Berkeley economics professor claims "so-called stablecoins" are a myth

16 Sep, 2018
by David Robb
Berkeley economics professor claims so-called stablecoins are a myth

A Berkeley economics professor and former advisor to the International Monetary Fund has published an article criticizing "so-called stablecoins". Barry Eichengreen claims that their stability is a myth, and one that only those without enough experience in monetary policy would believe.

According to Eichengreen, stablecoins like Tether (USDT) and the Gemini dollar (GUSD) are pegged one-to-one to the US Dollar to give them the price stability that Bitcoin and other cryptocurrencies lack. This lack of volatility is supposed to guarantee their reliability as stores of value as well as units of account.

Eichengreen believes that this stability cannot be guaranteed in the way that it has been. Firstly, for fully-collateralized stablecoins like Tether, the project just might not have the dollar deposits it claims to have, in order to back up every token in circulation.

Also, the lack of liquidity in a dollar-pegged stablecoin when compared to a regular dollar means that investment in stablecoins is not all that attractive. Eichengreen claims that "it is not obvious that the model will scale, or that governments will let it", which means that these currencies are unlikely to be worthwhile in the long-term.

He also points out big problems with other types of partly-collateralized or uncollateralized stablecoins, claiming that they are too dependent on trust and are vulnerable to a complete collapse and loss of value.

Eichengreen warns that the flaws with these new "fashionable" investments "will be familiar to anyone who has encountered even a single study of speculative attacks on pegged exchange rates", but the "wet-behind-the-ears software engineers touting stable coins" won't have considered them enough.

Read more: Gemini has option to freeze its new USD-pegged crypto at any timeForbes: don't invest your money in stablecoins

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