Before I even get started, I know that many of you may have already tuned out. Cryptocurrency? You mean the thing that gave birth to all those stupid NFTs of Bored Apes, and innumerable “rug pulls” where the founder of a coin disappeared with millions? The same thing Donald Trump and his family have used to steal, er… generate billions of dollars in alleged value? The thing where they don’t even know who actually created it, or who controls a wallet with about $135 billion in Bitcoin still in it? (No, it’s not the guy the New York Times just said it was, or the guy who keeps claiming it was him, or the guy who was on the cover of Newsweek back in 2014 who had the same name as the creator). Crypto is for hustle bros and drug deals on the Dark Web, right? Well, yes. But I still think there is one area that actually interests me — and others — and it is known as stablecoins. I realize this isn’t the usual kind of topic for this newsletter, but please bear with me while I try to explain why I find it so interesting (I am not selling anything).
First of all, what is a “stablecoin?” Simply put, it’s a cryptocurrency that is backed by some other “fiat” currency, like the US dollar, or by some collection of assets with a stable value (such as gold). And what is the point of doing this? Well, the most obvious point is in the name: unlike most cryptocurrencies, which have no underlying value and therefore can be extremely volatile, the value of most stablecoins (theoretically at least) trades in a range determined by the underlying fiat currency. However, the hard part is that just because you issue some crypto backed by a certain amount of hard assets like US dollars doesn’t mean that your currency is going to be as stable as you might want it to be. That’s because — as with every other currency, including US dollars — the stability of a currency is based on the level of trust that investors have that the value it claims to have is going to exist in the future. In other words, what the kids like to call “vibes.”
A great example of this is the company that has become one of the biggest players in stablecoins, an outfit called Tether, which has a market capitalization of more than $100 billion, and controls an estimated 70 percent of the stablecoin market, which has been growing extremely quickly (according to a report from the International Monetary Fund, the trading volume of stablecoins increased by more than 90 percent in 2024, and that trading was worth about $23 trillion). Tether is not a new guy on the block: it was founded in 2014, and in 2019 it passed Bitcoin as the most traded cryptocurrency in the world. But despite (or perhaps because of) its size and market power, Tether has been a lot more volatile in the past than something called a stablecoin should be. Why? Because of concerns that it didn’t have enough solid assets — either dollars, gold or US treasury certificates — to back up the value of all the cryptocurrency it had already issued.
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