Cryptocurrencies have many problems that need to be solved to create a standard global currency. And many people think Stablecoins have solved all those problems. But Stablecoins are centralized, which is the main disadvantage, and it has many drawbacks, which are:
Centralization
Stablecoins have many benefits, but the most crucial drawback is that this currency has centralization. Yes, stablecoins are centralized cryptocurrencies. Now, many crypto experts don’t add stablecoins to the list of cryptocurrencies. That is because stablecoins have broken the most important characteristics of blockchain and cryptocurrency, which would be the decentralization of the asset. That’s true. Cryptocurrencies were created so that the currency can be decentralized and no one can control or have full dominance over the currency. But the Stablecoins are centralized, and they are controlled by the government and other institutions that control the assets that back the Stablecoins. Since Stablecoins are centralized currency, it doesn’t make crypto many things because you will need a third party if you want to use this currency. At the same time, you will also need approval for your currency. However, Stablecoins are nothing more than fiat currency that only has online existence. And transaction and valuation of Stablecoins also require the regulations of the financial institutions.
No Transparency
It’s true that Stablecoins are solving many problems that cryptocurrency has, but it is also creating many problems as well. For example, Stablecoins lack transparency a lot. The most crucial factor that one has to think about Stablecoins are their immutability and transparency. I mean, it can seem like no one else is controlling the Stablecoins. But there has to be someone who is in charge of the Stablecoins and managing the currency. So, you can’t be clear about that who and how they are in control of this digital asset. At the same time, since an entity controls this asset, so it violates the regulation of becoming crypto and decentralized currency. And that is the reason many crypto experts don’t support this currency. And lack of transparency is one of the reasons.
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Goes Against Blockchain Platform
I think an example will help you a lot to understand this. USDT is a Stablecoin, which is controlled and run by the Tether company. Its supply, demand, and everything are controlled by that company. But Tether doesn’t care about who controls the market or manipulates the market as well. But since the supply and other factors are controlled by a single company, that’s why USDT goes against the regulation of decentralization and blockchain technology. And that happens with almost all the Stablecoins. So, even if they exist in the blockchain platforms, they don’t fulfil the requirements to become a transparent and decentralized currency.
Fiat Currency
Just think about what fiat currency is. A fiat currency is controlled by an entity and has backed by any asset. It also happens with Stablecoins. That is because Stablecoins are also backed by real-world assets, and they are controlled by any entity.