By Jan van Eck, VanEck CEO, Gabor Gurbacs, VanEck Director, Digital Assets Strategy
In recent remarks at the Financial Stability Report press conference, Mark Carney, Governor of the Bank of England, said: “It’s way too expensive to do domestic payments. It’s way too slow, and that hurts consumers and businesses. It stifles innovation, and it’s far too expensive to send money cross-border, and there are huge financial inclusion issues related to that and costs related to that. So, while we are trying to address all these issues, we have to absolutely acknowledge the problem that they’re [Facebook] trying to solve. And if it’s not this, we’d better have some answers for what else it is.”
The answer may be in stablecoin. Until this year, and maybe even today, the average investor has never heard of a stablecoin. With Facebook’s Libra announcement and the controversy it has created, we feel that it is high time to explain what a stablecoin is, where it came from, and how it may disrupt the payments system.
Stablecoins Emerged for Crypto Exchanges
A stablecoin is a digital asset that is linked to a lower-volatility asset, such as the U.S. dollar, a basket of currencies or gold. The use of a creation-redemption mechanism, similar to an ETF, helps keep the price of the stablecoin close to value of the underlying asset.
The first stablecoin was sponsored by the founders of a crypto exchange to meet a need that investors had—namely, to convert holdings of volatile digital assets to a stable value faster than the traditional banking system could accommodate. Thus emerged the first use of a stablecoin—to act similar to a money market fund that offers a cash substitute within a brokerage account—in this case, a crypto brokerage account.
The leading example of this is Tether, currently the largest and most-traded stablecoin, and an initial proof of concept of what upgraded future fiat currencies may look like. Tether has over $3.5B in assets linked to the U.S. dollar1 and tens of millions in daily trading volume.2 Tether is widely accessible, trades across many of the largest crypto exchanges and is issued on the Bitcoin, Ethereum, Tron and EOS blockchains. Tether is sponsored by the founders of the crypto exchange Bitfinex. Tether is unregulated and has been sued by the NY Attorney General.3
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