All data in this report was captured and analyzed by Huobi Research; please cite the source “Huobi Research” for reference.
Stablecoins refer to blockchain-based digital assets with relatively stable value pegged to a certain anchor. Though similar to fiat money, stablecoins have many unique advantages: (1) realtime settlement at low cost; (2) easy transfer between Dapp, wallet and exchanges; (3) transparent and temper-resistant; (4) few trading restrictions, high flexibility. We believe, the stablecoin market is not a pseudo-demand and will continue to exist and grow.
There are three kinds of stablecoins, among which: (1) fiat backed stablecoins are more suitable for undertaking fiat gateway functions; (2) crypto backed stablecoins are more related to digital credit use cases; (3) while algorithm stablecoins strive to be an ideal medium of exchange and measure of value. Whichever model chosen, we believe: (1) sufficiency of supply mechanism; (2) system stability; (3) market acceptance; (4) team and community effectiveness; (5) regulatory compliance are the core success factors for a stablecoin project.
TUSD, USDC, GUSD, PAX have optimized the USDT model in terms of compliance, transparency and reserve pool security. Among them, TUSD and USDC have chosen the Money Transmitter Model, while GUSD, PAX haven chosen the Trust Company Model, both of which have advantages and disadvantages.
The development and prosperity of stablecoin models will go through three stages: (1) tokenizing fiat money phase, during this stage, most of the assets and business haven’t been moved on chain, and compliant channels to transfer traditional assets to digital assets is greatly needed; (2) pegging fiat money phase, during this stage, fueling the atomic-level crypto world by tokenizing fiat money is no longer feasible, a more efficient and cost effective way to create stable unit is demanded, crypto backed and algorithm backed stablecoins will prosper; (3) independent stablecoins phase, when distributed economy has crossed national borders, demand to peg a basket of important commodities or valuable services rather than a single fiat currency arise.
In future, we believe the structure of the stablecoin market will also undergo different forms: (1) In short run when fiat backed model dominate, we might see a variety of stablecoins backed by the same fiat currency (USD) first, among which one or two stablecoins might gradually capture the market. Then, stablecoins backed by different fiat currencies will emerge, as well as a foreign exchange market denominated in stablecoins.
Finally, digital fiat currencies (central bank issued cryptocurrencies) will emerge and formally replace fiat backed stablecoins. (2) In the mid term when crypto backed model start to prosper, we might once again see all kinds of crypto backed stablecoin system emerge, and features intelligent financial institutions; (3) Later on, the “algorithm backed + crypto backed model” will become an important means of credit enhancement for some regions or countries with depreciating legal tenders, and become an instrument to issue legal tenders pegging to purchasing power of the country.
Though value of stablecoins is relatively stable, investors can still participate and enjoy industry dividends mainly in two ways: (1) obtain return from expansion of the stablecoin business model; and (2) earn from participating in the stabilization mechanism of stablecoin system.
Read Full Report Here: Compliant Market Infrastructure Series (1): Stablecoins 2018