- Stablecoins are on the rise, but can they work?
- There are a few different ways to create a stabelcoin such as backing it with an asset or creating an algorithm
- Preston Byrne, a consultant, is critical of stablecoins because once the market stops buying them, they fail.
Why Does This Matter?
I agree with Preston that stablecoins fail once people stop buying it. The one caveat is that if it's backed on a 1:1 basis by a stable asset, then it should work. Stablecoins are a mixed bag. Many people in the cryptocurrency want them to work, including myself, but the mechanics of them especially algorithmic ones defy basic economics. If the stablecoin dips below the "peg," the only way to restore it would be via investor funds. What happens once the funds run out? I've read different stablecoin white papers and don't understand how this issue is solved. While there is nothing wrong with innovating, investing $100MM+ in unproven ideas (Basis Coin) seems wasteful. I hope I am wrong, but I don't see algorithmic stablecoins succeeding in the long run. We are stuck with USD as the only working stablecoin for now.