Pegged Cryptos: Are They a Good Hedge Against Volatility?
I’m going to begin by stating the obvious but bear with me.
Bitcoin and cryptocurrencies in general are volatile. It’s going to be this way until a wider adoption of cryptos is achieved.
Volatility is the result of a small market that is easily influenced by the movements of buyers and sellers.
As the market grows, prices stabilize and everything gets boring.
In the meantime, there are some cryptos that are designed to be the refuge from the storm.
(THE VIDEO WORKS!)
The key for pegged or tethered cryptocurrencies is the reserves that the crypto has of the other, more stable currency. So for USDT, also known as Tether for example, on their website you can see how much USD they have in their reserves. The amount in their reserves should closely match the amount of tokens they have in circulation. This is to ensure liquidity for their user base and therefore also ensure the value of their crypto.
For the sake of transparency they show their reserves on their website, however, whether this number is realistic or not is yet to be confirmed. But it seems at the very least they aren’t employing the tactics of fractional reserve banking.
In the past, Tether did experience illiquidity when the banks that they work with obstructed their ability to access fiat currency. This led to Tether dropping from their standard $1 per coin value down to around $0.93.
A lack of liquidity isn’t the only thing that can damage the price of pegged cryptos.
The thing about the free market is that if it is pushing for a certain price and a pegged crypto is meant to resist this price action, sooner or later the peg will fail and it can result in dramatic devaluations.
There are tokens that exist that are pegged in a way that doesn’t require them to have reserves of the actual fiat, or commodity. ## I’m talking specifically about BitUSD, the pegged cryptocurrency available on the Bitshares exchange.
BitUSD uses a pegging system unique to Bitshares that is also somewhat of a trademark for things built by Dan Larimer in that they are complicated to understand, yet they work.
If you’re interested in learning more about how Bitshare’s pegging system works check out the links down below.
Additional Reading/Sources:
What is a Currency Peg?
Tether Website
Tether FAQs
Bitshares Website
Bitshares' Pegging System Explained
The Merkle Article on Pegged Cryptos
CryptoInsider Article on History of Pegged Cryptos
Tether is supposedly backed by USD in a bank account in Hong Kong that no one has seen or audited. They are literally printing money from thin air - it is the US Fed all over again. Horrible.
bitUSD, bitCNY, bitGold, bitSilver etc. on the Bitshares DEX (decentralized exchange - can't get hacked) are all backed by 200% worth of BTS (Bitshares tokens).
Each $1 of bitUSD is backed by $2 worth of BTS - just like how fiat money is supposed to be backed by Gold or some other thing of value (ie. $1USD used to be exchangeable for $1 of Gold at any time, that was whole point of paper/fiat money).
China is always ahead of the curve and they are using bitCNY like crazy right now, with 10's of millions of dollars in bitCNY volume on the Bitshares DEX every day.
Head over to bitshares.org and download the wallet, which is also a complete decentralized exchange where you can trade crypto tokens. It's awesome - you can hold your tokens (BTS, BTC etc.) right in the wallet, which is safe, but trade just like a centralized exchange with no worries about the government shutting the exchange down or some clown 'hacking' the exchange and stealing your money.
Or the exchange running away with the money or lucking them up like it has happened for many at poloniex resently... I am a big fan of BitShares... I did not know Tether is a scam, but I have never looked into it... horrible that they get away with it, so many scams in crypto.
Yes, some Google on the company/people/mechanism behind Tether is very enlightening. They create Tether tokens at will and claim each one is backed 1:1 by USD in a Hong Kong bank account... that is not audited by a third party or otherwise transparent. Lots of rumors about them creating Tether to buy up all sorts of crypto... just like the US Fed or a ponzi. Anyone that believes there is a bank account with $400,000,000.00 USD just sitting in it is off their rocker. Where in the hell did they get $400m to back Tether? They didn't, and at some point some government agency will come knocking and ask to see the account. What happens then?
