Stablecoins are a new class of cryptocurrencies pegged to traditional financial assets such as fiat currencies, offering crypto traders safe harbour in a market characterised by volatility.
Thailand knows the risks of pegging currencies, given its attempt to tie the baht to the US dollar, which spurred the 1997 Asian financial crisis. The Bank of Thailand has already banned the use of a privately developed baht-based stablecoin before it could be publicly bought or sold, fearing it could destabilise the currency, yet it also indicated interest in developing its own coin in the future.
Doubts still remain about just how stable these coins actually are and what the risks are if they are untethered from their corresponding currencies. When bitcoin and other cryptocurrencies eventually end their remarkable bull run that began late last year and the inevitable sell-off ensues, will stablecoins live up to their promise?
BILLIONS ON THE LINE
The global market cap of stablecoins is US$75.3 billion, or 3.77% of the total cryptocurrency market cap worth $2 trillion.
Stablecoins’ 24-hour trading value of $75.9 billion now represents 20% of the trading value of all cryptocurrency of $370 billion, according to data on CoinGecko’s website as of April 16.
There are currently more than 200 stablecoins of over 6,000 cryptocurrencies available in the market that are collateralised by fiat currencies such as the US dollar (USD), British pound (GBP), euro (EUR), Chinese yuan, Russian ruble, and even Thai baht.
FIAT FRIEND OR FOE?
Although the Bank of Thailand issued a warning on March 17, asking people to refrain from participating in any activities involving a recently created baht-backed stablecoin called Thai Baht Digital (THT) issued on the Terra platform, the coin’s market value still remains the same at around 13,483 baht as of April 16.
Though stablecoins are rising in popularity, the public’s long-standing trust in the central bank means most people follow these advisories.
Yet the Bank of Thailand has shown interest in issuing central bank digital currencies (CBDCs). And the bank said cryptocurrencies and stablecoins issued by the private sector and CBDCs can co-exist as they are used for different purposes.
Tanwa Arpornthip, a researcher at Block Research, the blockchain research unit of the College of Computing at Prince of Songkla University, said one reason why THT failed to gain traction in the Thai market is no tech developers dared to develop a decentralised finance (defi) platform to accommodate trade of the currency.
“Some people hold stablecoins because they allow them to access defi and cryptocurrencies in a very simple way, but they still prefer fiat currencies over stablecoins,” he said.
Mr Tanwa said fiat currencies are not accepted as assets on defi platforms because fiat currencies are controlled by central banks, going against the main principle of defi.
Defi platforms are typically operated on distributed ledger technology (DLT) such as blockchain, which aims to remove intermediaries between transacting parties and decentralise the regulation of currency for all stakeholders.
Stablecoins were invented to bridge the gap between fiat currencies and cryptocurrencies as they offer price stability while giving traders freedom and privacy in financial transactions.
However, he said stablecoins are still a synthetic asset with value tied to an asset of commonly accepted value. If any component of the stablecoins’ back-end system is not functioning properly, the stablecoin could become unpegged from the cryptocurrency and lose the trust of investors.
“Anyone who holds stablecoins must always keep in mind they can be unpegged and they cannot be substituted for fiat money,” Mr Tanwa said.
According to Bank of Thailand data, the most liquid portions of the money supply in Thailand are still banknotes and…
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