Considering recent market effects because of the collapse from the Terra USD (UST) stablecoin, several questions ought to be clarified about why is a stablecoin functional because the crypto market expands.
Co-founding father of crypto financial company VegaX Holdings Sang Lee favors decentralized stablecoins over their centralized counterparts but thinks they ought to be coins that individuals can trust, which poses a dilemma for that industry.
Inside a conversation with Cointelegraph on May 13, Lee noticed that the key utility stablecoins serve within the crypto ecosystem was offering traders a uniform unit of account, such as the U.S. dollar does for that global markets. However, he noted that “the means by which this stuff are maintained is essential, too.”
“The most significant factor is it holds its peg because then that single unit of account starts to be hard to rely on and unusable.”
Lee believes that for stablecoins to become truly functional, individuals have to believe them. This results in a dilemma because, he stated, “you are only able to make use of a currency should you trust it, however, you trust it because others utilize it.” In the view, that dilemma could be nipped within the bud by making certain there’s an extensive use situation before building since the “use situation is infinitely more essential than collateral.”
The problems of trust and style are the main thing on the discussion all around the UST stablecoin, which lost its peg and drove lower the cost of Terra (LUNA) and Bitcoin (BTC), its collateral. As trust quickly faded within the stablecoin, so did its utility, forcing its value and the need for LUNA to evaporate.
You will find a minimum of 97 stablecoins over the crypto industry today based on CoinGecko, many of which are pegged towards the USD. That can be a number may appear high, Lee contests that there must be “more than the usual handful” of these, plus they should try to be decentralized.
“We can’t have ‘one to rule all of them,’ because that’s what we’re attempting to stop to begin with.”
One of the top 5 stablecoins by market cap, just Dai (DAI) and Magical Internet Money (MIM) are planning to be decentralized.
Lee acknowledges that it’s impractical to anticipate the key stablecoins to become decentralized immediately but feels they “should perform a way into it later on.” This concept comes from his perception the anchorman of failure that cryptocurrency is attempting to resolve is “a insufficient transparency and accountability” in centralized currencies.
In pushing crypto right into a more decentralized landscape, Lee warns individuals in the market to escape from a combative stance and much more right into a friendly, collaborative one. He stated,
“We can slowly move the world forward right into a blockchain-based ecosystem, that is overall a great factor. But it’s better to speak about what we should in blockchain think is essential instead of shouting our tech is much better.”