A promising direction is also the use of stablecoins in international settlements.

In fact, stablecoins have become a kind of evolution for cryptocurrencies: combining the stability of traditional assets with the flexibility of digital assets has turned out to be an extremely popular idea, Sofia Glavina believes.

Artur Meinhard, Head of the Analytical Department for Global Markets at Fontvielle Investment Company, spoke about how stablecoins appeared:

— The first stablecoin USDT (Tether) appeared in 2015, making a splash. The fact is that at that time the status of cryptocurrencies was not defined in the world legislation, and the companies that carried out their activities on the market had a semi-legal status. Crypto exchanges could not legally quote the same bitcoin against the US dollar. To do this, they needed to obtain licenses from the US Treasury, which, of course, no one would have issued. The creation of the USDT stablecoin was an elegant solution to bypass legal restrictions, giving the market a stable fiat-pegged asset.

Now a stablecoin is a kind of “private money”, when an organization or even a state issues its own electronic coin based on blockchain technology and pegged 1:1 to the rate of any fiat currency, although, as marketing specialist Gleb Garusov explained, you can tie a stablecoin in general, to almost any physical asset that can be sold.

– Stablecoins are most often pegged to the US dollar, euro or yuan. But in fact, they can be tied to anything: for example, to gold or the cost per square meter in a particular building. Unlike other cryptocurrencies and classic stocks, a stablecoin, as a rule, does not have volatility and is always equal to the selected value,” the expert said. — However, do not confuse the stablecoin with its real counterparts, because it is still a digital currency. And this means that its actual rate may not coincide with the rate of fiat currency (for example, one of the most popular cryptocurrencies USDT, pegged to the dollar and having a very wide circulation, as a rule, is somewhat more expensive than the dollar itself). This is due to the fact that cryptocurrency is not a currency as such, and its price is caused by the presence of collateral. Such collateral can be real (in the USDT example, it is the collateral of most of the budget in dollars), the collateral of another cryptocurrency (most often bitcoin or the system’s own currency). This is the reason for the slightly higher rate of USDT against the dollar, because the supply and value of the underlying cryptocurrency is not essentially stable.

Gleb Garusov considers stablecoins to be a good asset, which, moreover, is not subject to sanctions.

– In some countries – for example, in Turkey – the cryptocurrency market is so developed that there are a large number of exchangers where you can exchange stablecoins for real money. Buying them also does not carry any difficulties. If large exchanges have limited the possibilities of Russians, then direct exchange (p2p) services provide fast and simple services using maps of most countries of the world, including maps of the Russian Federation, the expert notes. – Also, these services are convenient because even the network commission is closed at the expense of these sites. It should also be noted that all such services have built-in wallets, and creating your own wallet is not a problem even for a novice user. However, if you need a really large amount (more than $100,000), an easier option may be to order a service for an individual purchase or sale of cryptocurrency. The cost of such a service is usually about 2% of the transaction and it is provided in almost all major cities in the world.

There are several types of stablecoins, while the most popular of them, for example, USDT (Tether), USDC, TUSD, BUSD, are pegged to the US dollar, said Kirill Ostrovsky, a fintech head with 20 years of experience in the largest companies in Russia.

— The appearance of stablecoins served as a start to the emergence of DeFi decentralized finance, analogues of bank deposits and other tools in the crypto world. In order for a person to invest money, and the service to accrue interest to him, in the world of cryptocurrency there was not enough “reference” coin, which would have a constant unchanged exchange rate. With the advent of stablecoins, this became possible to implement.

The purpose of creating such stable cryptocurrencies is usually the lack of measurement or exchange tools – this point of view was expressed by an engineer, information security specialist, director of the Printeria service center Ilya Karpuk.

– The same Tether was created as an alternative to the fiat dollar, with a 1: 1 rate. And now you can sell your bitcoins on the crypto exchange, as if fixing the rate in this virtual dollar. For example, when creating one USDT token, one fiat dollar must be transferred to the accounts of the issuing company. And vice versa, if clients want to exchange their USDT for real dollars, the issuing company must transfer fiat to the account, and “burn programmatically” USDT for the same amount,” the expert explained the technology of exchanging virtual currency for real and vice versa. — In practice, there are legends about the real backing of USDT, since for some time now it has not been backed by 100% money, but can be backed by various kinds of crypto assets and even US Treasury bonds. And everything is not so smooth with the exchange rate, at the moment with large operations on the exchange, USDT can fall to $0.90 or cost $1.1.

There are also so-called algorithmic stablecoins. And Ilya Karpuk advises to treat them with caution.

— Their stability to the rate is prescribed by a mathematical formula or a smart contract, and usually there is a satellite coin, due to which the rate is secured and stabilized. But recently there was a case proving the unreliability of such a scheme, because using algorithms and rules, the attackers were able to collapse the exchange rate of the stablecoin Terra and its dependent coin LUNA,” he said.

In general, the reliability of stablecoins raises some doubts among the expert.

“Everything that is not under your pillow, or on a “cold” wallet, is not your money,” he says.

Meanwhile, StormGain crypto exchange expert Dmitry Noskov believes that even despite the collapse of the Terra (Luna) project that caused a crisis of confidence in stablecoins, this digital currency today remains the best tool for making cross-border transactions.

– If you transfer money to the country in other cryptocurrencies, then due to a sharp drop in their exchange rate, you can lose a large part of the funds. With stablecoins, this usually does not happen, he notes.

The editor of the site Crypto.ru Vlad Krylov agrees with him.

– You can transfer 1000 USDT to a person in the US by paying 1 USDT. If you use the services of banks, then a similar operation previously took at least $ 10. In addition, popular stablecoins are available on almost all major exchanges. There are no problems with buying and selling even in the case of large transactions. So, on the Binance crypto exchange on February 10, the volume of transactions amounted to 24 billion US dollars, and about a quarter of them fell on trading pairs with USDT.

And according to the head of the fintech ecosystem Kick Ecosystem Anti Danilevsky, stablecoins are also a convenient asset for saving money in cryptocurrency.

– Stablecoins have become “dollars on the blockchain”, the link between fiat and cryptocurrency, which eliminated the need to constantly use CEX (an online digital currency exchange service – approx. ed.) to enter a stable fiat,” the expert notes. – Now stablecoins are most often used to fix profits, maintain balance from drawdowns during price fluctuations of the main trading cryptocurrency. Large investors sometimes transfer their profits overnight to stablecoins in order to continue trading without losses in the morning.

Yaroslav Ivanov, Strategic Director at the ALTA Blockchain Accelerator, told more about “deposits” in stablecoins, or staking.

— Staking is similar to bank deposits. You freeze a certain amount and receive a certain annual interest on it. The key difference is that stablecoins can be frozen even for a few days, and not just for a year or a few months. In addition, the yield on such “deposits” is higher – an income of 20% per year is possible. The interest rate varies depending on the number of people staking at the moment, the expert explains. – In addition, there is a staking with a guaranteed income and with flexible opportunities for savings (there the percentage changes, but the rate is higher). However, high interest rates are usually associated with high risk, while low interest rate offers are low risk staking options.

Well, we can admit that a stablecoin deserves attention both as another means for saving and increasing one’s savings, and as an almost universal means of payment that knows no boundaries. So the Russians have another reason to improve their financial literacy.

Alena Bodrienko.

Photo tonodiaz / Freepik