The Macro Case for Stablecoins
Stablecoins grew from $5 billion in 2020 to nearly $162 billion by 2024. What role will they play next, how can new ones improve - and where does Frankencoin fit in?
Five years after the creation of Bitcoin, the first stablecoin was introduced. BitUSD was released in July 2014 on the BitShares blockchain (1). The system was not without its flaws, which ultimately led to the BitUSD’s de-peg from the US dollar in 2018. According to the source, the biggest challenge for the BitUSD arose in its own system: each BitUSD was not backed by a real US dollar, but instead by the volatile BitShares tokens, which were not backed by any other asset.
Since 2014, the stablecoin ecosystem has developed significantly. Only three months after the introduction of the BitUSD, another stablecoin was launched. The USNBT lost its peg to the US dollar in 2016 (2).
However, not all stablecoins have lost their peg. The USDT was launched in 2014 as well (3) and is still active to this day. While facing heavy criticism regarding its transparency for years, the USDT has not lost its peg for more than a few hours at a time (4). Its deployment has been truly transformative: With a market cap of $4.5 billion in January 2020, it has since increased to $112 billion by August 2024 (5). With the rapid growth of other stablecoins like USDC ($32 billion market cap), DAI ($5 billion market cap), FDUSD ($2 billion market cap) and around 175 others (5), the current stablecoin ecosystem boasts an overall valuation of $162 billion.
There is a good reason that explains the success of stablecoins: They bridge the gap between stable fiat currencies and the inherent volatility of the crypto market. With one simple transaction, any trader can de-risk their position and seek shelter from volatility. Stablecoins make this possible without the need for a bank transaction and the high fees that tend to come with it. And herein lies the reason why the stablecoin ecosystem is likely to expand even more in the foreseeable future.
But how will the utility of the stablecoins develop over the next few years? The answer to that question might be as trivial as they come. Despite an increase in market capitalization by almost 2,500% in just 4 years, the use case for the USDT has not changed much. Like all stablecoins, it serves its purpose well enough.
This doesn’t mean that stablecoins will continue to exist as they are. There are voices that want to increase real-life use cases for stablecoins, and regulatory changes are shaping up to have a big impact as well. The new Markets in Crypto Assets (MiCA) regulation in Europe has taken effect in July 2024 and major cryptocurrency exchanges have already limited the use of the USDT. With Binance, OKX and Kraken having taken this step (6) and the uncertain regulatory situation, other exchanges might follow.
While a large stablecoin like USDT works well and does not require redesigning, newer, more innovative stablecoins can introduce advanced technical architectures that provide them with a competitive edge over older stablecoins.
One such example would be the Frankencoin. Introduced in 2023, the technical architecture is far ahead of many other stablecoins.
These differences run through the entire architecture of the coin. Instead of being controlled by a centralized entity, the Frankencoin belongs to everyone. New ZCHF can be minted by anyone who has a valuable collateral to back their ZCHF with. This system is entirely controlled by the community of the Frankencoin, without a central entity. Naturally, the community is highly incentivized to keep a tight control on the type of collateral that can be used for minting.
The decentralized nature of the ZCHF should not be underestimated. Being decentralized means that no one has access to the collateral in the ZCHF system – that means that rug pulls and other human failure are simply not possible. This self-governing nature goes hand in hand with the additional transparency the Frankencoin comes with. How much USD is exactly backing USDT remains mysterious, but the collateral used to keep the Frankencoin system stable is open information.
Transparency and decentralization are two big factors in the Frankencoin’s favor. And yet, there’s another factor at play here. It’s the most obvious factor of them all: The peg to the Swiss franc, not the US dollar. The US dollar has lost 50% of its nominal value against the Swiss franc over the past 23 years. The euro is down by 42% since 2007, and the Chinese yuan suffered a 32% loss.
Allocating part of a portfolio to ZCHF seems like an obvious choice.
Ready to learn more? Explore our website: www.frankencoin.com.