Stablecoins: A Detailed Analysis by Katerina Liu

Are stable coins better coins?
Presented by 
Ruanjia (Katerina) Liu
2
nd
 
PhD student in Accounting Information System
Rutgers Business School
1
Stable coin aims to overcome price fluctuation and boost
cryptocurrency acceptance. There are four types:
1.   fiat collateralized
rely on fiat currencies such as the U.S. dollar to maintain
their value
are backed at a 1:1 ratio: for one stable coin, there is one unit
of currency (like a dollar) as the reserve
2. commodity-collateralized stable coins: are backed by
interchangeable assets, such as metals and oil
3.   crypto collateralized:
are backed by other cryptocurrencies such as Ether (ETH)
are much more decentralized and over-collateralized to
reduce price volatility risks (1:3 ratio)
S
table Coin 
4. non-collateralized stable coins: use an algorithmically
governed approach to control the coin supply and demand
The report 
(“
An overview of the current state of stablecoins 
”)
from the team at BlockData states:
95 percent of the active stable coins are asset-backed such as
the US dollar or gold
Fiat -based stablecoins have a higher chance of survival than
commodity-backed stablecoins
50 percent of active stablecoins are developed on the
Ethereum network. Ethereum network is the most common
choice of blockchain protocols
S
table Coin (continued)
Tether (USDT), created in 2012, is the 8
th
 stable coin by
market cap
Criticism of Tether
1.
fails to provide sufficient evidence of adequate fiat reserves
2.
shares the same chief executive officer with the Bitfinex
exchange( its sister company )
3.
lacks long-term banking relationships
Cryptocurrency exchanges are forced to get involve with
shadowy middlemen of the crypto industry because of the
lack of access to the legitimate financial system
S
table 
c
oin- Tether 
The New York Attorney General sued Bitfinex for fraud in
April 2019
Crypto Capital
,
 
the
 
intermediary
 
for
 
Bitfinex
 
exchange,
 
said
that
 
$850 million in customer funds could not be returned
How
 
the
 
Bitfinex 
react
Borrowed
 
from its sister company, the stablecoin issuer
Tether
 
to
 
cover
 
the
 
$850 million 
hole
 
 
Claimed
 that these
 
$850 million amounts are not lost but ha
d
been seized and safeguarded
 
by
 
the
 
government authorities
in Portugal, Poland and the U.S
BitFinex
,
 operat
ing
 both Bitfinex and Tether
,
 plan
s
 to 
issue
initial exchange offering
 
of
 
$1 billion worth of the Tether
.
 
It
plans
 
to
 
buy
 
back
 
these
 
coins
 
after
 
the
 
recovery
 
of
 
$850
million
Recent Tether 
Scandal
Libra’s mission is to enable a simple global currency and
financial infrastructure (more efficient payments system) that
empowers billions of people
Of 7 billion people 1.7 billion are unbanked. That is 31% of
the global population
For those who do have access:
Transfers are slow. A typical cross-broader payment takes
three to five working days to complete
Costs are high. On average, it costs 7% to send money
internationally
Costs are higher for the poor. On average, the unbanked
pay $4 higher fees/month for cash access
Facebook’s Libra Project    
 
The world still runs on cash. 85% of global transactions use
cash
Cash can be hard to move around and easy to steal. U.S.
retail businesses lose about $40 billion annually due to the
theft of cash
Thus, access to digital financial services can have a 
BIG
impact
Add $3.7 trillion to developing economies, and create 95
million new jobs
Improve people’s income earning potential by 20% and
reduce extreme poverty by 22%
Facebook’s Libra Project    
 
Libra cryptocurrency: a stablecoin set to launch in 2020
which will initially let users transfer money between
Facebook’s Messenger and WhatsApp applications
Libra coins will be stored on the Calibra wallet, a separate
company to Facebook
Users financial data is kept separate from their personal data
on Facebook
The Libra Association is an independent, not-for-profit
membership organization. The Libra Association is made up
of a group of diverse organizations from around the world.
Facebook’s Libra Project    
 
Main purpose: support stability and value preservation
Each coin is backed with a set of stable and liquid assets
Gives intrinsic value on day one and helps protect against
the speculative swings of other cryptocurrencies
Link reserve to the value of the USD or GBP
 
