Is Basis Stablecoin the next Crypto Failure?
$133 million has been raised from venture capital investors to develop Basis
Image source: SludgeFeed
Basis, is a so-called stable-coin, a cryptocurrency whose price is algorithmically pegged to a fixed value, adjusting its supply based on demand.
Source: Fortune - Jen Wieczner
Referring to [Fortune's] interview with Al-Naji, cofounder and CEO of Intangible Labs, Al-Naji remains bullish on Bitcoin, however, "see a greater need for a stablecoin like Basis".
Due to Bitcoin's volatility in prices, we are seeing Bitcoin become a HUGE crypto asset that is reliable on the immutable blockchain ledger. It has proven to be a good way to store our assets offline in 'paper wallets' containing the private keys to Bitcoin addresses. What comes out in excess is the constant need to generate so-called 'stablecoins' that reflect actual US$1. We currently have several stablecoins: Tether [USDT] and True USD [TUSD], as discussed in my article titled: "Stable Cryptocurrencies: USDT, TUSD, SBD?" three weeks ago. A full list of national currency-pegged cryptos are listed here: https://cryptoslate.com/category/cryptos/stablecoin/
Image source: Wikipedia - US Inflation Rates
Stablecoin Fallacy
What we are not understanding here is the inflation rate of any currency and cryptocoins. These stablecoins create the illusion of stability and false indicative values. One US Dollar 50 years ago had a higher buying power and value as commodities are priced way lower than today. If you can see that inflation affects ALL coins, holding a 'stablecoin' like Basis is one way to depreciate value quickly.
Basis will be built atop the Ethereum blockchain as an ERC20 token. The idea behind it is that it will hold its price by expanding and contracting its total supply according to varying demand for the token. This will, in theory, keep the price consistent at all times.
Source: newsBTC
I am afraid that many of these ICOs that are providing a stable currency for mass adoption are simply schemes to raise as much funding during their ICOs. Many newly created tokens raised during ICOs have a proportion held by the management or in this case, held by Al-Naji for Basis. What they are doing here is just a comparison between two evils: allowing the people running the banks or cryptocoins to profit.
Although blockchain may have solved the issue for digital currency security, we have no idea how safe currency-backed cryptos are being stored in a vault. I would rather NOT have my physical money stored in a location that is vulnerable to theft.
What happened to the gold-backed e-gold in the 1990s?
e-gold, a digital gold currency created in 1996. Based on DGC Magazine - Julia Dixon, "e-gold’s store of value and large user base made it an early target of financial malware and phishing scams by increasingly organized criminal syndicates in Eastern Europe."
Image source: 8 Theme logos
Conclusion
Let's use stablecoins for transit purposes, but much less a 'true' mass adopted currency. Management of these newly created cryptocoins have over-promised and over-hyped their capability to replace the USD. Only time will tell whether they have truly delivered its purpose as a stablecoin.
great to see your content on this. I haven't followed other stablecoins, apart from USDT and the controversy around it. I don't see any point in them at all. I wrote something on it a few days ago as well..
what really confused me is the backing it is receiving from all the great VCs and Stanley Druckenmiller.
here is my piece on it. if you can find time to read it, then please let me know what you think -
https://steemit.com/basis/@karamyog/basis-the-upcoming-stablecoin-ico-backed-by-the-who-s-who-of-venture-capital-i-am-confused
Hi @karamyog! I am happy to see you brought up the issue. Yes, it has less meaning for investors as stablecoins do not increase their prices. I think fundamental concept is to allow the masses to adopt the coin, but it has more personal agenda. Creating stablecoins is almost a situation where you have created a mirror of the currency that represented that nation. By tapping into the nation's currency, you gain funding, support, wealth etc. It is a win-win situation as many sees it (both the creators and the adopters). Adopters have an ease for digital currency exchange and stablecoins are doing their job. Hence stablecoins may one day replace the role of banks in money regulation, that is cryptocurrency. Stablecoins are nothing but money exchangers and while they can be many of them, holding their coins bear little additional value.
Ok, now i see the incentive for issuers and those VCs. Thanks, that was very helpful.
Really great article. The most fascinating part of the Basis white paper is on page 18, in which they discuss pegging (at a future date) to an inflation based index. I haven't seen another stablecoin whitepaper explicitly address this issue and I just wrote a piece on it:
https://steemit.com/cryptocurrency/@olliesdad/the-most-revolutionary-concept-in-stablecoin-is-on-page-18
Hi @olliesdad, I am also fascinated by Basis's plan. Based on page 18, it seems that they are trying to address the inflation issue. Nice to keep track about them :)
The Bitshares crew have already dealt this one a death blow, surprising to see another crypto trying to do what they have already done so thoroughly...
Namaste :)
wow exactly. I didn't think of BitShares as a stablecoin, but I think many of these coins are hoping for mass adoption. Which is the most successful so far?
EOS, and by far! There is a huge family, and growing, of cryptos relating to Bitshares and its immediate descendants.
Namaste :)
Yes I see many similarities between BitShares and Steem. I have yet to read more about BitShares and how they operate. Thanks for bringing it up :)
But how can i make any money on stablecoins if they stay at 1 dollar?
Hi @viraldrome, I think stablecoins may serve other purposes such as being an intermediary when you are exchanging in between coins. For example, BTC --> stablecoin (hold). Next week, stablecoin --> ETH. Of course you can also spend it like digital cash, that is what the creators are hoping for.
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