> Foreign investors were reportedly presented with the plan of Launching a stable coin by the brothers of El Salvador President Nayib Bukele.
> El Faro, a Latin American digital newspaper, reported Friday night that the El Salvador government plans to launch a native cryptocurrency for consumers to use for services.
> Following a sweeping approval of the president’s bitcoin law by the government in the Central American country, all businesses must accept the original cryptocurrency as payment for goods and services by September.
> The president’s brothers reportedly met with representatives from Cardano, WhizGrid, and Algorand at different times, according to the paper
The Tether ShakeDown
Tether Limited is unlikely to be able to back all the Tether in circulation with USD even though it claims to be a stablecoin provider. In addition, it is an opaque, unregulated institution, already fined by financial authorities.
The same applies to banks not backing all their deposits with cash equivalents. Fractional banking utilizes this method. Tether, on the other hand, is not regulated and provides little transparency regarding the location of their money. The legality of converting tethers to dollars is also not guaranteed by Tether Limited.
What Are Stablecoins?
A stablecoin is a digital token that is intended to maintain a constant peg with some other asset, usually a fiat currency. Stablecoins are often issued on their own blockchain or an existing blockchain and are almost always backed by a centralized party.
Why Are Stablecoins Valuable?
Like all goods in the market, stablecoins are only worth as much as people are willing to pay for them. Stablecoins derive their value from the fact that the centralized parties who back them guarantee to always be willing to buy stablecoins for the exact same price, the peg.
For example, Tether (USDT), a U.S. dollar stablecoin issued on the Bitcoin blockchain, is pegged at a value of $1. Tether Limited, the company backing Tether, sells Tether tokens for $1 and promises to always buy them back for $1.
In the past, Tether claimed to be full reserve, meaning that every Tether token they issued was backed by one U.S. dollar. They changed this policy after its fallaciousness was discovered in 2019.
Nevertheless, Tether has maintained the peg of $1, and Tether is one of the most widely used stablecoins.
What Are Stablecoins Used For?
Stablecoins are mostly used to make transferring fiat currencies easier and faster. Typically, bank and wire transfers take multiple days to clear. On the other hand, stablecoins use blockchains such as Bitcoin’s, and can thus achieve rapid final settlement.