According to U.Today, Deutsche Bank, a leading global bank, has recently issued a warning about the potential risks associated with stablecoins. Stablecoins, a type of cryptocurrency tied to traditional fiat currencies such as the U.S. dollar or euro, have seen a surge in popularity in recent years. A new category of stablecoins, known as algorithmic stablecoins, use algorithms to maintain a stable price relative to another asset or a basket of assets. These digital assets offer stability amidst the volatility of cryptocurrencies, making them appealing for various applications, including remittances, payments, and decentralized finance (DeFi) applications.
However, a recent report from Deutsche Bank has raised concerns about the perceived safety of stablecoins, including the widely used Tether (USDT). The research, which analyzed 334 currency pegs since 1800, found that only 14% have survived. Applying this to the world of stablecoins, Deutsche Bank Research analysts believe that the majority of these pegged digital currencies will become unmoored. 'Some may survive, although most will likely fail,' the analysts wrote on Tuesday. Two years ago, Terraform Lab's algorithmic stablecoin TerraUSD and its sister token Luna collapsed, erasing at least $40 billion in cryptocurrency.
According to Deutsche Bank researchers, the few successful pegged currencies that survived did so because they were credible, backed by reserves, and functioned in carefully controlled institutions, which they say many major stablecoins lack. Deutsche Bank's warning comes at a time when stablecoins are experiencing unprecedented growth and usage, with their total market capitalization surpassing significant milestones. Tether, the first and largest stablecoin by market cap, disagrees with Deutsche Bank's assessment, claiming that the research lacks clarity and sufficient evidence.
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