Stablecoins Likely to Fail, Warns Deutsche Bank Analysts

According to Bloomberg, a recent study by Deutsche Bank analysts has raised concerns about the future of stablecoins. The study, which examined 334 currency pegs dating back to 1800, concluded that most stablecoins are likely to fail. Stablecoins, which aim to maintain a one-to-one value with fiat currencies like the dollar, are a significant part of crypto trading. They offer users a safe haven from the volatile price swings in the nascent market.

In a high-profile example of potential risks, the collapse of Terraform Lab’s algorithmic stablecoin TerraUSD and its sister token Luna led to a loss of at least $40 billion worth of crypto two years ago. These two coins were designed to depend on each other to maintain value. The analysts noted that the few successful pegged currencies that survived did so because they had credibility, were backed by reserves, and operated in tightly controlled systems. These are three elements that many major stablecoins lack.

The research team expressed particular concern about Tether due to its monopoly in the stablecoin market, which is rife with speculation and lack of transparency. Tether has been issuing quarterly attestations of its reserves following settlements with the CFTC and New York state. The researchers were not surprised by the 30% de-peg rate among some stablecoins, and noted that many more defunct stablecoins are difficult to account.

The researchers chose to study currency pegs due to their important parallels, despite being implemented for different reasons. They found that 49% of the fixed currencies in their database failed, with a median lifespan of 8-10 years for those that failed or were discontinued. The study concluded that macroeconomic factors are key to determining a peg's sustainability, and issues around governance and speculative forces could indicate when there's a possibility of de-pegging.

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