Cryptocurrency whippersnappers who work in the field is incredibly fast.

As I've said for a while, like bitcoin assets (or stock) are unlikely to become popular because exchange media; they are just too damn volatility relative to the current legal tender. There is a there is a new game in town, though: stablecoin. These markers like Bitcoin, but not wildly swinging they have a fixed exchange rate of some other assets, such as the dollar or gold.

Now, this is a promising idea. If the encryption assets can perfectly imitate the purchasing power of the dollar deposits and risk profile, and achieve lower costs than banks, then the banks in the field of electronic payments currently holding a monopoly on the trouble. The deposit is not owned by a Bank of America, consumers may be more willing to perform all the same functionality as holding the equivalent of stablecoin, while saving storage and transaction fees. To compete, banks will have to bribe deposit rates offered to customers rose, so put a crimp in their income, or extinct.

Let's take a closer look at these stablecoin options.

One foot in the traditional banking sector, one foot out: A type

Unifying principle behind each stablecoin is some form of support, or safety exists. Bitcoin, by comparison, it is not supported. Stablecoin backing is usually implemented in two ways. A type stablecoin, distributed organizations to create a token accounting, while maintaining a 1: 1 dollar reserves in traditional banking. When the token owner can cash in their dollars to the bank, at a predetermined speed, thus ensuring holding peg to the dollar. Until then, the marker may be used as a stabilizing medium exchange. Examples include tether and ripple dollar IOUs.

Is stablecoin bank's killer?

We can enjoy the bank stocks and flows of income from its deposit base. The existence of a stock deposit it provides deposit flows generated from person to person cost of financial advantage for the price.

A type stablecoin will stock returns, banks do not enjoy threats. After all, every stablecoin always supported by a reserve equivalent to bank deposits held. If people want more stablecoin, there will be growth in the deposit base, which makes traditional bankers happy.

Flow benefits, however, where the fireworks began. First, people who received stablecoin - through unfamiliar - may choose to quickly cash into good old fashioned deposit. However, if stablecoin provided with an additional range of services for deposits, rather than "kick" back to the bank level, more people may choose to keep the cover stablecoin layer on its working capital. Businesses will have more incentive to accept stablecoin, an increase of only a snowball effect. Once all transactions are routed through stablecoin layer, the basic deposit will be completely inert. While the Bank will continue to reap the benefits before they do the same stock, they must be effectively produced upstart all traffic revenue.

Thus, although type A stablecoin not kill the bank, it certainly knock down a few wrungs.

By building a new layer on top of the deposited layer, stablecoin Blazers cribbing off bankers have been in use, because the industry appeared the same script. Centuries ago, the first bank layer is built on top of the original monetary base layer. Monetary base comprises the following gold and silver coins, but in more recent times, it evolved into a central bank notes and deposits. Since the base currency bank deposits inherited (thanks to the commitment of base money redemption) price stability, and is very convenient, bankers successfully coinage data from the base layer into the deposited layer. That is why gold and silver rare in circulation in the 19th century, is limited mainly to the vault. Maybe someday stablecoin innovation will limit bank deposits, to support large-scale stablecoin issue of "treasury" success. If this shift has not yet done so, I would be more skeptical. *

Type B: Foot Banking

More ambitious is a B-type stablecoin, it tries from traditional banking business layer is completely liberated. Instead of using the old-fashioned bank deposits backing, pre-existing problems of distributed digital signature is used to protect the value of stablecoin.

For example, take bitShares, bitcoin like a brand mark No Backplane. These tokens are every volatile, Bitcoin, one day 10% and decreased by 10% next. Here's a chart. So far, nothing new, there are hundreds of Bitcoin similar in appearance.

Unique idea is to stabilize the volatile water into wine by requiring changes in the amount bitShares backup tokens second type, bitUSD. A bitUSD is committed to providing its dollar equivalent returns boss numerals. As long as each bitUSD, say, the value is $ bitShares guarantee, one bitUSD the owner will be able to deliver (as bitShares worth a dollar), they want to hold the peg to the dollar *. *

My understanding is bitUSD, which launched last year, is approaching always exhausted their hooks. If bitUSD is to catch on as a substitute transaction layer, the bank will lose not only their income flow, and stock returns. After all, a brand stablecoin bitUSD not linked to a basic deposit. We are talking about the complete destruction of the banking industry.

The system has a number of warts, however. If bitShares market prices began to fall, the plan calls for the form of more collateral in bitShares stumped by bitUSD issuer. This makes sense, it protects PEG. However, if the decline in value bitShares that the total market value of inadequate back bitShares bitUSD of the total issued? At this point, bitUSD "break the buck." A bitUSD would be only worth like 60 cents or 30 cents or 0 cents. Breaking down the US money market mutual funds are said to do, when it can not guarantee its peg to the dollar one.

I was skeptical of B-type stablecoin for this reason. Cryptocoin like Bitcoin and bitShares plagued by the problem of zero; nothing is as good price, the price of $ 100. Therefore, they do terrible support assets, and use them as safe and effective yoked themselves Titanic masts any stablecoin. Breaking the buck is not only possible, it is inevitable. Stability is an illusion. Maybe I'll get a little more optimistic stablecoin type B, if there appeared, from zero problems with the support of a number of brand equity.

Anyway, keep your eye on these developments. Like I said, who are working on these projects young whippersnappers not slowed down.

* In principle, the idea of ​​A-type stablecoin is very similar to M-PESA and Paypal. Both the construction of new bank-level services, but keep one leg back in the existing banking infrastructure to ensure that every M-PESA deposit PayPal or some deposit is fully supported by the underlying holdings in the brick-and-mortar banks. See Isabella Kaminska, for example, in the M-PESA.
** For those who like the central bank analogy, which is indirectly convertible, whereby the central bank, for example, the market price in terms of commodity bundle its liabilities, but only to provide an example of redemption of gold in different amounts. See Woolsey and Yeager.
*** B-type another working example stablecoin is NuBits. The concept version includes Robert Sam seigniorage shares, eDollar, and began, Vitalik Buterin of Schellingcoin.

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