(Great
Britain Pound) but to a basket of currencies of the most
popular fiat currencies including the euro and yen
Even if one currency loses it’s value, Libra will remain
stable
Users can have confidence that they will be able to sell
any Libra coin at or close to the value of the reserve at
any time
Libra reserve    
 
Baseline: The reserve will remain fully backed across time
The association may occasionally change the composition of
the basket in response to significant changes in market
conditions (e.g., to respond to an economic crisis in certain
regions)
The size of the reserve is determined by the size of the
balances that users are holding in Libra
The Libra ecosystem grow or shrink with demand. When the
value of backed assets increase, new minting of coins occur
Discourages “runs on the bank”: a coin is only fractionally
backed, so users want to get their backing out before others
do
How the Reserve Change Over Time  
 
6 of 28 Association members drop out: Stripe, MasterCard,
VISA, PayPal, eBay, and Mercado Pago
The Secretary of the United States Treasury, Steven
Mnuchin, said that the government would be taking action if
Libra project fails to meet the anti-money laundering
standards (AML)
Ashley Alder, Chair of the IOSCO Board, argued that since
‘stablecoins’ possess certain features of typical securities,
they should subject to significant international and public
scrutiny
Setbacks and Public Pressure
BTC markets are dominated by Tether with greater liquidity
represented by lower spreads and higher volumes than other
stablecoins
The success of Tether offers proves that market participants
prefer stability over decentralization in the short term
Stablecoins are useful only when they are stable
and implemented with stringent audits
Libra has the potential to replace all current stablecoins given
the large userbase of Facebook and the reach of the other
members of the Libra Association
Conclusion
Unclear future
Facebook could hold too much power
the larger goal of Libra is to transform the global
economy
Facebook had issues with data privacy and Libra could
ultimately threaten the power of the US dollar and other
fiat currencies
The breakdown of the system for 
a
 short time could cause
the world distress
The successful launch of Libra will have huge impact on
cryptocurrency markets
Conclusion
 
Q&A
Slide Note
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Stablecoins, a type of cryptocurrency designed to minimize price fluctuations, come in four main types: fiat collateralized, commodity collateralized, crypto collateralized, and non-collateralized. Among these, fiat-based stablecoins have shown higher survival rates compared to commodity-backed ones. The report also highlights the prevalence of asset-backed stablecoins, with Ethereum being the preferred blockchain network. The case of Tether, the 8th stablecoin by market cap, is examined, shedding light on concerns regarding its fiat reserves and banking relationships. The recent Tether scandal involving Bitfinex and the efforts to recover funds further underscore the complexities in the stablecoin market.

  • Stablecoins
  • Cryptocurrency
  • Katerina Liu
  • Tether
  • Ethereum

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  1. Are stable coins better coins? Presented by Ruanjia (Katerina) Liu 2ndPhD student in Accounting Information System Rutgers Business School 1

  2. Stable Coin Stable coin aims to overcome price fluctuation and boost cryptocurrency acceptance. There are four types: 1. fiat collateralized rely on fiat currencies such as the U.S. dollar to maintain their value are backed at a 1:1 ratio: for one stable coin, there is one unit of currency (like a dollar) as the reserve 2. commodity-collateralized stable coins: are backed by interchangeable assets, such as metals and oil 3. crypto collateralized: are backed by other cryptocurrencies such as Ether (ETH) are much more decentralized and over-collateralized to reduce price volatility risks (1:3 ratio) Katerina Liu

  3. Stable Coin (continued) 4. non-collateralized stable coins: use an algorithmically governed approach to control the coin supply and demand The report ( An overview of the current state of stablecoins ) from the team at BlockData states: 95 percent of the active stable coins are asset-backed such as the US dollar or gold Fiat -based stablecoins have a higher chance of survival than commodity-backed stablecoins 50 percent of active stablecoins are developed on the Ethereum network. Ethereum network is the most common choice of blockchain protocols Katerina Liu

  4. Stable coin- Tether Tether (USDT), created in 2012, is the 8th stable coin by market cap Criticism of Tether 1. fails to provide sufficient evidence of adequate fiat reserves 2. shares the same chief executive officer with the Bitfinex exchange( its sister company ) 3. lacks long-term banking relationships Cryptocurrency exchanges are forced to get involve with shadowy middlemen of the crypto industry because of the lack of access to the legitimate financial system Katerina Liu

