Will the Government Implanted CBDCs & Stablecoins Aim to Kill the Crypto Space in the Near Future?

It is a known fact that the infamous Real-Estate bubble in 2008 that destabilized the financial system led to the idea of a parallel economy. Further, it gave birth to a digital financial ecosystem called ‘Cryptocurrency’. It aims to be completely decentralized, not controlled by any financial authority. But on the other hand, cryptos are pretty volatile and hence it was the major concern which led to the inception of ‘Stablecoins’. 

Stablecoins are digital assets which intend to remain stable at $1, and they are backed by traditional external assets like USD, Gold, Bonds, etc. Therefore, while issuing a stablecoin, an equal value of the traditional asset is kept as a reserve. This helps to sustain the peg in case of a bearish market. However, while the stablecoins were intended to protect the interest of the traders, it has now been used as a tool to manipulate the markets and destabilise them when they are at their peak.

So, Stablecoins in short was created to bring the crypto space and the traditional financial world closer and help traders to swap their crypto during bear markets. But what if these stablecoins only lead to a bear market sometimes? 

Can we still rely on these stablecoins that are currently decentralized but somewhat centralized? Let’s check it out!

Are Stablecoins Becoming Centralized?

In the present crypto world, if the assets are like investing in a high-risk stock then stablecoins are like withdrawing cash from an ATM. 

The crypto space since the beginning of 2022 has become more uncertain due to multiple external and internal factors. And hence the adoption of cryptocurrencies by many businesses are currently awaiting more stability in them. This is when the Stablecoins stepped in and made a huge noise. Moreover, after the popular March 2020 crash, people started believing more in stablecoins and this was when the adoption began to skyrocket. 

The adoption swelled in such a range that 3 stablecoins,i.e, Tether (USDT), USD Coin (USDC) and Binance USD(BUSD) have cemented within the top 10 cryptocurrency lists with a collective market cap of more than $12 billion. However, USDT always remains the most asset being traded every day, surpassing Bitcoin & Ethereum. 

Therefore, when stablecoins have become the core of the crypto space, what if it is also used as an attacking tool? Whether this is hazardous for crypto space? 

The recent incident of the UST de-peg which is said to be predetermined raises concerns over stablecoin trading. 

UST- The Stablecoin That Shook the Entire Crypto Space

Many of them who follow the crypto space is pretty well aware of the recent UST de-peg event. For those who are new, Terra blockchain’s stablecoin UST has now lost its peg and dropped below $0.1. And in an attempt to maintain the peg, Bitcoin had to pay a huge price. As UST is not just a stablecoin but an algorithmic stablecoin. Its peg is intended to keep around $1 using some algorithms and the LUNA circulating supply. 

It appears that everything would have been in its respective place if Terra Foundation had not accumulated 80,000 BTC to back UST. This led to a spark among the Bitcoin & Ethereum veterans who went on to test the threshold of the liquidation of BTC reserves with Terra. Therefore, it happened exactly as they thought. 

As soon as an anonymous trader dumped 283 million UST, it lost its peg. And to regain the peg, Terra emptied all its reserves. So this resulted in a steep drop in BTC prices while UST failed to regain its peg. But LUNA tokens kept on minting and hence price currently is much below 10 cents. Interestingly, the fall of UST, triggered the Tether (USDT) holders as well, as it also witnessed a significant drop falling into deep FUD. 

What if UST were Backed by USD? Would the Stablecoin Still Drop?

USD backed stablecoins maintained their peg at all the phases of the bull-bear cycle. Mainly due to their claim of giving back a USD against a USDT or a USDC anytime. But UST’s stability was dependent on LUNA and vice versa. Therefore, even if UST was backed by USD, it would rather experience a similar plunge, but only on the first day when it fell to $0.76. However, it would have recovered in the next couple of days. 

On the other hand, Bitcoin and the entire crypto space would not have witnessed a sharp fall. But it is also true, that LUNA may not have gained the fame that it carried just before the crash, as UST is the main player behind LUNA’s price rally. Therefore, when a stablecoin with a market cap of more than $18 billion then faced severe consequences, what if a stablecoin with more than a $73 billion market cap may impact the crypto space? 

It’s time to think as Tether has almost become the backbone of the crypto space, with the highest trading volume each day. And if any FUD shakes up the USDT routine in the markets, the entire crypto space could be destabilized. Moreover, the markets may soon remain still without any movements for some time.

How Central Bank Digitial Currency (CBDC)  can Fuel Berish Markets

After the huge adoption over the past couple of years, many governments worldwide are regulating cryptos. And hence creating a sense of fear within the traders. Let’s take an example of India, where-in hefty taxes of more tha 30% to 40% have been imposed recently, which led to a mass exodus of the traders either from cryptos or from India. 

And to be safe, traders ought to shift their focus on CBDC which is fully regulated and controlled by the central bank. China has already deployed its CBDC called Digital Yuan in circulation which has impacted the BTC and the entire crypto space. Moreover, to embrace CBDC adoption, the country further banned crypto transactions and killed crypto space with their CBDC. 

Summing up, Stablecoins are a very wide topic wherein many arguments and defence come under its umbrella. On the other hand, governments all over the world are currently focusing more to bring on their CBDC at the earliest to curb crypto space. And in such conditions, if the attacks within the crypto space continue, the internal and external factors may lead to some drastic circumstances that the criticizers dream of.