Head of research at Blockchain.com and co-founder of Mosaic, Dr Garrick Hileman, said that stablecoins have become the fastest growing category in the blockchain ecosystem since the rise of interest in distributed ledger technology (DLT) in 2015.
This is partly based on funding levels; stablecoins have raised over USD 50 million in venture funding, making it one of the most well-funded categories in cryptoassets. ”I haven’t seen this level of activity in the blockchain ecosystem since the interest in DLT in 2015. This is the largest growing category I have seen since then,” said Hileman in his ‘The State of Stablecoins’ keynote speech at today’s Decentralized 2018 blockchain conference in Athens, Greece.
There are two types of stablecoins, as he outlined, asset-backed and algorithm-backed. Algorithm-backed stablecoins adjust the supply in line with demand. ”Imagine an algorithmic stablecoin that sees a spike in demand and goes up to USD 1.05 when it supposed to be at USD 1. New coins would be issued to bring the price down,” he explained.
But investors appear to be slightly favoring the more proven asset-backed variety which has raised USD 177 million, compared to its algorithmic counterpart that claimed USD 174 million. This can be interpreted as their perceptions of the likelihood of success, with Hileman suggesting there are still questions as to how successful the cutting-edge algorithm-backed coins will be.
Also of interest in the market is the leading cryptoasset investors that have been putting their money in stablecoins, such as Pantera and A16z. Notably, Hileman pointed out that they have in fact been investing in multiple stablecoins. While he says this could show uncertainty regarding the future state of play, it also indicates that perhaps investors expect there to be more than one winner out of stablecoins, ”not a winner take all situation”.
Crypto-asset backed stablecoins
Hileman noted that while 77% of stablecoins are of the asset-backed variety, over half of these use cryptocurrency as collateral.
”That’s pretty exciting because fiat-backed stablecoins such as Tether means that you have to bring a bank into the picture, whereas a crypto collateralized is more trust-minimized arguably… You can see the collateral in the smart contract,” he shared.
Hileman has a full report on the state of stablecoins available on Blockchain.com.
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