- A major bank report has cast doubt on stablecoins, claiming that most will fail.
- The report has highlighted a lack of transparency and vulnerability to speculation as key weaknesses in stablecoins.
- Tether has hit back, calling the report baseless and lacking evidence.
The world’s largest stablecoin, Tether (USDT), is embroiled in a war of words with Deutsche Bank after the German banking giant issued a scathing report questioning the long-term viability of stablecoins in general and scrutinizing Tether’s solvency.
Will Stablecoins Become Unstable?
Deutsche Bank’s research, published earlier this week, casts a dark cloud over the future of stablecoins, a type of cryptocurrency pegged to a fiat currency like the U.S. dollar. The report, based on a historical analysis of 334 currency pegs since 1800, concludes that only 14% have managed to survive.
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Projecting this trend onto stablecoins, the bank’s analysts warn of “turbulence and de-pegging events” that could plague the asset class. “While some may survive,” the report states, “most will likely fail, particularly due to the lack of transparency in stablecoin operations and vulnerability to speculative sentiment.”
The report further throws shade at Tether’s dominance in the stablecoin market, raising concerns about its solvency and its role as the underlying asset in many cryptocurrency derivatives contracts.
Deutsche Bank warns of a “Tether peso moment”, a scenario where Tether loses its peg to the dollar, that could trigger significant losses for leveraged traders and destabilize the entire crypto ecosystem.
Consumers Share Deutsche Bank’s Caution
The bank’s skepticism extends beyond Tether. The report highlights the inherent challenges of maintaining a stable peg in a volatile market like cryptocurrency, suggesting that “we will likely see much more instability in the years to come.”
Consumer sentiment appears to align with Deutsche Bank’s cautious outlook. A survey conducted by the bank in March across several major economies revealed that only 18% of respondents expect stablecoins to thrive, while 42% anticipate their decline.
Tether, unsurprisingly, is not taking these criticisms lying down. The company has slammed Deutsche Bank’s research, calling it “lacking in clarity and substantial evidence.” Tether argues that the report relies on “vague assertions” rather than a rigorous analysis and fails to provide concrete data to support its claims of impending doom for stablecoins.
On the Flipside
- New stablecoin designs that address peg maintenance and volatility concerns could emerge, potentially rendering Deutsche Bank’s analysis outdated.
- Tether refutes Deutsche Bank’s claims, highlighting its own success in maintaining its peg for over 8 years.
Why This Matters
If Deutsche Bank’s predictions hold weight, the future of stablecoins, a cornerstone of the crypto market for facilitating trades and reducing volatility, could be in jeopardy. A potential collapse of stablecoins would trigger a domino effect, causing significant losses for leveraged traders, destabilizing derivative markets, and eroding confidence in the entire cryptocurrency ecosystem.
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