Binance stablecoins set to dethrone Tether – The Ledger
While Binance-branded platforms like Binance Uganda and Binance Jersey are technically fiat-to-crypto exchanges featuring fiat-to-crypto trade pairs, throughout its short existence Binance has primarily been a crypto-to-crypto exchange, and as a whole, it remains as such.
Recently, they’ve opened up the possibility to purchase into crypto using a credit card. This is useful for those entering the market for the first time, but this type fiat-to-crypto bridge is not very useful for active traders, who for strategic purchases may want to trade in and out of cryptocurrencies quickly and flexibly. Plus, with 7–10% fees worked into the BTC exchange rate, it is not a very attractive way of buying Bitcoin.
Quick recap: what are stablecoins?
Stablecoins are cryptocurrencies pegged to another, usually stable and highly liquid asset. Often stablecoins are pegged to fiat currencies, but they can also be tied to commodities, such as gold, or even a collection of assets.
Generally speaking, we can distinguish between trusted and trustless stablecoins.
The former type entails a central custodian issuing stablecoins in exchange for fiat, with the guarantee that they can be redeemed at any time. The latter type is created through smart contracts, over-collaterised with cryptocurrency, and therefore true to the principle of decentralisation. The Philippine Pesos stablecoin stable.PHP we launched recently is an example of a trustless stablecoin as it uses BitUSD as collateral backing.
In contrast to regular crypto, stablecoins are not volatile.
They are therefore suitable for everyday payments, remittances, moving funds from one exchange to another, as a strategic tool, a store-of-value, and as a bridge between fiat and crypto.
For day and swing traders, stablecoins can be a great way to capitalise on a highly volatile coin, or to simply ‘park your money’ when the market is uncertain. Rather than selling BTC for actual fiat, which can be slow, ineffective and expensive, traders can simply trade into stablecoins, enabling them to stay in the market and act quickly when an opportunity arises. That’s what many of the traders do on the Sparkdex do moving between cryptocurrencies like Bitcoin and stablecoins Philippine Pesos (stable.PHP), Hong Kong Dollar (sparkdex.HKD) and US Dollar (bitUSD).
What is Binance doing with stablecoins?
Currently, Binance includes PAX, TrueUSD, USDC, USDS, and USDT. As you can tell, these stablecoins are all pegged to the US dollar, which is not ideal.
Firstly, the USD may be a strong currency, but when US markets do tumble, traders should have the option to move into alternative tokenised currencies such as the JPY, GBP, or the EUR.
Secondly, for users who may wish to withdraw their funds in the form of fiat currencies other than USD, doing so via these stablecoins ultimately subjects them to expensive, and ineffective, forex mechanisms. This is a lost opportunity.
Another reason why Binance’s current offering is not ideal has to do with Tether (USDT) which represents more than 50% of stablecoin volume on the exchange. Ever since Tether’s inception, the issuing company has been suspected of not actually having the reserves to guarantee redemption. We wrote about this, back in August 2018.
In spite of this, as we learn from Bloomberg’s interview with Binance’s founder and CEO, USDT is still the dominant stablecoin accounting for 98.7% of stablecoin trading volume. Binance’s plan to launch fully audited stablecoins can be seen as an attempt to change this.
Why is this important?
At Bitspark, we follow developments around stablecoins very closely. They offer the benefits of both fiat and crypto, combining utility with transparency and cross-border mobility. As such, we believe they are key to adoption.
We highly welcome Binance’s plans to develop their own, audited stablecoins, if only because it may help the industry evolve beyond the likes of Tether.
However, in contrast to Binance and all the major stablecoins out there today, we should say that we have a strong preference for trustless, or crypto-collateralised, stablecoins, and we hope to see more innovation happen in their favour.
The reason for this is that as the industry evolves, we believe it’s important that the initial motivation behind blockchain and cryptocurrency is kept in mind. Namely, to foster financial inclusion, empower the disenfranchised, and work towards a decentralised economy.
It is for this reason that on top of the stablecoins we’re already working with, such as BitUSD, BitJPY, BitEUR, stable.PHP and our own Sparkdex.HKD, we intend to create trustless stablecoins for each of the world’s 180+ currencies.
We’re creating an ecosystem where crypto delivers on its promise to make cross-border payments truly efficient; where exploitative foreign exchange mechanisms become a thing of the past; where it’s easy to move between any fiat currency and crypto, and back; and where bankless communities, who primarily rely on cash, are able to fully participate in the global economy.