Over the past few weeks, Ethereum has been subject to a trend few expected: stablecoins — cryptocurrencies tied to the value of a “stable” asset external to the industry — have flocked to the blockchain.
Stablecoins have become a trend so relegated to the blockchain that there is now $5.6 billion worth of Tether’s USDT stablecoin issued on Ethereum, as opposed to $1.3 billion on Bitcoin’s Omni and $800 million on Tron.
Unfortunately, the unquestioned primacy Ethereum has in the stablecoin space, especially with assets like USDT, USD Coin, and the Paxos Dollar, could present a long-term risk to the value of ETH.
Ethereum Continues to Embrace Tether
On Monday, Ethereum users continued to embrace Tether, with a vast majority of startups and investors with a stake in Compound, a leading DeFi protocol, voting in support of adding USDT to the protocol.
It’s a move that once again signals that stablecoins have become core to Ethereum.
Still two days left, but looks Compound will be adding supply/borrow support for Tether soon
Felt like the DeFi community was initially hostile towards Tether and is now embracing it (for better or worse 🤷♂️) as more $USDT moves from Omni to Ethereumhttps://t.co/jy9i0yqGGD pic.twitter.com/8nncugPCqL
— Rob Paone (@crypto_bobby) April 27, 2020
Stablecoins have become so important to Ethereum that per data from Messari, due to transactions of USDT and other dollar-pegged tokens, the total value of transactions taking place on Ethereum has begun to rival that of Bitcoin, despite the former having around 15% of the value of the latter.
As Ryan Sean Adams, founder of Mythos Capital explained:
“In Feb 2016 the reserve asset of Ethereum traded at $2. If I told you then that 4 yrs later this network would host over $9b in stablecoins & that’s just one of its promising use cases you have been blown away. You would have backed up the truck. That’s how I feel about ETH today.”
While Adams’ comment makes it clear that Ether investors are embracing stablecoins as a key use case of the blockchain that will bolster ETH’s value, the sentiment is mounting that the opposite is true.
Here’s How It’s Dangerous
According to Ryan Watkins — an analyst at crypto research firm Messari — the presence of Tether (and other stablecoins) on the blockchain poses a long-term “threat” to ETH’s value.
Watkins attributed this thought to the fact that if stablecoins continue to be the primary value transfer mechanism on the network, Ethereum’s monetary premium, its position as a potential form of money, may devolve into its “naive early branding of digital oil” and lose much of its value as a result.
Indeed, many critics of Bitcoin and its ilk say that the primary thing holding back these assets from becoming money, from becoming adopted, is their high levels of volatility.
The introduction of assets that have the same decentralized, global, and digital characteristics as cryptocurrencies but are also stable, in theory, have more potential to be more easily adopted than their volatile counterparts.
Photo by James Pond on Unsplash