Stablecoins, cryptocurrencies designed to fight the volatility of crypto-assets, have generated a lot of interest in recent times. Usually, the crypto asset value is linked to an external asset like gold or the U.S dollar, or other volatile digital currencies. Even if the value of the corresponding asset changes, they are able to maintain a fixed value.
The idea behind these assets is to decrease market fluctuations and make digital currencies more usable. Stablecoins have gained a lot of endorsements, with economists calling them the bridge towards mainstream adoption of digital assets. However, not everyone is impressed by the idea.
One of its major critics is Yale economist Gary Gorton doesn’t think that stablecoins in their current form will work in the long run. Gorton insists that the holders need to be assured of their value through proper regulation first. In theory, stablecoins are backed by equivalent assets to keep their value fixed at 1:1. However, Gorton believes that these claims are sketchy at best.
Gorton had previously compared this class of cryptocurrencies to “Wildcat banking,” referring to the 1836-1865 era when banks were chartered in remote locations in the U.S without any federal oversight.
“Stablecoins are just reliving all of history here,” he concludes.
