Cryptocurrencies are notorious for their extreme volatility, speculative nature and lack of intrinsic value. Many investors and analysts struggle to assign a fair price to these digital assets, which often trade at multiples of their fundamentals or historical averages. However, there is one cryptocurrency that stands out as an exception to this rule: stablecoins.
Stablecoins are a type of cryptocurrency that are designed to maintain a stable value relative to a fiat currency, such as the US dollar, or a basket of assets, such as gold or other cryptocurrencies. Stablecoins aim to combine the benefits of cryptocurrencies, such as fast transactions, low fees and global accessibility, with the stability and reliability of fiat currencies, which are backed by governments and central banks.
Stablecoins are not a new phenomenon in the crypto space. The first stablecoin, Tether (USDT), was launched in 2014 and has since become the most widely used and traded cryptocurrency in the world, with a market capitalization of over $70 billion as of January 2024. Other popular stablecoins include USD Coin (USDC), Binance USD (BUSD), Dai (DAI) and TerraUSD (UST).
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Unlike most cryptocurrencies, which have no clear method of valuation, stablecoins can be easily valued based on their underlying assets or pegs. For example, USDT is supposed to be backed by an equivalent number of US dollars in reserve, which means that one USDT should always be worth one USD.
Similarly, DAI is backed by a pool of collateralized cryptocurrencies, such as Ethereum (ETH) or Bitcoin (BTC), which are locked in smart contracts and can be liquidated if the value of DAI falls below its peg.
Therefore, stablecoins are the only type of cryptocurrency that can be considered to have a normal valuation, based on supply and demand, arbitrage opportunities and market efficiency. If the price of a stablecoin deviates from its peg, either above or below, traders can exploit this difference and bring the price back to equilibrium.
For example, if USDT is trading at $1.01 on an exchange, traders can buy USDT for $1 on another exchange or from Tether directly, and sell it for $1.01 on the first exchange, earning a risk-free profit of 1%. This process will increase the supply of USDT on the first exchange and decrease the demand, until the price converges to $1.
Of course, this assumes that the stablecoin is fully backed by its underlying assets or pegs, and that there is sufficient liquidity and transparency in the market. In reality, these assumptions may not always hold true. For instance, Tether has been accused of not having enough reserves to back its USDT supply, and of manipulating the price of BTC through its issuance. Moreover, some stablecoins may face regulatory challenges or technical issues that could compromise their stability or security.
Nevertheless, stablecoins remain the most rational and predictable type of cryptocurrency in terms of valuation. They offer a unique opportunity for investors and users to access the benefits of crypto without exposing themselves to the risks and uncertainties of other digital assets. Stablecoins may also play a key role in the adoption and integration of crypto into the mainstream financial system, as they can serve as a bridge between fiat and crypto markets.
In conclusion, stablecoins are the curious case of crypto’s only normal valuation. They are the exception that proves the rule that crypto is a highly volatile and speculative asset class. However, they are also an innovation that challenges the status quo and opens new possibilities for the future of money.
Binance Records Net Inflows of $4.6 Billion as Crypto Traders Flock The Platform Following Historic Fine
Meanwhile, Binance, a global company that operates the largest cryptocurrency exchange in terms of daily trading volume of cryptocurrencies, has recorded net inflows of $4.6 billion as crypto traders flock back to the platform after it was fined for money laundering violations.
In January this year, the platform has so far attracted $3.5 billion, more than for any full month since at least November 2022. Reports reveal that Binance has outpaced what some of its biggest rivals which include OKX and Bybit have amassed so far.
Recall that the crypto exchange faced a turbulent period last year, which saw the CEO Changpeng Zhao step down from his position, after pleading guilty to several charges in federal court.
Speaking on his step down, Zhao wrote via a tweet,
“Today, I stepped down as CEO of Binance. Admittedly, it was not easy to let go emotionally. But I know it is the right thing to do. I made mistakes, and I must take responsibility. This is best for our community, for Binance, and myself. I can’t see myself being a CEO driving a startup again.”
Following Zhao’s step down, Binance experienced a significant decline in trading volume and withdrawals. Binance’s native token BNB, and a range of smaller cryptocurrencies declined from the largest digital-asset exchange under a sweeping deal worked out with the US Justice Department.
Also, Binance saw millions of pounds worth of crypto pulled from its platform in the last 24 hours after the exchange was fined by a US regulator. Traders reportedly moved more than $800 million out of the exchange in the 24 hours after the crypto exchange was sued by the US securities regulator.
The withdrawals marked the largest day of outflows into stablecoins from Binance since the US regional banking turmoil earlier this year. According to data from CCData, roughly $451mn of the net flows were turned into stablecoins, a kind of token that lets buyers easily move between crypto markets.
Afterward, Richard Teng replaced Zhao as Binance CEO, which he promised to help the company navigate a web of regulatory probes and take on the challenge of retaining customer confidence in Binance.
Teng announced his plans to take Binance to a higher level of transparency, which he said the platform will implement a conventional corporate structure, including having a board of directors, office address, and open financial reports.
Within a post on social media, Teng provided reassurance to stakeholders about the exchange’s commitment to maintaining its key principles.
According to him, a strategy move toward increased regulatory compliance and openness is shown by the fact that he places a strong emphasis on preserving key values and concentrating on user safety. The implementation of this strategy is very necessary in order to regain and preserve the confidence of users in the aftermath of the legal problems and the leadership changes.
The massive inflow of funds back to Binance, reflects trust from crypto traders despite the exchange’s involvement in Bank Secrecy Act, an anti-money laundering law, among other charges, which saw the platform pay a fine of $4.3 billion, one of the largest corporate penalties in U.S. history.