While cryptocurrencies have great potential to excel, the volatile nature and constant price fluctuations are some of the greatest criticisms directed towards the crypto market. After all, a useful currency should provide a store of value and unit of account, both of which require balance. As a result, there is a growing desire to bring stability to the cryptocurrency market, which is now being done through the implementation of “stable coins.”
Stable coins – also known as the “holy grail of cryptocurrency” – are price-stable cryptocurrencies, with a market price that is pegged to another stable asset, like the U.S. dollar. Stable coins share many of the features of Bitcoin, yet are far less volatile. In theory, this makes stable coins ideal and usable as a store of value and a basic medium of exchange.
“Stable coins are one of the keys to bringing the benefits of cryptocurrencies to everyday people, both in terms of price stability and decentralization of capital,” said Rafael Cosman, the founder and CEO of TrustToken, a startup that has just launched trading for TrueUSD, an independently verified fiat-backed stablecoin that is redeemable for U.S. dollars.
Yet controversy surrounding the legitimacy of stable coins has become an issue. One of the most well known stable coins on the market is Tether (USDT). The creators of Tether claim it is pegged to the U.S. dollar, meaning a person would pay $1 for one Tether coin. However, a number of concerns have arisen.
One of the main areas of concern is that the cryptocurrency exchange, Bitfinex, is issuing more USDT than it has U.S. dollars in the bank. This could be in an attempt to drive up the price of Bitcoin.
It’s also concerning that Bitfinex shares leadership with Tether, causing critics to further question the legitimacy of Tether. There has been a constant lack of transparency, as the company has not yet had an external audit performed on its cash reserve. At the end of January, the company ended its realationship with its auditor before an expected audit was to be released. Interestingly enough, however, Tether issued $300 million worth of new tokens just last week.