  5. Recent Tether Scandal The New York Attorney General sued Bitfinex for fraud in April 2019 Crypto Capital, the intermediary for Bitfinex exchange, said that $850 million in customer funds could not be returned How the Bitfinex react Borrowed from its sister company, the stablecoin issuer Tether to cover the $850 million hole Claimed that these $850 million amounts are not lost but had been seized and safeguarded by the government authorities in Portugal, Poland and the U.S BitFinex, operating both Bitfinex and Tether, plans to issue initial exchange offering of $1 billion worth of the Tether. It plans to buy back these coins after the recovery of $850 million Katerina Liu

  6. Facebooks Libra Project Libra s mission is to enable a simple global currency and financial infrastructure (more efficient payments system) that empowers billions of people Of 7 billion people 1.7 billion are unbanked. That is 31% of the global population For those who do have access: Transfers are slow. A typical cross-broader payment takes three to five working days to complete Costs are high. On average, it costs 7% to send money internationally Costs are higher for the poor. On average, the unbanked pay $4 higher fees/month for cash access Katerina Liu

  7. Facebooks Libra Project The world still runs on cash. 85% of global transactions use cash Cash can be hard to move around and easy to steal. U.S. retail businesses lose about $40 billion annually due to the theft of cash Thus, access to digital financial services can have a BIG impact Add $3.7 trillion to developing economies, and create 95 million new jobs Improve people s income earning potential by 20% and reduce extreme poverty by 22% Katerina Liu

  8. Facebooks Libra Project Libra cryptocurrency: a stablecoin set to launch in 2020 which will initially let users transfer money between Facebook s Messenger and WhatsApp applications Libra coins will be stored on the Calibra wallet, a separate company to Facebook Users financial data is kept separate from their personal data on Facebook The Libra Association is an independent, not-for-profit membership organization. The Libra Association is made up of a group of diverse organizations from around the world. Katerina Liu

  9. Libra reserve Main purpose: support stability and value preservation Each coin is backed with a set of stable and liquid assets Gives intrinsic value on day one and helps protect against the speculative swings of other cryptocurrencies Link reserve to the value of the USD or GBP (Great Britain Pound) but to a basket of currencies of the most popular fiat currencies including the euro and yen Even if one currency loses it s value, Libra will remain stable Users can have confidence that they will be able to sell any Libra coin at or close to the value of the reserve at any time Katerina Liu

  10. How the Reserve Change Over Time Baseline: The reserve will remain fully backed across time The association may occasionally change the composition of the basket in response to significant changes in market conditions (e.g., to respond to an economic crisis in certain regions) The size of the reserve is determined by the size of the balances that users are holding in Libra The Libra ecosystem grow or shrink with demand. When the value of backed assets increase, new minting of coins occur Discourages runs on the bank : a coin is only fractionally backed, so users want to get their backing out before others do Katerina Liu

  11. Setbacks and Public Pressure 6 of 28 Association members drop out: Stripe, MasterCard, VISA, PayPal, eBay, and Mercado Pago The Secretary of the United States Treasury, Steven Mnuchin, said that the government would be taking action if Libra project fails to meet the anti-money laundering standards (AML) Ashley Alder, Chair of the IOSCO Board, argued that since stablecoins possess certain features of typical securities, they should subject to significant international and public scrutiny Katerina Liu

  12. Conclusion BTC markets are dominated by Tether with greater liquidity represented by lower spreads and higher volumes than other stablecoins The success of Tether offers proves that market participants prefer stability over decentralization in the short term Stablecoins are useful only when they are and implemented with stringent audits stable Libra has the potential to replace all current stablecoins given the large userbase of Facebook and the reach of the other members of the Libra Association Katerina Liu

  13. Conclusion Unclear future Facebook could hold too much power the larger goal of Libra is to transform the global economy Facebook had issues with data privacy and Libra could ultimately threaten the power of the US dollar and other fiat currencies The breakdown of the system for a short time could cause the world distress The successful launch of Libra will have huge impact on cryptocurrency markets Katerina Liu

  14. Q&A Katerina Liu

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