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What aspect of stablecoins makes them a bubble?

• shkkmo 5y ago
  A rapidly rising market cap that depends on the expectation of continued growth of demand. Some stablecoins are more protected than others against drops in demand. However, without a compete backing the the currency a stablecoin, there is a point at which sufficient supply of the stablecoin cannot destroyed and the peg will break as supply outstrips demand. When the bubble pops there will be a lot of broken pegs but it most likey won't wipe out every stablecoin.
  • xur17 5y ago
    But that's not how the decentralized ones work. They aren't relying on "a rapidly rising market cap". Most of the stablecoins are backed by volatile assets (ETH, BTC, etc), but have automated systems to liquidate the collateral when price drops occur. The only real problem would be a very large drop in a very short period of time, and the big stablecoins already have already survived 50% drops in pretty short time spans.
• Aperocky 5y ago
  It only really works on good times (read low interest rates). Good thing that the national debt is also out of control, which kind of restrict Fed's ability to raise interest rates without bankrupting the government.
  • xur17 5y ago
    I'm confused. Why are low interest rates required for stablecoins to work? If anything, for centralized stablecoins, high interest rates would mean more revenue for the corporation holding the assets.
    • Aperocky 5y ago
      low interest rates means there are abundance of US dollars floating around for people to engage in things like stable coins. high interest rates means less growth for any assets as liquidity gets tied/dries up. Interest rates are cyclical, all high interest rates cause a period of pain and death for semi-ponzi schemes that works during periods of low interest rates.