To live up to their name, stablecoins will have to think and evolve

<p>Unfortunately, the term "stablecoin" is a misnomer in this case. The fact that stablecoins are tied to a "real" asset does not imply that they are stable. Traditional underlying assets are not immune to market fluctuations, and the majority of stablecoins are pegged to fiat, making them just as volatile. </p> <p>What the name could be, however, is lofty – something that stablecoins could still live up to if they can establish a solid foundation. </p> <p>What happened to all of the stability? </p> <p>Stability is the currency of the day, at the risk of conflating metaphors. Following the COVID-19 pandemic and ongoing supply chain problems, markets are volatile, debt levels are high, and inflation is skyrocketing. As investors sought alternative wealth storage, cryptocurrency markets benefited. Prices, on the other hand, continue to fluctuate erratically. </p> <p>In search of a solution to volatility, the crypto community has turned to stablecoins for the perceived stability provided by their fixed relative valuation. According to a recent report from the Hong Kong Monetary Authority (HKMA), the stablecoin market has grown explosively in terms of market capitalisation since 2020. Payments companies are also jumping on board, with PayPal recently announcing plans to launch its own PayPal Coin, backed by the US dollar. </p> <p>That is the crux of the issue. Stablecoins are typically backed by fiat currencies that are becoming increasingly unstable. Governments have printed $17 trillion in new money into the global economy as part of widespread quantitative easing, increasing global debt levels while devaluing currencies that back stablecoins. </p> <p>As a result, while the growing trend towards stablecoins is a step in the right direction, it needs to be reconsidered if it is to live up to its name. </p> <p>A gold-plated solution </p> <p>We can't afford to ignore the potential of stablecoins backed by truly stable assets as governments print more and more fiat. To deliver on the promise of "stability," sta