HomeTechnology & InnovationIs this the beginning of the end for stablecoins?
By Mayank Sharma
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September 30, 2022 2:38 pm

Is this the beginning of the end for stablecoins?

Stablecoins are being put in the dock
Stablecoins
Golden stablecoin in hand

Tether Limited Inc. has been ordered by a US judge to produce financial records relating to the backing of its USDT stablecoin. When seen together with the increasing scrutiny stablecoins have been under ever since the collapse of Terra, one can’t help but wonder if stablecoins are well past their glory days. 

Poor macroeconomic condition notwithstanding, Terra’s collapse earlier this year has been one of the defining moments of the current crypto winter. When it happened, many investors were unable to wrap their heads around it. After all, how can something with the word “stable” destabilize, and collapse? 

Crypto investors had never been too kind to stablecoins, despite the fact that as an investment class, stablecoins have recorded impressive growth, ballooning from nothing to over $180 billion in just a few years. Initially, they were looked down upon as unexciting. Then came Terra’s collapse that according to some estimates caused investors to lose over $60 Billion, which marked them as dangerous too. 

Many countries are using the event as an excuse to introduce regulations and controls to safeguard investors and help avoid a repeat. While both the US and UK have been meeting regularly to brainstorm a regulatory framework, Japan has taken the lead on this front by introducing a legal framework to essentially classify stablecoins as digital money, compelling any issuers to guarantee their holders the right to redeem them at face value. 

Then comes the news of the order against USDT, which isn’t just the most popular stablecoin, but also the third-most-popular cryptocurrency, only behind Bitcoin and Ether. Tether has been asked to furnish all kinds of documents to prove what backs its $68 billion USDT stablecoin, in a bid to convince the court that it didn’t manipulate the cryptocurrency market by issuing unbacked Tether with an intention to drive up the price of cryptocurrencies like Bitcoin, as alleged by a group of investors.

It wasn’t too long ago that we reported on a survey, which found that about 50 percent of the companies outside the US use cryptos, particularly stablecoins like USD Coin (USDC), as the primary form of payment. 

From the highs of being the preferred means of compensation to the lows of being put firmly in the dock, the crypto winter has been particularly harsh on stablecoins. We’re not sure if the move by the US court is the final straw that breaks the camel’s back. But we’re certain that this development doesn’t do the market any favors.