Editor's Note: This article comes fromCrypto Valley Live (ID: cryptovalley)Editor's Note: This article comes from
Crypto Valley Live (ID: cryptovalley)
Crypto Valley Live (ID: cryptovalley)
, Author: YOGITA KHATRI, translation: Ziming, reproduced by Odaily with authorization.
The United States is ushering in the era of negative interest rates, but stablecoin issuers do not seem to be too worried.
All of the top five stablecoin issuers told The Block that they will continue to maintain a 1:1 USD peg.
At present, the United States has ushered in the era of negative interest rates. The 1-month and 3-month U.S. Treasury yields were quoted at -0.046% and -0.056% respectively, as investors sought safer havens for money (and possibly in the form of cash) during the coronavirus crisis, namely " flight to safety (hereinafter referred to as FLS)". In this case, issuers of USD-pegged stablecoins may face some challenges in maintaining a 1:1 peg between stablecoins and USD.
This is due to stablecoin issuers keeping the collateralized dollars in bank accounts and earning interest on them. And in the case of negative interest rates, they would be charged fees for depositing funds, which could result in fewer dollars in those accounts than the number of stablecoins in circulation.
“Negative interest rates could challenge the status quo for dollar-backed stablecoins,” said Garrick Hilema, head of research at Blockchain.com. Such a change could introduce additional risks to maintaining the 1:1 peg."
Tether: Not worried about the impact of negative interest rates
Despite the negative interest rate scenario, Tether (USDT), which owns over 80% of the existing stablecoin market share, still believes in their ability to maintain a 1:1 peg to the U.S. dollar.
“Our reserve assets refer to traditional currency and cash equivalents, and may from time to time also include other assets and receivables arising from Tether’s loans to third parties. If we were in a negative interest rate environment, we would still have the ability to trade Stuart Hoegner, general counsel of Tether’s sister company Bitfinex, told The Block that Tether will continue to be backed by 100% reserves. Hoegner declined to comment on the specific strategy that will be adopted.
secondary title
Other large stablecoin issuers
The second largest stablecoin issuer, CENTER (founded by encryption startups Circle and Coinbase in 2018), also stated that its USDC still has the ability to maintain a 1:1 exchange rate with the US dollar.
"USDC's reserve assets are subject to the network rules and reserve investment policies of the Central Consortium (Center Consortium). Capital protection and liquidity are the main tasks of the consortium. These reserve assets are assets with a high level of liquidity (such as U.S. short-term government securities and cash deposits). Circle’s senior vice president of global corporate communications, Josh Hawkins, told The Block: “We will be closely monitoring the yield environment, more on the extent of negative interest rate levels, and will continue to ensure that 1USDC always has value against 1 dollar. ” But Coinbase declined to comment on the matter.
Other top stablecoin issuers, including Paxos, TrustToken and Gemini, have said they will ensure the 1:1 ratio is maintained.
"We have a long-term view on this, and we doubt that negative interest rates will continue for too long in the U.S. So if that happens, we will use our company funds to cover the corresponding costs," Dorothy Chang, vice president of marketing and communications at Paxos, told CNBC. “All USD-backed stablecoins in our custody — Paxos Standard (PAX), Binance USD (BUSD) and Huobi USD (HUSD) will maintain a 1:1 conversion ratio,” The Block said.
He said: "Prior to the recent interest rate changes, TrustToken has been working with banks and trust partners to achieve above-market interest rates, and we are well positioned to navigate the current environment of declining interest rates and continue to do so for the foreseeable future. currency full USD backing level.”
A Gemini spokesperson said that the company plans to take measures to "maintain the overall economic level" to maintain the 1:1 peg between the Gemini dollar (GUSD) and the US dollar in the event of negative interest rates. They declined to mention specific strategies to be employed.
Binance declined to comment on the matter regarding its BUSD stablecoin. But as Chang stated, since BUSD is managed by Paxos, it will maintain a 1:1 peg.
secondary title
Will the negative interest rate environment persist?
Blockchain.com’s Hileman said the potential for widespread and persistent negative interest rates in the U.S. is a “hotly debated topic,” but the Fed has been opposed to “introducing negative interest rate levels based on the economic environment to date.”
Hileman told The Block: “If negative interest rates expand and persist, one possible solution for stablecoin issuers is to move from a hard 1:1 peg to a Libra-like net asset value (NAV) model. That is If any stablecoin issuer does choose to change the composition of its asset backing (and thus potentially take more risk), the model allows for fluctuations in the value of the asset backing. However, issuers should publicly disclose these changes to users.”
Gina Pieters, an assistant professor in the Department of Economics at the University of Chicago, has been involved in digital currencies and blockchain since 2014. She said that a negative interest rate environment is nothing for a “100% asset-backed” stablecoin.
She said the negative interest rate environment will not last long:
“The Fed is not going to set rates negative (at best to zero), but market rates could go negative. This raises some questions:
How long will negative interest rates last (is it just a short-term drop?);
Which maturity bond yields will fall into negative value? We’ve seen short-term negative yields on the 30-day Treasury note before, but what about the two-year note? Or what if negative yields persist for more than a week? But it seems to me that neither of these scenarios can happen. "
Zac Prince, chief executive of BlockFi, a digital currency lender that offers interest rates on stablecoins, said it was too soon to consider whether dollars in bank accounts would have negative holding costs.
“Right now, 1:1-backed stablecoins like USDC, GUSD, and PAX appear to be well-positioned to maintain parity,” Prince said.
Meltem Demirors, chief strategy officer at digital asset management firm CoinShares, told The Block that with banks having negative interest rates, “issuers of these stablecoins have to pass the negative interest rates on to digital currency holders through periodic redemption depreciation, or through Fractional reserve, where they take a portion of the collateral to invest it in yielding assets."
Demirors continued:
