Once Tether entered our lives, it was used to save the purchasing powers of the traders against huge dumps. It was the only stablecoin with limited functions.
Water under the bridge; now there are separate sections to rank all these stablecoins. Of course, Tether is still the leader but there are lots of other options backed by several digital assets.
When we look from the bigger perspective, there are some concerns about the stablecoins. Even though they are not discussed as much as cryptocurrencies, they have fundamental problems. The first issue that I want to highlight is their future role in the ecosystem. For instance, Digital Yuan is currently tested by China and there are lots of intra-Blockchain projects that are limit-tested. When the USA establishes its digital USD, what will be the use case of these stablecoins?
Besides, will they compete against the USA for its currency? It does not seem possible. In terms of DAI & USDN which are backed by Maker and Waves, that's understandable but will the other stablecoins printing digital currencies backed by the number of dollars that they have in their bank account have utility? It is a kind of grey area. What do I mean?
Previously, I examined the trendy Stablecoins in terms of their pros and cons. I still support the idea that Tether is seen as suspicious by many because of its dark history. I think this situation may bring future concerns considering their share in the market. On the other hand, regarding the centralized stablecoins, USDC is a shining star. WHY?
It's partly because of the owners of the coin. Circle is an associate of Goldman Sachs and the share of USDC is going to increase as they teamed up with Visa. (Further info: Cointelegraph-News & Coindesk - News )
Contrary to Tether, the credibility of USDC is excessively high thanks to Circle. Yet, the same question comes to our minds, why should we choose it but for Digital USD? It's open to discussion.
Another issue is that the majority of these coins will be accepted only in local areas, their exchanges, or partners. In such a case, people will be supposed to exchange these stablecoins if they can... (I do not even want to talk about paying fees to exchange 2 stablecoins 😅) It turns into another workload for people.
The ultimate solution: Incentive Models
To be able to survive, all these stablecoins are to offer something more to be used. For example, BUSD (Binance's stablecoin) is used in Launchpad / Launchpool to farm new tokens. It's a nice incentive for people to hodl BUSD in addition to its stable nature. However, in this example, BUSD may have to back its stablecoin by something else but for USD in their bank account as it can be subject to regulation.
Another incentive can be cash-back operations. As you know, bounty, airdrop, reward, cash-back are highly fashionable and we may even relate these concepts to our newly growing ecosystem. As in the USDC example, any Visa card with a USDC cash-back option (Like crypto.com) would also add utility. Personally, there may no other motivation to push me to use relatively risky assets in the future.
Consequently
Once national currencies are digitalized, the existing stablecoins will not find any use scenarios to keep operating. Even, they may face regulations, and the majority of them can wipe out. To exist in the ecosystem, they need to expand their utility areas and even they may find substitute assets to be backed by. (Waves, Hive, and Maker are great examples)
In my perspective, they can offer incentive models to have a share in the market such as cash-back; farming, and interest. Moreover, it may be the only way to vary from the upcoming digital versions of fiat currencies. Otherwise, nobody would be a volunteer to take the risk by using them.
Finally, I'm worried about Tether a lot. One more law-case may trigger harsh legislations on stablecoins.
Stablecoins bear lots of fundamental issues. Although it is difficult to solve these problems without a digital version of fiat currencies, it can be too late for them once these players enter the game.
What do you think about the future of Stablecoins?