Opinion by: William Campbell, advisory lead at USDKG
Stablecoins were heralded as a breakthrough in the cryptocurrency space as a way to marry the lightning-fast, borderless nature of digital assets with the stability of traditional currencies. They achieve this by pegging their value to reserves like fiat currencies or commodities. Stablecoins are engineered to maintain a fixed exchange rate, typically one-to-one, with the underlying asset.
What does “stability” mean? At its core, stability demands three pillars:
Reliable collateral: The tangible assets that back the token.
Transparency: The ability for anyone to independently verify reserves.
Consistent peg maintenance: Robust safeguards against depegging, where a stablecoin’s market value strays from its fixed ratio with the underlying asset.
Without these foundational elements, stablecoins are little more than speculative instruments masquerading as safe harbors. In 2022 alone, billions in value evaporated when supposedly “secure” stablecoins lost their pegs, meaning their market prices diverged significantly from