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Nightmare on Stable Street: Centralized Stablecoins may be doomed

Nightmare on Stable Street: Centralized Stablecoins may be doomed

What is the Nightmare on Stable Street ?

The idea of ​​issuing digital alternatives to cash is a good incentive for central banks. It allows them to gain more control over the transfer and processing of moneyless transactions. Which are now indirectly controlled through private payment processors and banks. And this is the nightmare on Stable Street.

Several central banks have already launched several CBDC pilot projects and initiatives, and more is yet to be done. It is important to note that CBDCs have nothing to do with cryptocurrencies or Stablecoins known in the cryptocurrency community – they are not intended to be used extensively in business. Some of them are not even traded with cryptography. CBDCs are just a digital alternative to cash that central banks entirely control.

Who is leading the development of CBDC?

Bank of Russia has published an advisory paper outlining plans for a digital ruble. It is true. Also should be noted that the Bank of Russia works on the currency of their own country’s digital ruble. It’s hot news, just announced last month. But what has been reported recently is that the Russian government is not being very kind to cryptocurrencies or issuing new tokens. In other words, Russia wants a piece of the digital currency, but only if the government controls that digital currency. It is a major problem in all CBDCs: none want to give the keys to the person. So it makes the Nightmare on Stable Street.

China is testing its digital yuan. China is also trying to launch its digital yuan. The tests currently underway in the Hong Kong Bay Area, and state-owned banks are testing large-scale digital currency wallets. The digital currency payment program that China is running consists of two layers: one for central banks and one for commercial banks. While commercial banks may use Blockchain technology to settle some transactions, the main bank layer will be centralized.

CBDC and Centralized Stablecoins

A logical question arises: If centralized CBDCs and Stablecoins meet the different needs of the market, why can’t they coexist? Initially, they could, but for the latter case, it is costly.

When it comes to controlling money in any form, central banks are pretty strict and straightforward – if you want some of it, you have to be very careful. When central banks enter the world of digital currencies, they apply the same principles to each of the existing market participants.

A clear example of this Nightmare on Stable Street can be found in a bill introduced to Congress in late November 2020 called the Stablecoin Classification and Regulation Act of 2020. According to the bill:

  • Stablecoin can only be issued by an insured deposit institution that is a Federal Reserve member.
  • To issue Stablecoins or provide any services related to Stablecoin. Written approval from the relevant federal banking agency and the Federal Reserve System require.

In short, the bill is to enforce banking regulations for centralized Stablecoin exporters, which could have a significant impact on the current Stablecoins market. Some of them doesn’t adjusted at all, while others does not modified. However, they are not as strong as the bill shows.

Without going into the details of each specific jurisdiction or the future of separate legislative initiatives, it is clear that regulators can take a similar approach outside the United States.

Will decentralized Stablecoins replace old currencies?

It is also clear that the modern Cryptography industry is inconceivable without Stablecoins, and the possible disappearance of centralized Stablecoins could already have an irreversible effect on the market. However, this effect can be mitigated by transferring liquidity to decentralized Stablecoins, which can be a competitive option and, at the same time, out of the reach of central bank regulators.

The main issue with decentralized Stablecoins is conceptual – the absence of a publisher automatically leads to instability, guarantees, legal responsibilities, and governance. Currently, several decentralized protocols seek to address this issue by delegating authority to the community and ensuring transparency and complete control of collateral, as indicated by cryptocurrencies or other Stablecoins. Stay tuned for the rest of Nightmare on Stable Street article

Central Bank digital currency

There is now considerable interest in digital currencies of the central bank or CBDC. Not from Blockchain and the cryptocurrency community. But rather from a core group of the most influential central bank. Including the Bank of England. The National Bank of Switzerland, and the European Central Bank. Bank of Japan, Bank of Canada, Riksbank of Sweden. And Bank for International Settlements.

Confirmation in late 2020 by the British Tax Secretary (Chief Treasurer) states that the UK is drafting regulations for private Stablecoins and research on CBDCs. And reflects the current momentum. China has no doubt recently suggested a global set of rules that address issues such as inter-judicial cooperation and emerges as a leader in the development of the CBDC.

The rise of digital currencies and Nightmare on Stable Street

The COVID-19 pandemic affects the motivation to buy cashless transactions and influences how society interacts economically, which has accelerated the concept of digital currencies in people’s minds. With more minor cash transactions, businesses and consumers are more aware of the features and benefits of digital currencies.

At present, central banks engage with other eligible financial institutions, often pure banks, using central bank electronic deposits. In addition to this system, they also issue banknotes and coins to the public. Switching to digital versions of those banknotes and cash is a natural progression in our digitized world.

Cryptocurrency as collateral and Stablecoins

Despite solving part of the problem, the above leaves the problem of stability in the air. Using Cryptocurrency as collateral is the most apparent solution for decentralized protocols in terms of transparency. Still, simultaneously in terms of strength, it can hardly compete with US dollar-dependent Stablecoins.

Therefore, it seems that a complete solution could be a decentralized Stablecoin managed by the community, which is related to fixed assets – currency, debt obligations, or other items. The emergence of such solutions could have a significant impact on the current Stablecoin industry. Providing a stable and transparent option for traders who now concentrate on Stablecoins. Which are under pressure from regulators and central banks. Thank you for being with Antidolos until the end of the Nightmare on Stable Street article.


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1 comment

Rozitta May 31, 2021 at 9:03 am

Stablecoin are really my favorite token. They did really well in this market. I just hope China does not want to enter this game so that the market conditions will pump as soon as possible. Thank you Antidolos for such a wonderful blogs.

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