Are stablecoins a big scam?

The fall of the Earth environment and its stablecoin, the FSO, has had a major impact on the cryptocurrency market. Do stablecoins, which should be pegged to another cryptocurrency or fiat currency such as the dollar to avoid the volatility effect, still have a future? If they should be part of the future, it is best to handle them carefully.

A dizzying fall of almost 100%. While at the end of April it was trading around 110 euros, the LUNA, token of the Terra protocol, collapsed and is now no longer worth (0.0001292 euros). A crash that led to that of the UST, an algorithmic stablecoin of the Earth environment, it should be worth, whatever happens, a dollar. As a reminder, a stable cryptocurrency is a cryptocurrency whose price is pegged to another cryptocurrency or fiat currency. Unlike other cryptocurrencies whose price is very volatile, stablecoins don’t normally have this problem. Within the FSO, it is the MOON that acts as a balance. The fall of one therefore dragged the other, the FSO is worth just over 8 cents today dollar.

The case had a significant impact, to the point that some political figures have already addressed the topic, such as the leader of France Insoumise, Jean-Luc Mlenchon.

A performance too good to be true

Are stablecoins a vast scam? Before throwing everything into the fire, it is good to take a look at Earth. Through the Anchor protocol, UST holders were asked to deposit their money on the platform. This allowed them to receive interest. Under this protocol, UST holders were promised an annual return of nearly 20%. The economic model was not sustainable, Judge Franois Laviale, director of management of Alphacap Digital Asset Management. In our analysis, we anticipated this coming crisis simply because we are unable to distribute such a high return. What posed a problem was that when you reach 40 billion in capitalization, you can’t continue to pay back 20% by taking on equity.

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Jonathan Herscovici, founder of broker Stackinsat, believes that the fall of Terra Luna is absolutely no surprise given the unstable balance behind this protocol. More generally, the problem is that some have made people believe they can become a millionaire in three weeks thanks to cryptocurrencies. People get into crypto thinking they can make big gains easily and don’t care about the fundamentals. In the case of Terra, many got caught up in marketing offering 20% ​​return, without really understanding what was behind it.

Stablecoins have a role to play in cryptocurrencies

So is it really the end of stablecoins? Some are said to be safer, because it is supported (collatraliss) against the dollar. This is the case, for example, with the BUSD or the USDT. The promise is therefore that for every token of these assets a dollar will be placed in an account. An equation that should guarantee the stability of these cryptocurrencies, although even in this case there are problems, such as the opacity of some players like Tther, which offers USDT.

However, for Franois Laviale the future will pass through this type of asset: stablecoins remain a class of essential cryptocurrencies in the ecosystem. It would be very difficult to do decentralized finance (DeFi) having only volatile cryptocurrencies. We really need stablecoins to support the development of decentralized finance.

While dollar-backed stablecoins seem like a safer alternative today, DAI, another stablecoin algorithmic but collateralized by Ether, is also finding favor in the eyes of our stakeholders. He has done very well during this market downturn, Judge Franois Laviale. DAI has been around for a long time and has proven its worth.

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The digital euro, the solution?

While Jonathan Herscovici admits that stablecoins can be of real use, he also believes the operational setup is very complicated. For him the stablecoin the least worst would be the digital euro created by the ECB. This would in fact allow for a reliable stablecoin that should be less opaque than USDT, whose systematic risks are important to the sector.

The problem with the digital euro is that there could be a number of free-market derivatives, as we observe with the digital Yuan, notes the founder of Stackinsat, which is organizing the third edition of Surfin ‘at the end of August. major conference on the subject in Europe. Indeed, while the cryptographic environment was built on the notions of freedom and privacythe idea of ​​having a state that can control and keep an eye on all our transactions goes against the philosophy of bitcoin.

Handle stablecoins with great care

If stablecoins can still have a use, then they should be handled with care. Better to look seriously at the project before investing in it. Like Warren Buffet who claimed never to invest in a company you can’t understand, Franois Laviale says nothing else: if you don’t understand how a crypto can offer a 20% return, it’s best not to go there. If we don’t understand a business model, it’s often because it’s not sustainable.

Another tip: if cryptocurrencies can be a way to diversify your savings, it is best to invest what you are ready to lose. And even within your cryptocurrency portfolio, it’s best to diversify your assets and not invest everything in the same project.

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For Jonathan Herscovici, there is no stable except Bitcoin. What is called a maximalist bitcoin (believing in Bitcoin for its already proven usefulness in opposition to other cryptoassets ed), warns against this false picture of easy money: buying cryptocurrencies other than Bitcoin should affect 1% of the population, which takes time and has the experience to do so. Crypto is like a biotech stock. In these actions, we invest in the hope that biotechnology, for example, will one day release a revolutionary vaccine. But perhaps this vaccine will never see the light of day. It’s the same with altcoins. It is a bet on the future, but that doesn’t have a 100% chance of success. On the contrary, Bitcoin already has a use, for example, in El Salvador or the Central African Republic, which have recognized it as legal currency.

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