Stabilini: contenders for the title of “king of the hill”
Research group The Blockchain Team has published a report “The State Of Stablecoins”. It appears tablconv 57, 23 of which are already in circulation, and 34 — in preparation for launch. The total capitalization of these crypto currencies was in October of about $3 billion, two thirds of which have to Tether.
Stabilini all together is only about 3% of the total capitalization of the stock market. A little? But it’s how you look.
In October, H#T almost went daily publication about new stabling. Why such hype? The reason is that the turnover of crypto-currencies and token-ICO is convenient to use an intermediate currency stable relative to a certain Fiat currency. Ideally, the underlying asset for such stablein must be US dollar, Euro, yuan or Japanese yen.
The conversion of crypts in Fiat is always necessarily accompanied by identification of the client, the movement in Bank accounts, etc. And this:
is curiosity from the side of controlling authorities;
with high commissions.
So tablconv popularity is growing rapidly.
What do we have?
Of the ten most capitalized tablconv really its functions are performed by only four: Tether, TrueUSD, Paxos and Dai. They are all tied to the US dollar. This is a consequence of the fact that the US dollar was until recently the most popular Fiat currency to enter the stock market and exit.
According to the aforementioned study “The State Of Stablecoins”, two-thirds of the currently existing tablconv used as the base anchor to the US dollar. If you evaluate the share and capitalisation, the share of USD-tablconv greater than 95% of the total capitalization of cryptocurrencies in this category.
But among the most capitalized, according to “The State Of Stablecoins”, there are two stablein whose underlying asset is gold. Their peculiarity is that they are a tool to invest in a very volatile asset – gold. While stabilini based on U.S. dollars are used for transactions in pairs “stablein / other cryptocurrency”.
That is, we can focus on the USD-tablconv to understand the peculiarities of the most popular of them is to build a generic and optimal schemes tablconv, and find out the answer to the question “where is the guarantee?”.
The main requirements for stabilium:
the stability of the exchange rate to the underlying asset;
low transaction costs;
protection from double write-offs and other situations with unauthorized emissions.
Stabilini can be divided into three big classes according to the type of collateral:
having a full supply of reserves in the underlying asset, and therefore always allows to ensure the free exchange of amount of cryptocoins on units of the underlying asset;
having the support scheme of their course at the expense of algorithms that includes the third token and fractional reserve these tokens and/or Fiat currencies;
Fiat stabilini non-redundancy, that is, stabilini, whose stability is provided solely by algorithms.
Ten USD-tablconv as they are*
Type of security
Rate, USD 15-00’UTC+3
7D Min Rate, USD 15-00’UTC+3
7D Max Rate, USD 15-00’UTC+3
2 039 961 185
2 394 898 263
164 741 995
17 615 320
Deposit negativnogo token
64 530 519
7 147 247
Paxos Standard Token (PAX)
100% security dollars on accounts in U.S. banks
41 869 845
12 438 055
Gemini Dollar (GUSD)
Deposit in a us Bank, 100% reserve
Steem Dollars (SBD)
The pledge to the native token system. Emitted in the mining process
15 286 247
1 249 935
Circle (in cooperation with the consortium CENTER)
24 214 016
contract for difference, CFD, the security token BTS in the amount of 175 % of the amount of issued bitUSD at the current rate of BTS/USD.
10 914 428
1 119 074
A Deposit of native tokens BTS
* Data for exchange rates and capitalization – 20.10.2018 G.
The remaining USD-stabilini either not stable with respect to the key world currencies or have pitifully low capitalisation, or have a low daily turnovers. Many of them are all present in varying proportions.
Low transaction costs
This is easiest enough to use some of the most effective blockchains. Most popular now — Ethereum blockchain: it employs 54% of existing and announced tablconv, including all stabilini the first echelon.
This strategy leads to the fact that operations with most tablconv have low or even zero fees when transactions cryptocurrency/cryptocurrency. Higher Commission is charged for the transfer to Fiat.
Another tool to ensure a low cost – symbiosis with cryptomeria. At least three USD-stabilini affiliated with the exchanges: Tether (USDT) – with Bitfinex, Gemini Dollar (GUSD) – Gemini, USD/Coin (USDC) – Poloniex. Overall stabilini present in listings of over 50 of the largest kryptomere. Most popular stabilin — Tether, it is trading at 46 exchanges.
Total: stabilini should “make friends” with the exchanges. Yes, it’s risky, the potential conflict of interest, but it’s great simplifies and reduces the cost of transactions and allows stabilium to develop according to the needs of the greater part of the stock market.
The stability of the exchange rate to the underlying asset and liquidity
A key requirement for stabilium, as mentioned above, is the stability of the exchange rate relative to the underlying asset. And everything is very difficult. If you ignore the history of money, if you do not know the principles of currency board (currency office), don’t know why the US dollar declined to exchange for gold, and what it led to.
So stabilini were really stable, all you need to do: to ensure that any holder of the cryptocurrency instant and relatively inexpensive exchange it for Fiat currency. This is only possible with adequate liquidity and system and if there are sufficient reserves in less liquid instruments.
