Stablecoin is a Cryptocurrency that harnesses the benefits of Cryptocurrency and operates without volatility. When investors are always worried about Cryptocurrency being extremely volatile, this might be the answer to stable Cryptocurrency.
But one thing is different with Stablecoin; it operates following the norms of the fiat currency. It might be stable, but it contains some shortcomings that make investors worry. We, in this study, try to find out the shortcomings of stablecoins. You will know everything in this study to gain a good idea of the disadvantages you have with this currency.
Shortcomings Of Stablecoins
There are people that want safety with their investment. They are using stablecoins like Tether, USDcoins, Binance, USD, Pax dollar. Trade them safely with bitcoin code. With this software, you can safely trade Stablecoins.
Stablecoin is a comparatively new concept, and it is the way to go. But there are certain disadvantages, which need to be really worked at. So let’s make a comprehensive study on the disadvantages of Stablecoins.
1. Centralisation
Cryptocurrencies like Ethereum boast of being decentralised. With decentralisation, transactions are really kept encrypted. No third party will be able to look at what you are transacting and how much money you are transacting.
This kind of trait is liked by the business community. The business community wants to keep its account shielded. Here information is shared in a wide network of computers. This protects hackers from infiltrating the system. But Stablecoin is centralised; that is, data gets stored in a centrally operated database. There is a great deal of risk involved with this database.
2. Transparency
Stablecoins face the allegations of being not transparent. This might be because The way the database is maintained is not safe enough and creates a host of concerns for the investors.
For instance, Tether faced allegations from different corners for not having the correct amount of reserves. If a business runs with low reserves, its developments might topple down quite easily in the face of some economic exigency.
The USA government has strict regulations on the maintenance of reserves for business. There is a transparency issue with that stablecoins.
3. Requires Third Party
Stablecoins are backed by Fiat currency, and it follows all norms and regulations of the Fiat currency.
This makes stablecoin compromising less efficient and stiff. Stablecoins have not been able to become aggressive enough as other Cryptocurrencies like Bitcoin and Ethereum.
The main reason for the success of these coins is features like Blockchain integration, Smart contracts, decentralisation, and shielding from any third party. But sadly, with Stablecoins, they have been crippled to some extent with the help of norms and strict regulations.
Here you need a third party that requires some trust and entity. Things look quite blunt for stablecoins. This is a real setback with this currency.
4. External Audit Required
Another problem that potential investors face with this coin is that they require some external audit. This raises heaps of questions about the technological capacity of these coins. So under these circumstances, it becomes almost impossible for the investors to invest in these stable cons. Clearly, there is a trust deficit with this coin.
5. Less Return On Investment
A business invests in a company with the hope of a high return on investment. This is the same for Cryptocurrency. With Cryptocurrency, there are greater chances and high returns on investment. Also, with Cryptocurrency like Bitcoin, people turned from rags to riches.
For instance, on August 15, the price of Bitcoin was a mere 1.25 USD. But by the month of November 2021, the values reached around 4426.74 USD. You could well imagine the growth percentage.
Sadly there is nothing like this with Stablecoins. The stablecoins follow the monetary norms of fiat currencies like the Dollar. Therefore, there is less return on investment. This is the reason why businesses don’t show great faith in stablecoins.
Stablecoins Seems Unstable
The tragedy with stablecoins is that, in its romantic pursuit to seek stability, it turned out to be highly crippled. The internal norms that constitute these coins have literally ruined all its chances of aggressive growth. This leads to investors getting away and showing no confidence in these coins.