Two news items are adding to doubts over whether stablecoins—a digital currency supposedly tied to a hard asset such as the U.S. dollar—can live up to their name.
Tether, the Hong Kong-based company that manages tether, the biggest of these cryptocurrencies by market cap, gave more details on just how much of its holdings are tied to commercial paper rather than greenbacks. And crypto exchange Coinbase has removed a statement on its website indicating that each USD Coin is backed by $1 “in a bank account,” instead saying that they’re pegged to “one dollar or asset with equivalent fair value,” according to Bloomberg.
Both pieces of information further sully stablecoins’ reputation. Stablecoins were supposed to remove some of the volatility of other cryptocurrencies because each unit was tied to a hard asset like dollars. But in recent months, more reports have emerged that the most widely held stablecoins are actually backed by dollar-based debt—or even, in some cases, other cryptocurrencies.