Editor's Note: This article comes fromFirst class warehouse blockchain research institute (ID: first_vip1), reprinted by Odaily with authorization.
Editor's Note: This article comes from
First class warehouse blockchain research institute (ID: first_vip1)
, reprinted by Odaily with authorization.
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Learn about the future of money through the history of stablecoins
Cryptocurrency is designed and invented to benefit private and institutional users around the world, liberate people from the cumbersome banking system, and create a new financial ecology.
The underlying technology of the blockchain can be said to be one of the most significant technological advances in the 21st century, because it creates a new currency form, digital currency. However, after several years of crazy growth and the rebirth of the encrypted market, it has gradually become clear that global acceptance is not enough. The industry is still missing something important. It turns out that an unsupported digital currency could not have brought about a better era. From the ashes of investor expectations of failure, a new cryptocurrency asset class was born: stablecoins.
The Path to Money in the Digital Age
In redefining the way the economy interacts, we must recognize that change and invention are driven not simply by desire, but primarily by need. Currency has been constantly evolving, and with the advancement of human technology, currency is constantly being reshaped. From commodity currencies such as gold and silver in 3000 BC to representative currencies such as the gold standard established in the 18th century, people have used different assets to create a unique measure of value since ancient times.
However, a substantial increase in the production of goods led to the exploration and expansion of new markets, which contributed to the growth of international trade. The currency of any country is tied to a specific, fixed amount of gold, making it a universal and convenient payment mechanism. The gold standard found a simple solution to the calculation of the value of trade in goods between the countries of the world.
Later, national institutions issued fiat currencies such as the dollar, yen or euro, paving the way for further development of the financial system. Then came the digital age, and the concept of electronic money appeared much earlier than we thought. Since the Internet became mainstream in the 1990s, there has been a lot of discussion about encrypted assets.
With the rapid development of technology, the 21st century needs to urgently solve the long-term problems of the financial system. The emerging blockchain technology is just the right medicine, breaking the traditional century-old banking foundation, allowing people to participate in the financial field in a more transparent and faster way, conduct transactions, and use currency freely.
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Pain Points of Digital Assets
Cryptocurrencies have a short but illustrious history: Lack of reliability and true trust, global regulatory uncertainty, and pressure from government legislators are the main reasons why digital assets have not yet gained popularity globally. In order to change this situation, stablecoins were invented.
The stakes are too high for top modern businesses and consumers to use cryptocurrencies to replace fiat currencies in many areas.
For example, paying a salary in bitcoin is more of a lottery game than a real salary, since the purchasing power of wages fluctuates with bitcoin’s exchange rate. Worst case scenario, you may find that your salary is worthless. Paying for your favorite espresso with cryptocurrency at Starbucks every day can sometimes make you tighten your belt due to price volatility. Moreover, high volatility makes blockchain lending, derivatives, prediction markets, and other long-term investments that require price stability unfeasible.
Therefore, specific digital assets are created, which are not affected by price fluctuations of assets such as the U.S. dollar, oil, and gold.
What are the qualities of an ideal stablecoin? A perfect financial instrument should have the following qualities:
Become a convenient payment tool.
as a measure of value.
Can accumulate value.
Withstand wild swings in the market.
Have appropriate scalability.
Privacy-preserving and decentralized.
Flexible enough to adapt to changing global and local regulations.
Provide transparency for transactions and arbitrage transactions.
These characteristics can guarantee the maximum acceptance of stablecoins in the modern world full of regulations and government pressure.
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Market vane
Before the market actively accepts stablecoins, there will be various stablecoin experiments. Spending on blockchain solutions is sure to increase. According to Statista, the U.S. is expected to spend around $4.2 billion on blockchain solutions by 2022, making it the region’s largest spender on such solutions.
In the next few years, regulations promulgated by various countries will create a specific environment for cryptocurrencies. Only companies that study carefully and comply with regulations can successfully release products.
Stablecoins are much less volatile than traditional cryptocurrencies because stablecoin prices are directly dependent on the volatility of the actual asset. This creates new opportunities for the development of the cryptocurrency industry and digital assets.
As a global currency immune to traditional market disasters, stablecoins do have room to play. Blockchain assets are audited on demand, and the risk factor is greatly reduced. This is the main difference from other derivatives that have caused financial crises in the past few centuries, such as tulip mania, South Sea bubble, Great Depression, Silver Thursday, Mexican default and so on. The list goes on.
However, existing stablecoins have various drawbacks and are not trusted by market adopters. Hundreds of projects compete fiercely. At this time, it is almost an impossible task to create a product that can finally win in the market competition.
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