Gold has been touted as the more stable, precious-metal alternative to the digital store of value that is bitcoin. However, the track record for stablecoin projects relying upon the precious metal has been downright abysmal.
Don't Bet on Gold for Stablecoins
According to new research published by blockchain analytics firm Blockdata, over two-thirds of failed stablecoin projects launched since 2017 relied upon gold as the off-chain asset to peg their value.
While the vast majority of stablecoins announced over the last two years have failed to even launch, gold did not appear to make projects more likely to succeed.
Two-thirds of failed #stablecoin projects (16 out of 24) were backed by gold. Storing gold in a secure way can be a nightmare, this isn’t surprising to see. Remember when the Bank of England refused to give Venezuela their $GOLD back? Same could happen to gold-backed stablecoins.— Weiss Ratings (@WeissRatings) June 28, 2019
Only 30 percent of the total number of stablecoins touted since the start of 2017 are currently live, with the rest either caught in perpetual development or shuttered altogether.
Blockdata reports that off-chain assets, such as gold and fiat currencies, are the most popular form of collateral for stablecoin projects. USD-pegged coins, such as Coinbase’s USDC and TrustToken’s TUSD, have been the most active stablecoins on the market overall and with the lowest rate of attrition.
Stablecoins backed by gold have not done well on the market | Source: Blockdata
However, 67% of stablecoins backed by gold and launched since the start of 2017 have been forced to shutter their project. While gold has been touted by detractors of bitcoin as a more realistic store of value, the precious metal has not faired well for stablecoins looking to peg their assets off-chain.
Benefits of Stablecoins
The report claims that stablecoins were created in response to the massive price volatility for bitcoin and crypto-assets. The rise in new stablecoin projects since the start fo 2017 has also coincided with vast valuation swings for cryptocurrency, including last year’s bear market.
By pegging stablecoins to the value of a trustworthy external asset, such as US dollar, users can transact with the benefits of cryptocurrency without the headache involved in sudden price volatility.
While stablecoins may provide less volatility overall, limitations exist. Blockdata reports that regulatory concerns are abundant and that entities such as the United States Securities & Exchange Commission (SEC) could rule them in violation of existing securities laws.
Blockdata also finds fault with the level of decentralization involved in most stablecoin projects. According to the report, the “majority of stablecoins are centralized,” which puts them at odds with the nature of cryptocurrency and other blockchain products.