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Highlights
- Deutsche Bank said that most currency-pegged stablecoins are likely to fail in future.
- The banking giant raises doubts on Tether's reserve and its lack of stability and transparency.
- Tether rejects the report stating that it lacks substantial evidence.
Research analysts at Deutsche Bank recently raised a red flag on the stablecoin market stating that most of the pegged currencies are likely to doom moving ahead. After studying nearly 334 currency pegs, Deutsche Bank found that only 14% of them have survived so far. “Some may survive, although most will likely fail,” the analysts wrote in a recently published research note. this prediction comes at a time when big market players like Ripple expect the stablecoin market to reach $3 trillion by 2028.
Stablecoins Should Ensure Greater Credibility
As we know, stablecoins usually maintain a one-to-one peg with fiat currencies such as the Dollar, Euro, etc. Stablecoins provide convenience for crypto investors for trading in crypto while simultaneously protecting them from volatile price swings.
Tether Holding Ltd.’s USDT token has surpassed $100 billion in market capitalization and consistently outpaces Bitcoin in daily trading volume.
In a notable example of potential risks, the collapse of Terraform Labs‘ algorithmic stablecoin TerraUSD and its counterpart Luna resulted in the loss of at least $40 billion worth of cryptocurrency two years ago.
According to analysts from Deutsche Bank, the enduring success of pegged currencies relies on credibility, reserve backing, and stringent operational controls—qualities that several major stablecoins currently lack. “The 30% de-peg rate among some stablecoins is therefore hardly surprising, and many more defunct stablecoins are hard to account for,” said the Deutsche Bank researchers.
Doubts Raised Over Tether
The research team expressed apprehension regarding Tether due to its dominant position in the stablecoin market, characterized by speculation and a lack of transparency. They highlighted Tether’s track record of misleading statements regarding reserve holdings, resulting in fines totaling $41 million from the Commodity Futures Trading Commission (CFTC). A recent report also suggested that Tether (USDT) remained the most-used stablecoin for criminal activity.
Furthermore, the analysts emphasized the potential risks associated with Tether’s significant role in the crypto derivatives market, which could exacerbate losses and amplify leveraged trades. Tether has responded to these concerns by issuing quarterly attestations of its reserves following settlements with both the CFTC and New York state authorities. Tether responded to these allegations stating:
The report “lacks clarity and substantial evidence, relying on vague assertions rather than rigorous analysis,” Tether said in a statement. “While it attempts to forecast the decline of stablecoins, it fails to provide concrete data to support its claims.”
Marion Laboure, senior strategist at Deutsche Bank Research and one of the authors of the report, explained the decision to compare stablecoins to peg currencies, stating, “Historically, their similarities make them a close proxy as both are pegged currencies.” Laboure highlighted that both stablecoins and peg currencies necessitate ample reserves and credibility from issuers, are susceptible to speculative pressures, and predominantly track the USD.
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