What is wrong with Current Stablecoins, considering Tether and MakerDAO

By Jude Regev

When it comes to stability, not all stablecoins are equal, and we are once again seeing the impact of this issue in the cryptocurrency market. Just this week, a lawyer for Tether admitted that the stablecoin is only backed by 74 percent in cash and equivalents.  An attorney for Tether confirmed that cash and cash equivalents backing the stablecoin total about $2.1 billion: there are an estimated 2.8 billion USDT tokens in circulation. The issue is now in front of the New York State Supreme Court, which is asking Tether and partner company Bitfinex to hand over documents pertaining to the liquidity of the coin.

Tether is not the only stablecoin that continues to struggle with liquidity issues.  MakerDAO, which backs its coin in an excess collateral portfolio of multiple assets, is in the process of raising its Dai Stability Fee by one to four percent. This is in response to wild fluctuations in the fee and coin price as the company tries to return to pegging the Dai to the U.S. Dollar.

When coins become unstable in the marketplace, as Tether and Dai now exhibit, all cryptocurrencies are at risk. These companies speak of stability of their coin, yet, to be truly stable, a coin must not be tied to any fiat currencies, commodities, collateral portfolios or algorithms that control the coin supply in the market to regulate price. Wild price fluctuations of these coins and troubling valuation of the assets undermines confidence in the cryptocurrency market.  After passing through the “Crypto Winter,” and the Mt. Gox scandal, the crypto marketplace needs stability, which can only come when coins are truly stable.

During the coming weeks, as the Tether issue moves through the courts and the Dai continues to struggle with its valuation, the crypto market will undoubtedly move into an unstable period.  Without a doubt, investors will be closely watching this unfold. Setbacks such as these impact all coins and take energy away from the true value of the stablecoin market, which was created so that people from all walks of life can control their own assets and eliminate the need for a middleman to facilitate the transfer of value from one person to another. This can only be achieved when coins become decentralized and stabilized, which will be the transformative moment for cryptocurrencies. People who put their trust in stablecoin companies want to see a digital currency protocol produced that ensures volatility protection.

Jude Regev, Founder and Chairman of Element Zero Network, who recognizes that in order for a coin to be truly stable, it must not be subject to market volatility. The Element Zero decentralized, not-for-profit platform uses a proprietary Stability Protocol and a smart contract to secure the P2P transaction, and ensure that the value of the assets exchanged are equal for the sender and receiver.

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