On August 16, Binance CEO and co-founder Changpeng Zhao posted a mysterious tweet promoting the concept. “currency unstable“ (or unstable currency), leading many of his 6.8 million followers to guess what he was referring to.
What is “destable coin”? 👀
— CZ 🔶 Binance (@cz_binance) August 16, 2022
Most correctly identified that the tweet was a subtle and funny jab at the term”stablecoin“, a relatively new but popular asset class whose key value proposition is two things, a stable peg to fiat currencies and a borderless currency that can be accessed and transacted 24/7. While people have fallen in love with the concept of stablecoins, most projects unfortunately do not deliver the promised value.
What is even a stablecoin? It is open to interpretation for now, as there has not yet been a single, unifying definition of non-stablecoins.
Based on the responses, many users expressed amusement about the concept of non-stablecoins. Some of their answers even alluded to the fact that all stablecoins are basically non-stablecoins, implying a lack of stability..
This led to questioning one thing. Why have stablecoins been coined “stable” when almost no coin has ever been stable? Coming out of cryptocurrencies, fiat currencies are susceptible to macroeconomic factors. For example, fiat currencies are vulnerable to inflation. Annual estimates of roughly 3% inflation have ballooned to close to 10% or even 20% in some countries in recent months.
Currency pairs also trade at different rates, due to interest rate parity. Recently, the US dollar and the euro reached a 1:1 exchange rate, a phenomenon last seen in 20 years. Fiat currencies fluctuate, and today there are not many pegged currencies. Even if a parity is maintained, what 1 USD of currency is worth is not the same as before, and what can be bought with a fixed face value of money is no longer the same.
The point is: fiat currencies, especially the major ones that are considered stable, such as the US dollar, the British pound or even the euro, fluctuate. Is the concept of absolute stability a misplaced vision? Do we need absolute stability to create a “stable” currency?
Perhaps the journey to absolute stability with the US dollar was a mistake to begin with, and the name “stable coins“, a misnomer.
This is not to say that a more stable and less volatile form of cryptocurrency is not feasible or necessary. It is still very necessary. However, the volatility experienced by traditional stablecoins and altcoins are at opposite ends of the spectrum and are not comparable. untablecoins could revolutionize the existing notion of stablecoins by allowing some variation in value, as fiat currencies would. Being transparent about this fluctuation also helps eliminate unnecessary FUD and allows communities and builders to become more resilient and sustainable.
In a survey conducted among the stablecoins in the market, we found a cryptocurrency that, after the publication of CZ, changed its business modeland the market recently saw the emergence of its first “unlockcoin“, the Helium Protocol.
Initially, Helio Protocol was just another new open-source, overcollateralized, stablecoin protocol backed by BNB. However, the team behind the project decided to redefine the project, turning it into a non-stable currency.
Helio users can mint and borrow HAY by providing BNB as collateral, which can then be used to delegate for yield, pool liquidity, and as a means of transferring value. In the system, HELIO governance token, Helio Protocol, will operate as a DAOwhere the community will govern the treasury, the revenue fund, and the future direction of the protocol.
After the failure of algorithmic stablecoins and the possibility that some stablecoins are not guaranteed 100% in dollars, the crypto market will have the opportunity to test this new concept, with an eye on the decentralization of Web3, the metaverse, and with the ever sharper eyes of the regulators.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
It may interest you:
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the full amount invested may be lost. The services or products offered are not aimed at or accessible to investors in Spain.