Are Stablecoins The Next Big Thing? Why They’re Critical For Crypto Adoption

Well-known stablecoin Tether (USDT) is in a tough spot. From price manipulation accusations, lack of transparency, and lingering questions about whether the cryptocurrency has sufficient cash reserves, there is a lot that can be improved upon. Despite those issues, demand remains robust. As CryptoCompare noted in a report at the end of 2018, “ Tether continues to represent the majority of Bitcoin trading into fiat or stable coins at 65 percent of total monthly volume in December.”

So why is Tether successful? Frankly speaking, it has first mover advantage. That advantage is eroding, though. 2019 will be a significant year for stablecoins, which I believe are critical for widespread crypto adoption.

First, the basics. What are stablecoins? They are cryptocurrencies pegged to the price of a currency or commodity. They are designed to be less volatile than other cryptocurrencies and are centralized as opposed to the decentralized approach taken by bitcoin and most other digital currencies. In the case of Tether, it’s pegged to the value of the U.S. dollar in a 1:1 ratio. After years of ups and downs with BTC, stablecoins offer an enticing alternative for anyone who is concerned by prolonged volatility. They’re also going to be crucial in facilitating cross-border payments, legal money transfers, and daily transactions (like buying coffee or groceries.)

Let’s dive deeper into why 2019 is an important year for stablecoins. In the aftermath of 2017’s cryptomania, the market shook off bad ICO projects and shed investors who bought in during the hype but were uninterested in the long-term prospects of cryptocurrencies. The result? A slow 2018 that, while painful for some, was ultimately a good year of consolidation which allowed regulators to catch up to innovation happening across the space. Now that this post-hysteria shakeout is over, it’s time for the next wave (which clearly won’t be another set of vaporware “projects” peddled by B-list celebrities.) In my view, this is where stablecoins come in. They have real value based on the underlying asset they’re based on, which means faster adoption. Here’s what Jeremy Allaire, CEO of crypto giant Circle had to say about stablecoins last fall: “ If people can exchange value over the internet without a toll extracted for payments it's pretty dramatic...it'll make the web look like a cute experiment comparatively speaking in 10-15 years."

Will stablecoins outpace bitcoin? I think it’s possible. They offer an improved method for cryptocurrencies to transfer value. There is also an ever-growing number of stablecoins, such as J.P. Morgan’s latest entry into the market which will allow clients to instantly settle payments. Expect governments around the world to pursue stablecoins as well.

With the trend toward stablecoins as a backdrop, it’s important to know which currencies offer the best path forward for investors. In my view, TrueUSD (TUSD) and the Gemini dollar (GUSD) are the most promising stablecoin projects right now. In the case of TrueUSD, developed by TrustToken, dollars are held in escrow with partner financial institutions. Gemini is similar - created by the Winklevoss twins (of Facebook fame), the coin holds equivalent dollars in U.S. banks and provides a fully regulated solution. Most importantly, both of these coins offer better transparency than Tether.

Stablecoins are the next evolution of a rapidly maturing market. Much of the early crypto hype is gone, but it’s for the best in the end. I continue to see adoption of digital currencies as an inevitability - look for stablecoins to lead the way in 2019.

Rodrigo Marques is founder and CEO of Atlas Quantum.