Stablecoin Overload? Asset Class in Danger of Market Saturation
As the crypto markets post a small recovery from losses incurred earlier in the week, news of stablecoin creation continues to dominate the industry. Last week Tether and TRON joined forces to launch the TRX-backed USDT on TRON’s platform. Over the course of the last six months, numerous stablecoin projects have been appearing on the scene, giving some indication of what is currently vogue among cryptocurrency developers and start-up investors.
Even Facebook, the social media giant which less than a year ago spearheaded an all-out cryptocurrency ban, is planning to enter the market by issuing its own messaging based stablecoin.
With all of this development cropping up at once, it begs the question: are stablecoins already in danger of market saturation?
The Utility of Stablecoins
Tether’s USDT, the industry leading stablecoin and eighth largest cryptocurrency by market capitalization, has historically led the pack in offering a price-stable coin for investors and exchange-based traders. However, with the company embroiled in a series of scandals, the road is paved for a strong competitor to eat into their market share.
In addition, the glut of stablecoins entering the market is clearly in response to the price volatility and valuation shift cryptocurrency experienced throughout 2018. While stablecoins don’t allow for traders to speculate the way other digital assets do, they come with the benefit of pegged valuations that are, theoretically, stable relative to the market. This allows platforms like Facebook and J.P. Morgan Chase to harness the benefit of cryptocurrency and fully digital means of fiat without exposing clients to the risk of high price volatility. In the case of Facebook, the social media giant can market the coins for use in exchanging value or sending money digitally and across the globe, without attempting to persuade users to become speculators on vastly fluctuating assets.
However, the primary drawback to stabelcoins is the immediate recognition of market saturation. While cryptocurrency is a far-cry from reaching its full potential of adoption, the question remains: how many stablecoins does the industry really need? A major player like Facebook will ultimately dominate the landscape, via exposure to its 2 billion and counting user base.
The Facebook coin is rumored to operate primarily on the Whatsapp messaging service, which leaves a gap for stabelcoins to operate on cryptocurrency exchanges as a primary means of holding stable digital funds outside of fiat. Nonetheless, the glut of stablecoin projects popping up will ultimately lead to the market saturation, with little room for differentiation.
Traditional cryptocurrencies such as Bitcoin and Ethereum allow users to speculate on their value and usability, with a corresponding change in price indicating market appreciation. Stablecoins have a limited means of distinguishing their project, outside of being tied to a major name such as Facebook. While they may offer users the utility of cryptocurrency, their inability to appreciate or change in value with investment will likely lead to limited interest over time.
Instead, a more pressing reality could be the conversion or tokenization of existing fiat into a format similar to cryptocurrency. A U.S. Dollar coin may lack the decentralization of typical crypto projects, but it cuts through the middleman of a stablecoin like Tether or TrueUSD.