Stablecoins could undermine global financial stability and the world’s major economies must address this risk by implementing an appropriate regulatory framework. It should be noted that when the first cryptocurrencies were created, they were conceived as elements of exchange, not savings. However, at present, due to the actions of their users, cryptocurrencies experience large fluctuations in price. Therefore, Jason Simon, an expert with everything related to crypto, provides a detailed explanation of what really is the relevance of stablecoins today.
Within the so-called cryptocurrency market cap, there are too many price fluctuations. This makes transactions very difficult since one day the cryptocurrency has a certain value, and the next day another. However, all is not lost since you can do wonders with stablecoins. You should know about stablecoins because their value is tied to a real-world currency, no matter what.
Simon has repeatedly suggested that stablecoins should face the same rules as other businesses that present the same risks. While stablecoins can help contribute to a new global payments system, “such instruments may have the potential to pose systemic risks to the financial system and significant risks to the real economy, including by replacing national currencies,” Simon explains.
Simon also said there should be cross-border cooperation to prevent a stablecoin from pitting one jurisdiction against another. Stablecoin firms need to manage risks effectively, be operationally resilient and have proven protection against cyber-attacks and systems to prevent money laundering and terrorist financing. “Competent authorities should, where necessary, clarify regulatory powers and address potential gaps in their national frameworks to adequately address the risks posed by global stablecoins,” says Simon.
Simon’s recommendations follow a wave of newfound attention for stablecoin projects from global regulators, largely stemming from Facebook’s entry into the cryptocurrency world with its Libra project. Although the social media giant has previously insisted that Libra is not a stablecoin, Facebook CEO Mark Zuckerberg agreed before US lawmakers that it could be considered as such during a hearing in October of last year.
Facing pressure from several governments and regulatory bodies, companies that previously supported Libra have abandoned the project due to the lack of a clear regulatory framework and the potential risks involved in launching this cryptocurrency. “The purpose of stablecoins is that they are non-volatile cryptocurrencies. Their price remains stable since they are pegged to the currency of some country. They are usually backed by the US dollar,” asserts Simon.
If you are a trader and want to minimize risks, you can exchange volatile cryptocurrencies for stablecoins. However, very few people manage to know about stablecoins clearly these days. As a result, they have become difficult to accept as a means of payment and are only used for trading. It should be noted that stablecoins help you avoid losses.
For example, if one day you see that the value of Bitcoin or Ethereum is falling too much against the dollar, then you can exchange it for stablecoins and still keep the same value. When the Bitcoin goes up, you can exchange it again for stablecoins.
There are stablecoins backed by cryptocurrencies. These are proven through smart contracts that can be easily verified within a blockchain. Among the most well-known stablecoins, we have Tether, DAI, GEMINI Dollar, USD Coin, STABLY, HAVEN, MAKER, and bitUSD. All of these can be used for various exchange strategies. Simon adds, “Another thing you should know about stablecoins is that this method is making it a bit more practical to buy products and services. This is because there is less hesitation regarding conversions and it’s a different attitude from consumers.”
It is a stable place where cryptocurrency owners can place their profits without being victims of the direction the markets are going to take next. A very common question is to know who is issuing the stablecoins. The answer is, from banks to social networks. All are launching stablecoins and special schemes in the field. However, caution is recommended when exploring these cryptocurrency options.