Pegged Cryptocurrencies and Credibility – Crypto Insider (press release) (blog)

The high volatility of exchange value is one barrier to the mass adoption of cryptocurrencies. But for those that have sought to address this with pegged exchange rates, success has been hard to find. Not impossible, though.

Though such currencies seek to eliminate the exchange-rate issue while enjoying the same ease and low-cost of Bitcoin transactions, its been argued that pegging to, say, the dollar, also pegs the currency to the vagaries of institutions like the US Government and Federal Reserve.

The advent of Blockchain 2.0 has enabled the launching of a variety of new digital assets, including currencies pegged to fiat currencies and to gold. Last month saw New Zealand cryptocurrency exchange Cryptopia announce New Zealands first cryptocurrency which will be pegged to the New Zealand dollar.

The main success so far is that of Tether, which is pegged to the US dollar and offers crypto versions of three currencies, known as: USDT, EURT and JPYT. Tether maintains its peg by keeping the US Dollar equivalent of all USDT value in reserves at all times.

Launched in early 2015, Tether has largely kept the peg in place since then. That is, until late April when it crumbled due to issues with the Taiwanese banks they use for receiving and sending USD withdrawals. All incoming international wires to Tether were blocked and refused by the banks. Since then, however, the value of USDT has rallied from $0.93, and it now trades at $1.02.

Other pegged cryptocurrencies have fared less well. CoinoUSD, NuBits, and BitUSD all eschewed the traditional currency pegging method of the holding of reserves in physical dollars or dollar-denominated debt securities.

CoinoUSD began trading in December 2014 and reached a market capitalization plateau of $2.7 million in early 2016. However, it shut down shortly after due to a glitch which flooded customers with free CoinoUSD units, making it impossible to maintain the exchange value at $1.

NuBits are notable for being the first decentralized cryptocurrency to maintain a $1 peg for a period of one year, having accomplished it in September 2015. However, in June 2016, NuBits suffered a devaluation crisis, with the price falling to 20 cents when its rate-pegging mechanism failed. Although the price later returned to par, today NuBits shows very little market activity.

BitUSD is built on the blockchain platform of the cryptocurrency BitSharesX. BitUSD uses a novel pegging system, involving BitShares, that so far has proven robust. The price of 1BitUSD has hovered around $1 and has not experienced any lasting devaluation. However, in part due to the declining use of BitShares, BitUSDs clientele went into serious decline not long after launch. In late April, however, there has been sudden renewed interest which has seen its market cap surge from below $110,000 to a high of just under $2.4m.

Tether slowly built its market cap and started 2017 at just below $10m. Since then it has also enjoyed a surge. Presently, it has reached its current high of $107m and is the outstanding dollar-pegged cryptocurrency.

Despite its surge in popularity, there is still a long way to go for all cryptocurrencies, of course, which have still to experience a full business and credit cycle. Bitcoin price volatility may eventually flatten out when digital currency becomes more widely accepted, but that is still a long way off.

Meanwhile, Tether offers that sought after exchange stability, but questions remain over its decision of a hard peg maintaining a value different to how the market would value it which has already failed.

Perhaps the greatest value of dollar-pegged cryptocurrencies is that they provide a gauge to how much of the demand for cryptocurrencies is transactional versus speculative.

Picture from Pixabay.