{"id":606,"date":"2019-02-23T14:07:45","date_gmt":"2019-02-23T14:07:45","guid":{"rendered":"http:\/\/www.pllel.com\/industries\/?p=606"},"modified":"2019-02-23T14:07:53","modified_gmt":"2019-02-23T14:07:53","slug":"reaching-everyone-are-stablecoins-the-answer-to-bitcoins-volatility","status":"publish","type":"post","link":"https:\/\/www.pllel.com\/industries\/reaching-everyone-are-stablecoins-the-answer-to-bitcoins-volatility\/","title":{"rendered":"Reaching Everyone: Are stablecoins the answer to Bitcoin\u2019s volatility?"},"content":{"rendered":"\n

It \ndepends on the question. For those most in need of value preservation \nand freedom of transaction, the risks likely far outweigh the benefits.<\/h3>\n\n\n\n

This is a brief aside from our \u201cReaching Everyone\u201d article series on In The Mesh<\/a>, by Matt \u0e3f<\/a> (@MattoshiN<\/a>) and Wassim Alsindi<\/a> (@parallelind<\/a>)\n on the use of Bitcoin and the technology stack built atop it to assist \nthose living under oppressive regimes or in conflict zones, and those \nseeking to flee them.<\/p><\/blockquote>\n\n\n\n

There\n is no doubt that volatility in BTC-fiat crossrates make external \nmeasures of cryptocurrency value vary wildly, and obviously downside \nrisk is not helpful especially with those in straightened circumstances,\n or even with their lives on the line. On the other hand things like \nthis might happen:<\/p>\n\n\n\n

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https:\/\/www.thesun.co.uk\/news\/7804100\/isis-war-chest-bitcoin-crash-investment-millions-cryptocurrency\/<\/a><\/figcaption><\/figure>\n\n\n\n

Could\n so-called \u201cstablecoins\u201d be the answer to the volatility dilemma? Well, \nstable with respect to what, and how to maintain price consistency? \nBroadly, there are three current models:<\/p>\n\n\n\n

1) Central issuing authority<\/strong>.\n Confidence in value is faith-based with censorship risk\u200a\u2014\u200asuch as JPM\u2019s\n upcoming offering. Additional risks with undercollaterisation.<\/p>\n\n\n\n

2) Asset-backed with trusted custodian<\/strong>.\n Price maintenance depends on faith in the underlying assets and \ntransparency of auditing. Examples include Tether or gold-backed \nproducts.<\/p>\n\n\n\n

3) Algorithmic <\/strong>mechanisms\n seem like worthy but very much unproven experiments. Until tested at \nscale and over significant periods of time, these are no place for \npeople on the margins to place their wealth. DAI and Basis (RIP) are \nexamples of this approach. Additional risks arise from regulatory \nburden, if the stability process is deemed to be security-like<\/a>\n and centralised oracles reporting external prices. Front-running may be\n an additional issue with DAI as MKR (MakerDAO\u2019s parent token) holders \nwould be diluted in the event of a peg failure, with more sophisticated \nholders jumping ship at first signs of trouble. This may resemble the Cantillon Effect<\/a> playing out backwards?<\/p>\n\n\n\n

There is considerable base protocol and smart contract risk<\/a> for platform-issued tokens such as stablecoins, especially as the current predominant stablecoin token \u201chosting\u201d platform Ethereum prepares to undergo transition to ETH1.X and ETH2.0 with some combination of ProgPoW, hybrid PoW\/PoS, PoS, the bewilderingly diverse Plasma family of state channels, new virtual machines, sharding and\/or state rent. Contrast this with Bitcoin\u2019s conservative development philosophy and aversion to rapid changes in network function largely pushing innovation into \u201csecond layers\u201d such as Lightning Network and sidechains.<\/p>\n\n\n\n

Anatomy of a stablecoin. pic.twitter.com\/R9njRdKVsS<\/a><\/p>— Parallel Industries \ua66e (@parallelind) February 23, 2019<\/a><\/blockquote>\n