Bitshares feels like the one crypto that is staying true to the original principles behind Bitcoin - to free the world from the scams and greed of big corps and governments. Sadly, though BTS should be in the top 5 on CMC by any metric (just became the longest blockchain on the planet - 20 million blocks - because it is so heavily used) speculators and investors give it no love. Maybe because it is so honest and truly decentralized? Bitcoin, Ether and Ripple are more centralized than any fiat currency - people don't understand that all three are controlled by perhaps a dozen individuals. Bitcoin and Ether are slow, can't scale and are incredibly wasteful - literally wasting billions of dollars worth of electricity to secure the chains via POW.
Bitshares, Steem and EOS are truly the future of crypto and are the only real options to create real change in the financial world - freedom from centralized control, government, greedy wall street types.
Anyone that thinks the dozen or so individuals that control BTC/ETH/XRP aren't in bed with various governments and big corps are not seeing the forest for the trees.
Disclaimer: I own zero BTC/ETH/XRP. :)
Dear @johnsmith this is some of the most insightful information I found in a long time in crypto. I cannot say that you got everything right, but it sounds very plausible that you got most of it right.
Crypto is still in its infancy and many battles between different coins still remains. I agree that Bitshares, Steem and Eos are the best projects we have so fare. It is devastating to see that they are not having higher prices (with the exception of EOS, we still need to see the product before the price need to go up, atleast thats how I feel about EOS).
It is also deverstating to see so many coins of non-sense having real value and creatde millions of dollars to the creators, it was not really what I wanted from this new industry.
Of course Bitconnect, is just a kind of money game (centralized), I only promote it because it is fun.... when I want to be serious, I tell people that Steem and Bitshares are my favorite.
Tether may be a scam. There is no proof that it is, nor is there any proof that it isn't, however the circumstantial evidence weights heavily against them. IMHO, there's a distinct possibility that Tether is a nearly $400M mushroom cloud waiting to happen.
bitUSD, bitEUR, bitCNY, bitSilver, bitGBP, bitCAD... On the Bitshares platform these pegged cryptos are commonly referred to as "Smartcoins", or MPA's (Market-Pegged Assets). There are quite a few of them to choose from, and as more liquidity comes into them they can be used for larger and larger stores of value, or for buying stuff when needed.
Anyway, just thought I'd throw a few more terms in there. Thanx for everything you're doing for the crypto world Heidi! :)
Thank you , I need to research more about BitUSD
Hmm, where in the world is Heidi?
"The fairest cape we saw in the whole circumference of the earth"
You are sure a woman that understand money :)
I personally use this hack: Steemit + Bitconnect, are a powerhouse, so that is where I put the little money I have.
It is sweet to get "fiat" from Bitconnect when the Bitcoin price is going down and Steem is the number one coin I believe mostly in, in today's market (atleast until EOS are ready).
But sure if you want to be 100% safe, then the Bitshares pegged currencies are the most secure and real pegged coins!! (apart from SBD)
Very relevant post, since we could be entering a long term bear market.
Keep it up nice lady boss :0)
Galaxy vault is building a strong stable crypto : VIVA coin
http://vivaco.in
They can be trade on TradeQwik
Hero and X8 are also interesting
https://steemit.com/crypto/@chrisaiki/stable-cryptocurrencies-bitusd-usdt-bit20-viva-hero-x8
Pegging reduce risk, SBD are pegged with dollar so these have stable worth in current situation
I agree with this, if you really want to have some "fiat pegged currency", SBD is my favorite, it is very easy to use and very secure.
Yes, true.
I hope the market will settle down and become bullish again.Great Post however from you.Thank you.Upvote and Resteemed.Greets from Germany
Thanks for the support. I'm sure we'll see a turnaround soon. Will be interesting to see what happens when Ethereum's Metropolis rolls out.
There will definitely be new intermittent features.Zero-Knowledge-Proofs,masking..”..this will be very exciting.
After all, it would have reached the penultimate stage - Serenity will follow and bring the breakthrough to the mainstream, at least the roadmap of Ethereum
Ethereum is outdated technology, every transaction cost something, which makes it impossible to make many different applications for real life usage.
Name one application on the Ethereum network that have real life usage and are popular amoung a bigger group of people? I don't think it exists.
Steemit is the application with most adoption, apart from coins just being money, or scammy ico's on ethereum.. (apart from a few maybe)...
EOS is the most revolutionary technology we have, of course it is not ready yet.
good post and I also saw the video @heiditravels