In modern banks, this indicator is normalized at the level of 5% and above. For example, for the Russian banks is “the Norm of instant liquidity H2” is not less than 15%. Roughly speaking, any Russian Bank should have in their offices and on the correspondent account in the Central Bank the total amount that is not less than 15% of the Bank’s liabilities on demand. Accordingly, Tether it with a market capitalization of $ 2 billion, must have current accounts in banks at least $ 300 million. Just on current accounts, ready for immediate payment on demand.
What about the other 1.7 billion dollars, which released the Tether? They may be presented for payment. Yes, but it’s not as dangerous as the demand for stabilin will persist. The demand is – no need to buy stablon from the market, there is no need to use for this purpose reserves.
Of course, when it comes to Fiat currency, no Central Bank not governed by the rule of “foreign exchange reserves should cover the whole amount issued in the national currency – the monetary aggregate M0”.
Speaking of Fiat currencies. In modern economic history there are two episodes, when the national currency is rigidly tied to the rate of other currencies. As a consequence, the Central banks of these countries have abandoned many tools of management of money circulation. In return, they receive relatively low inflation, fixed rigidly to the base currency and the status of a freely convertible currency.
Stablon tied to a particular national currency with a fixed rate is exactly what the stock market needs in order not to incur financial and legal costs associated with the permanent conversion from Fiat to cryptocurrency and Vice versa.
Such stabilini managed by the same laws as currency, follow the rules of the “gold standard” and “foreign exchange Bureau”. That was the name of the system in which one currency was firmly tied to another, stronger.
Currency – at anchor
During the Second World war, in July 1944, was signed the Bretton woods agreement. Participating countries adopted the “gold-dollar standard”. Currencies of 44 countries was rigidly pegged to the U.S. dollar, and the dollar to gold at the rate of $ 35 per Troy ounce. In December 1945, the Bretton woods agreement came into force. The system existed in its original form for long. In 1947, Italy has introduced a free exchange rate of the Lira to the US dollar. In the same year there was a temporary suspension of the convertibility of the pound sterling, and subsequently the devaluation of it by about a third against the dollar. Another year free exchange rate of the franc against the US dollar entered France. A year later, in 1949, devalued the pound by 30% against the US dollar.
Why did this happen? These economies were severely weakened by the war and the government could not do without printing new unsecured money. And everything swam. Much the same happens with stablename if they continue to produce, leaving the size of foreign exchange reserves unchanged. Or if the speed of issuing new tablconv exceeds the rate of increase of foreign exchange reserves.
The story of the use of “foreign exchange Bureau” not as dramatic as the history of the Bretton woods system. But also instructive. Stand out case studies come from very small exotic countries like Bermuda dollar East Caribbean dollar to Cayman Islands Dollar, the franc Djibouti, it is enough to recall the Lithuanian litas, Latvian lats and Estonian kroons.
The most emblematic case happened with Latvian lat. From 1 January 2005, this currency was pegged to the Euro at a ratio of 0.702804 LVL = 1 EUR, which remained in force until the moment as Latvia has joined the Euro. Officially, the exchange rate of the lat could not deviate from fixed more than 15%, but actually over the past 9 years, the variance of the exchange rate of the lat from the benchmark did not exceed 1%. That is, from January 2005 to January 2014 in Latvia acted in classic mode foreign exchange Bureau: the monetary base, provided the net monetary assets at 100%.
The same system operated in Estonia. First, the Krone was pegged to the Deutschmark and then the Euro. Only the transition from the Krona to the Euro occurred early in 2011. Lithuanian litas also existed in the mode of foreign exchange Bureau: 1 April 1994 to 31 January 2002 it was pegged to the dollar at a ratio of 4:1. From 1 February 2002, the litas was pegged to Euro in the ratio 3,4528:1, and so on until the introduction of the Euro in Lithuania in January 2015.
This mode “foreign exchange Bureau” has not prevented the collapse of the banks in Lithuania and Latvia (in Estonia, local banks quickly and was completely purchased by foreign banking groups). It was another negative consequence of the use of “foreign exchange Bureau”: the artificially low GDP growth. Super hard monetary policy has led the economy of all three countries to stagnation. The situation has changed for the better after joining the Euro zone.
Risks of excessive emissions have tablconv. For example, if the creators tablconv provided for the generation of new stable-coins as a reward for mining and other services.
Summary: stabilini for limiting exchange rate fluctuations to the underlying asset shall be the amount of foreign exchange reserves at 100% of the money aggregate M0. The state foreign exchange reserves should constantly monitor the trusted auditors and/or smart contracts, informing about the state of the reserves.
A few answers to questions instead of a conclusion
It is possible in principle for tablconv abandoning the rigid holding of foreign exchange reserves within the “equivalent of 100% of the issue”? Can there be really hard stablon with reserves in the form of the intermediate tokens, and even without them?
Yes, but provided that such pre-stabilin get the capitalization commensurate with the size of M0 in countries such as Switzerland (552 billion Swiss francs, equivalent to $554 billion), at very least – Turkey (559 billion Turkish Lira, or about 98 billion U.S. dollars).
How risky is the use of rewards tablconv generated by mining and other services? At the current level is risky. In the case of a positive answer to the previous question (the growth of capitalization to the extent commensurate with the size M0 larger countries), the use of generated tablconv possible – but only if the emission due to mining will be many times lower than the emissions held to cover payments in the form of a reserve currency.