Binance has taken a step towards tackling the increasing issue of stablecoin saturation by announcing a new ‘Stablecoin Market (USDⓈ)’ yesterday. This comes eleven days after adding Circle’s dollar-backed USDC coin. The announcement was short on details with further news expected soon, but it seems as if they will be taking steps to combine the four stablecoins currently on their books in some way to ensure that liquidity is maintained across the board.
More Coins Means Less Liquidity
Binance stated that the USDⓈ will not be a new coin, but rather the symbol of their new stablecoin market. The issue currently facing users is that there are now a number of stablecoins to rival Tether (USDT), the oldest and most used on the Binance platform. The increased number means that liquidity is spread out and users are finding it hard to get orders filled on their coin of choice. Large orders, or many orders at times of stress in the markets, can lead to price fluctuations.
Tether Woes Prompting Action
The number of stablecoins has exploded in recent months, with Binance alone listing four (USDT, PAX, TUSD, and USDT). The need for extra pegged coins has been brought about in large part because of the nervousness around Tether and the recent crises involving its alleged insolvency, which has had huge impacts on the market.
Stablecoins are supposed to be pegged to a non-moving currency, usually the US dollar, so that traders can retreat to them when they don’t want to be exposed to the volatility of the markets for a time, but also don’t want to leave the crypto ecosystem. In reality though the coins tend to fluctuate in times of pressure on Bitcoin, with 20% changes not uncommon in the newer, supposedly less volatile coins. Tether of course has experienced multiple occasions when its price has dipped to worryingly low levels, including to $0.91 in April 2017 and $0.94 in October 2018. In fact, its value has not been as high as one dollar since October 6, further highlighting the need for alternatives.
Hopefully, Binance’s system – whatever it turns out to be – will find a way to blend the functionality of the various stablecoins with the liquidity of one.
