Stablecoins Burst on the Scene

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 (Tether, USDT) was sponsored by the founders of Bitfinex 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.

The second major use of stablecoins is for payments. Facebook has put a spotlight on this fact with its announcement related to Libra. Investors familiar with Bitcoin already know that Bitcoin is, by design, too slow to be used for payments for small transactions, as well as too volatile at this point. The speed and lower volatility of stablecoins may make them an important part of solving the payments challenge.

The leading example of this is Tether, currently the largest and most-traded stablecoin. Others include USDC, GUSD, etc.

About the Author:

Gabor Gurbacs is the Director of Digital Asset Strategy, and former member of the ETF product management team, at VanEck. Mr. Gurbacs has extensive digital asset trading and market structure experience on global digital asset trading platforms and he is well known in the digital asset community. Prior to joining VanEck, Mr. Gurbacs was a George Soros Scholar, Edgar Bronfman Fellow, serial entrepreneur, and holder of several new economy finance research positions at the Massachusetts Institute of Technology (MIT), Harvard, and Williams College. Mr. Gurbacs earned a BA from Williams College, triple majoring in Mathematics, German, and Sociology.

The article above is an opinion of the author and does not necessarily reflect the opinion of MV Index Solutions or its affiliates.