Stablecoins Still Shakey, Diar Report Indicates

Tether, a crypto often in the limelight of controversy, is causing yet another stir in the stablecoin industry as its latest Terms-of-Service (ToS) update highlights “pan-stablecoin risks” according to the latest report from digital currency research firm Diar, March 18, 2019.

Contentious at Best

While being the industry-favorite stablecoin, Tether has fascinated, bewildered and frustrated the community as it frequently makes less-than-desirable headlines, with its 1:1 dollar-backed peg often brought into question.

Well, not much has changed on that matter. Recently Tether updated its ToS and flip-flopped on its “Every tether is always 100% backed by our reserves,” claim. Though despite being forced to reveal their reserve funds in 2018, the firm has oddly re-worded their ToS with nuanced technicalities, which now reads:

“Every tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”). Every tether is also 1-to-1 pegged to the dollar, so 1 USD₮ is always valued by Tether at 1 USD.”

Pressure Cracks

In this controversy, Diar took the time to examine the present state of stablecoins which is seemingly, still a very questionable facet of the cryptocurrency industry, despite the report describing a lessening of risk with the introduction of regulatory frameworks for new stablecoins.

It notes that all “significant stablecoins” from Gemini Dollar to USD Coin “face the same diversification opportunity” by the centralized organizations that retain their reserves. Perhaps telling of the faith-based stablecoin economy, Diar argues:

“While banking books will show a balance, faith in the institution’s money-managers is merely a can kicked down the line.”

Bringing into question MakerDAO’s stablecoin, Dai, the report makes note of the “pressure” the token is under, which has caused its “stability fee” to drive up 350 percent from the beginning of 2019, and as a result, now sits at 3.5 percent.

Further cause for concern is the fact that a six percent discount on Dai caused the stablecoin to lose its peg on Coinbase. There are broader implications for the stablecoins if these odd occasions of de-pegging continue to unfold, which in the words of Diar, “highlights the possibility of a token not yet at scale to withhold such events.”