Centralized stablecoins are making waves in the cryptocurrency world, accounting for three-quarters of all transactions on centralized crypto exchanges, according to the market research firm Kaiko. Trading volumes of TrueUSD (TUSD) have grown tenfold within a span of three months, rising to a stunning 19% from a mere 1% earlier. TUSD has been under intense scrutiny amidst controversies surrounding its banking partner and hiccups in reserve reporting. Meanwhile, the popular Tether’s USDT, notorious for its backing by Chinese commercial papers, took up a gigantic 70% share of volumes.
Stablecoins, by design, stabilize their price against another asset, usually the U.S. dollar. Because of this, they’ve turned into an essential plumbing piece for the crypto ecosystem, spiraling trading and converting from government-issued fiat currencies to cryptos. As of today, the stablecoin asset class is valued at an impressive $128 billion.
However, the road for stablecoins hasn’t been rosy. The big players have all been tried and tested in the face of upheaval. Back in February, Binance USD (BUSD), the third largest stablecoin, was ordered by New York state regulators to stop minting. Fast forward a month, the collapse of Silicon Valley Bank (SVB) froze a considerable slice of USDC’s cash reserves, which subsequently hit Maker’s DAI stablecoin. And only last month, USDT faced sell pressure in a key liquidity pool for stablecoins, causing panic among traders. TUSD wasn’t spared the brunt either, coping with the meltdown of its custodial partner.
This rollercoaster ride underscores the vulnerability of crypto markets and the risks they run from reliance on stablecoins. As noted by Clara Medalie, Kaiko’s head of research, this dependency comes with an extra pinch of salt – transparency, which many centralized stablecoins seem to lack. TUSD, for instance, is posing a potential risk with its opaque details about reserves and corporate structure.
In an interesting twist, TUSD was acquired in late 2020 by a relatively unknown Asian conglomerate, Techteryx. The dollar-pegged stablecoin, with a value of $3 billion, has since been backed by fiat assets, as Chainlink’s proof-of-reserves technology states. However, not all are convinced. Did Chainlink’s reserve verification deliver as expected? It’s a question that lingers.
Following Binance’s decision to endorse TUSD with no-fee trading, its popularity skyrocketed. Yet, with all the ups and downs, the future of TUSD and other stablecoins hinges on how they’ll tackle their vulnerabilities and embrace transparency. The effectiveness of their strategy is something we are all eagerly watching. Will they rise to the occasion, or will they succumb to the challenges?
Source: Coindesk
