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Is stablecoin the future of the crypto market?

Stablecoin – the market is growing. A review by a Bitcoin mixer: mixer.money
Is stablecoin the future of the crypto market?

  1. Why stablecoins are attractive
  2. MakerDAO is against moving Ethereum to PoS
  3. New stablecoins
  4. Regulatory impact on stablecoins
  5. The state of the crypto space in general

According to a new DappRadar report, the stablecoin market has grown significantly over the past two years and is now one of the most important components of the crypto ecosystem. Since the collapse of Terra in 2022, the industry has seen a huge exodus of wealth from unstable crypto assets, which has increased the importance of stablecoins.

Why stablecoins are attractive

Stablecoins are digital currencies stored in distributed ledger technologies (DLTs), often blockchains that are tied to a benchmark. The vast majority of existing stablecoins are pegged to the US dollar (92.42% of all stablecoins), but stablecoins can also be pegged to other fiat currencies, currency baskets, other cryptocurrencies or commodities such as gold. Their stable price makes stablecoins a kind of yardstick for exchanging cryptocurrencies.

Since 2020, the use of stablecoins registered on public blockchains such as Ethereum, Binance Smart Chain and Polygon has increased significantly.

Stablecoin use has increased significantly

Nevertheless, in just the last four months, circulating supply has fallen 10% ($14.94 billion) since the Terra Luna crash. Despite this, total stablecoins as of August 17, 2022 are $142.82 billion, up 816% from August 2020.

MakerDAO is against moving Ethereum to PoS

Another potential risk to DeFi’s stability is the upcoming Ethereum Merge, which will move the Ethereum blockchain (own ETH (or ether) token) from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) consensus mechanism.

In contrast to support for the merger from leading stablecoins Circle and Tether, MakerDAO (MKR), the developer of the stablecoin DAI, said in a tweet that the Merge could do more harm than good. “They explained that the Merge could lead to perpetual contract backwardation and negative funding. Additionally, MakerDAO mentioned that the launch itself could trigger selling pressure across chains existing on PoW,” the report said.

MarkerDAO has even more reason to be cautious in the current DeFi climate after the US Treasury Department imposed sanctions on Tornado Cash on August 7, 2022, for allegedly helping North Korean hackers launder billions of dollars worth of cryptocurrency.

Following the negative reaction from the crypto community when Circle (USDC) began blacklisting 45 Ethereum addresses shortly after new US Treasury Department fines against Tornado Cash became public, MakerDAO, whose stability mechanism depends on USDC, also came into the spotlight.

“In light of this, MakerDAO may face an existential crisis. The system, which positions itself as an ‘unbiased’ and ‘decentralized’ stablecoin available to anyone, has become dependent on the USDC to maintain a peg to the dollar,” the report said. Half of all of DAI’s stablecoins were originally created with deposits in USDC, but MakerDAO today maintains its stablecoin in USDC for only about a third.

New stablecoins

Joining the race to attract more DeFi users and liquidity on July 27, Aave offered a new GHO stablecoin under the Aave protocol, allowing users to mint additional GHO tokens in exchange for sufficient collateral. Like the troubled Terra, this stablecoin will be an algorithmic currency that also pays interest on the underlying asset, and it is backed by different cryptocurrencies rather than US dollars.

The popular, Ethereum-based Shiba Inu has also unveiled its own rival to stablecoins, a new token and collectible card game for its future meta-universe. Project creator Kusama said that the collapse of Terra prompted the Shiba Inu community to create its own SHI Stablecoin, which will be able to “avoid the flaws found” in similar stablecoins, thanks to the fact that it was independently developed “by a group of developers in our decentralized network.”

Regulatory impact on stablecoins

The report also examines the current state of stablecoin regulation around the world, focusing on the United Kingdom, the European Union, the United States and Singapore. In the EU, the main regulation for crypto asset markets (MiCA) aims to ensure a single licensing system across the EU by 2024. The approval of MiCA by the European Parliament has opened the door to crypto regulation that promotes innovation and could become a global standard.

The state of the crypto space in general

Cryptocurrency markets fell after Federal Reserve Chairman Jerome Powell’s much-anticipated speech in Jackson Hole, Wyoming, on Friday. Powell noted that the Fed will continue to “use our tools forcefully” to fight inflation, warning of “some pain” in the future.

“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” he added. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

The fall of bitcoin. A review by a Bitcoin mixer: mixer.money

After this statement, the cryptocurrency market took a hit again. The price of bitcoin dropped below $20,000.

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