Coinbase-backed, Reserve said stablecoin operators fraudulently pumped marketcaps

25 Mar, 2019 | Updated: 25 Mar, 2019
by Fifi Arisandi
Opinion
Coinbase-backed, Reserve said stablecoin operators fraudulently pumped marketcaps

Stablecoin, Reserve's CEO said that market cap is no longer a valid measurement to choose stablecoins and suggested investors to look for new metrics before making decisions. 

Stablecoins were created to provide a more stable option for conservative crypto investors. But as time goes by, manipulation practices are said to have been done by many players.

Coinbase-backed stablecoin, Reserve’s CEO, Nevin Freeman claimed that many of his competitors artificially inflate market caps and trading volumes, which result in misleading data on crypto tracking sites, like Coinmarketcap and The Stablecoin Index.

He identified several “tricks” that are usually done by stablecoin operators. First is by giving discounts to investors who agree to lock up their funds for a certain period, and the second is by encouraging traders to simultaneously buy and sell the same crypto in order to inflate the volume and liquidity appearance or more familiar as wash trading.

The examples of the discounting tactics can be seen on the recent offers from Paxos and Gemini, both of which offered 1% OTC trading desks discounts last year. Reserve said the “promo” is the reason why PAX and GUSD activity surged on Huobi and Binance last December.

GUSD’s market cap, for instance, soared from roughly $87 million to more than $103 million in just one day on December, whereas PAX’s doubled from $40 million to $80 million in a single day on October, as reported by CCN.

Tether, on the other hand, is said to have been practicing the wash trading technique for a while. Bloomberg alleged the occurrence on Kraken last June, which the exchange strongly denied.

Moving forward, Freeman expects that instead of market cap, savvier investors will look to new metrics, such as the number of wallet addresses associated with a token, organic discussion about a project, and the number of consumer app downloads.

Regardless of the bad practices that have damaged the broader ecosystem, Freeman still believes that stablecoins can help people in financially struggling countries, at the same time, they could also “facilitate a cheaper and more efficient model for remittance payments”.

Lastly, he provided a tip to choose stablecoins that are best-positioned for long-term success, which is by looking into their real-world applications beyond market arbitrage.

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