A University of Berkeley professor has called out the flaws in stablecoins, in an op-ed published in The Guardian. In the critique, Prof. Barry Eichengreen claims stablecoins are not automatically “viable” just because they are pegged to a fiat currency.
Taking a swipe at Bitcoin, the professor of economics said popular cryptocurrencies like Bitcoin are unattractive as a store of value due to the price volatility, which is where stablecoin shines as volatility is not one of its weaknesses.
“Stable coins purport to solve these problems. Because their value is stable in terms of dollars or their equivalent, they are attractive as units of account and stores of value. They are not mere vehicles for financial speculation.”
Using the example of the Tether, which is a fully collateralized stablecoin, where the issuer requires a reserve that equals or exceeds the value in circulation. Eichengreen believes it’s an expensive proposition for most organizations that will cause problems in the future.
He went on to conclude:
“It is not obvious that the model will scale, or that governments will let it.”
There have been mixed receptions to stablecoins in the past, as controversy continues to trail Tether—the market’s most popular stablecoin. Tether, which is the eight largest cryptocurrency in the world has had issues with its alleged affiliation with the owners of Bitfinex.
More stablecoins continue to hit the market. Just this week, the New York Department of Financial Services (NYDFS) gave the greenlight the Gemini dollar (GUSD), a stablecoin from the Winklevoss twins that plans to be a “trusted and regulated digital representation” of the U.S. dollar. According to a Medium post published by Cameron Winklevoss, the GUSD is strictly pegged 1:1 to the U.S dollar and is built on the Ethereum blockchain.
Prior to that, an impressive slate of Silicon Valley investors poured $133 million into Basis, a non-collateralized token built on the ethereum blockchain with a built-in mechanism for controlling its supply to keep the price stable.