Stablecoins Take Beating As Markets Begin Rebound

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The Dow Jones and other mainstream stock markets saw a serious rebound today on news of talks between the US and China.

Bitcoin and other crypto-assets also gained.

However, the side effect of strengthening — or even recovering — Bitcoin markets is that people exit stablecoins.


People may exit so quickly, in fact, that a brief window will open up where there’s more supply than demand for stablecoins, and somehow, people start selling them for even less than their $1 peg.

Off That Dollar Peg, Both Ways

This is happening today:

Stablecoins Trading Under Peg

The market resurgence today put a great deal of pressure on stablecoin markets, leading to several periodically dropping under their $1 peg. Source: Coinmarketcap Mobile App

It’s also going the other way, as people make large moves. For example, at press time, Tether was trading for $1.01.

You might think that this undermines the “stable” part of these stablecoins, but actually the tokens are much more stable than other assets like Bitcoin.

The interesting thing, of course, is the amount of obvious — or seemingly obvious — arbitrage created by these conditions. For example, when a stablecoin happens to be trading under $1, you can snap it up and sell it back to the issuer.

Stablecoins and Barriers to Exit or Entry

In the case of USDC, the minimum sale is just $100. Each stablecoin has a different policy and a different issuer.

But when you have smaller amounts of these tokens, as many people do, your only option is to cash out with some other crypto, or to sell the tokens to the exchange. In the case of Dai or USDC, you can sell them to Coinbase, for example.

Stablecoins are one of the few trends to only gain steam as time and scrutiny accrue around them, with companies like Facebook attempting to introduce viable implementations and facing fierce resistance from regulators.

The Libra would come with a built-in potential userbase of billions. It would be one of the lagest financial product rollouts in the history of the world, given that no bank has as many clients as Facebook has users.

As you can imagine, regulators have expressed concerns around the idea of Facebook becoming a sort of financial institution.

Former Bitcoin developer Jeff Garzik said stablecoins were “here to stay” this week, according to Forbes.

Some stablecoins, like Gemini, are all but dead, with far smaller market capitalizations — which for stablecoins, means “units issued” — than others. The king is still Tether, with its high minimum redemption, while other efforts like USDC and TUSD have been catching up over time.

USDC is an effort of both Coinbase and Circle, while TrueUSD is a product of TrustToken, which also supports other stablecoins.