In this Article
Dr Justine Scerri Herrera
This article features some insight from our Partner at MK Fintech, Dr Justine Scerri Herrera, regarding the current Stablecoin turmoil the crypto world is facing. This comes as investors and speculators alike are getting worried about the crypto market. In fact, some are warning of deeper and more lasting volatility in Stablecoins. To the point, are these investors crying wolf? Or is this market anguish justified? Dr Scerri Herrera takes a stance from her unparalleled experience and insight into crypto markets.
What is the Importance of Stablecoins?
Stablecoins facilitate most crypto trading volume and power the evolving crypto train DeFi. In fact, Stablecoins are key, since they allow markets to flourish since due to the fact that we use them to settle crypto derivatives in times of dampening markets. In truth, this is what is happening right now.
Which are the Top 5 Stablecoins?
Tether (USDT), USD coin (USDC), Binance USD (BUSD) and Dai (DAI). Also quite notably, we had terraUSD (UST). These are the five largest stablecoins and they represent roughly $160 billion of value. Sequentially, three of these stablecoins (USDT, USDC, BUSD) are collateralised stablecoins issued by centralised entities.
DAI is different in that it is collateralised and backed by a diversified portfolio of crypto assets. Instead of being issued by a centralised entity, a DAO called MakerDAO manages DAI. DAI is collateralised with crypto rather than dollars, but it is, and this is critical, overcollateralised.
Conversely, USDT ist not collateralised at all! It is an algorithmic stablecoin powered by the Terra protocol. Instead, it is backed by a crypto token called LUNA. In short: under stress it lost its peg to the US dollar and caused hyperinflation of luna.
The Problem is NOT Necessarily Algorithmic Stablecoins
Does this mean that algorithmic stablecoins are flawed? Not necessarily. One bad apple is the exception not the rule. However this shows the importance of collateralisation and better yet over-collateralisation.
Regulators are now further speeding up regulating stablecoins. However, even though the cause of this current issue are algorithmic stablecoins, regulators are only interested in regulating FIAT-backed or asset-backed stablecoins due to the systematic risk on the traditional financial system.
Crypto currencies and Stablecoins are definitely here to stay. The outcome of this is that lessons will be learnt and we will move higher up the learning curve.
How Can We Help?
Dr Justine Scerri Herrera will be giving a keynote on Stablecoins within the Maltese local community on Wednesday 18th May at 19:00h at Soho office top floor The event is organised by crypto hub malta.
Get in touch with us for specialised assistance with Cryptocurrency!
More about MK Fintech Partners Ltd.
Michael Kyprianou Fintech Partners Ltd is a Maltese licensed VFA Agent (virtual financial assets agent). It comprises a team of dedicated experts who provide services such as advisory, licensing and registrations of activities related to Fintech, Crypto, Blockchain, Investment, company incorporations and banking. and other ancillary services. MK Fintech Partners forms part of the Michael Kyprianou Group, a top tier international legal and advisory firm. It has established an enviable reputation as a broad-based legal practice over the years. Mainly by keeping at heart its principle to always exceed its clients’ expectations. MK has grown to become one of the largest law firms in Cyprus with offices in Nicosia, Limassol and Paphos. The MK Group’s international presence also includes fully-fledged offices in Greece (Athens and Thessaloniki), Malta (Birkirkara), Ukraine (Kiev), the United Arab Emirates (Dubai), United Kingdom (London), Israel (Tel Aviv), and Germany (Frankfurt).
The content of this article is valid as at the date of its first publication. It intendeds to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on a specific matter before acting on any information provided. For further information, contact us at MK Fintech Partners via email at email@example.com or by telephone +356 2016 1010.