Professor From Berkeley Names Disadvantages Of Stablecoins
A professor of economics Barry Eichengreen, a scientist from the University of California, Berkeley, in his article for Project Syndicate expressed the view that tokens pegged to fiat money cannot be a good means to invest.
Stablecoins are cryptocurrency, which has some value, for instance, it is backed by fiat money or precious metal. Their main advantage is the low volatility, transboundariness, and independence from central banks of any state. A stable coin should mitigate the risks for depositors in cryptocurrency.
The professor divided stablecoins into three different types. The first group included secured coins. They are the most stable but rather expensive, and they require a reserve, which equals or exceeds the capitalization of the coin in the market. The state will hardly support such a crypto any time soon. Besides, there are loopholes for money laundering and tax evasion.
The second group is represented by partially secured coins. Here the risks are even higher. Businesspersons are unlikely to invest in a digital asset half-assured by fiat.
The third type of stablecoins is the most unacceptable and represents unsecured coins. The platform, which issued such a cryptocurrency, expects a good balance of supply and demand. Only in this case the coin can be stable.
Eichengreen believes that these risks should be well known to everyone who knows at least a little about the financial and banking sector, but, unfortunately, there are many inexperienced investors working in the market who are not familiar with the shortcomings of stablecoins.
As previously reported, Gemini announced the release of GUSD stablecoin, pegged to the US dollar.