They’re just not viable: Berkeley Professor slams stablecoins

Stablecoins are a myth, according to Barry Eichengreen, Professor of Economics at the University of Berkeley.

In an article for Project Syndicate, he notes that it’s easy to see the appeal of Tether, Basis, Sagacoin etc, where value is rigidly tied to the dollar, the euro, or a basket of national currencies. “Viable monies provide a reliable means of payment, unit of account, and store of value. But conventional cryptocurrencies, such as Bitcoin, trade at wildly fluctuating prices, which means that their purchasing power – their command over goods and services – is highly unstable. Hence they are unattractive as units of account.”

“No grocer in his right mind would price the goods on his shelves in Bitcoin. No worker would want a long-term employment contract that paid her a fixed number of those units,” he continues.

“Furthermore, because their ability to command goods and services in the future similarly fluctuates wildly, cryptocurrencies like Bitcoin are unattractive as a store of value. Cryptocurrencies are also challenged as a means of payment, but leave that aside for the moment.”

Stablecoins purport to solve these problems. “Because their value is stable in terms of dollars or their equivalent, they are attractive as units of account and stores of value. They are not mere vehicles for financial speculation. But this doesn’t mean that they are viable,” writes Eichengreen.

The Gemini Dollar

Earlier this week, Coin Rivet reported that the Winklevoss twins were launching a US dollar-pegged Ethereum stablecoin. The Gemini Dollar is designed to provide liquidity for users who want to send or receive US dollars through the Ethereum network, say Cameron and Tyler Winklevoss, heads of Gemini.

The New York Department of Financial Services has reviewed and approved the stablecoin. “It is part of our mission to build the future of money. It is the missing link between the traditional banking system and the crypto economy,” says Tyler Winklevoss.

He claims that there have thus far been no trusted and regulated digital representation of the US dollar that move in an open, decentralised way like cryptocurrencies, which suggests the Winklevosses intend to rival Tether.

“The Gemini Dollar (ticker symbol: GUSD) combines the creditworthiness and price stability of the US dollar with blockchain technology and the oversight of US regulators, namely, the New York State Department of Financial Services,” says the firm.

Whitepaper

The GUSD whitepaper explains that the Gemini Dollar has been created as an ERC-20 token on the Ethereum blockchain. The Gemini platform will allow users to purchase GUSD by depositing dollars into their accounts and then convert them into tokens that can then be withdrawn to an Ethereum address.

Tether is currently the eighth largest cryptocurrency. It has a market capitalisation of nearly $2.8 billion. Bitcoin is the only cryptocurrency that has a higher daily trading volume.

The SEC has rejected two Bitcoin ETF applications submitted by the Winklevoss twins. It said that it did not agree with the claim that Bitcoin markets, including the Gemini crypto exchange, were “uniquely resistant to manipulation”.