Stablecoins Continue To Struggle With Their “Fixed” Peg To Fiat

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CryptoMode Stablecoins Regulation EU

Stablecoins are fascinating assets in the cryptocurrency world. They provide exposure to portfolio diversification and DeFi – among other things, yet their value can never fluctuate. Or so it would seem, yet there are a few of these currencies that are far from stable, either for better or worse.

Stability Is Hard To Guarantee For Stablecoins

On paper, the value of any stablecoin can never deviate from the asset it is pegged to. Whether that is a US Dollar, Euro, or other fiat currency, the 1:1 ratio should remain in effect at all times. Unfortunately, that appears much easier said than done for a few of these stablecoins these days. Deviations can occur, granted, but they should be far from frequent. Interestingly, the most popular stablecoin suffers from positive and negative volatility at times.

Although the price fluctuations of stablecoins are often minimal, one cannot ignore them. Similar to fiat currency, stablecoins sometimes provide more or less purchasing power for no apparent reason. It is a worrisome development, yet it also confirms a severe problem in this industry. Pegging a stablecoin to fiat currency reserves may no longer be feasible, especially when the 1:1 peg cannot be guaranteed around the clock.

As no stablecoins are equal, the problem is more outspoken for certain assets over others. That in itself is rather problematic for the broader industry. Unfortunately, there is no easy fix to this problem either, as this unexpected volatility can materialize for many reasons. The more popular stablecoins become, the more outspoken issues like these will be in the future. 

For now, the volatility primarily affects PAX-USD and Tether’s USDT. The price swings of PAX-USD are far more outspoken and often give users more bang for the buck. Although $0.004 per $1 is nothing spectacular, these amounts can add up quickly over time. The currency also regularly dips below its $1 peg, which is never a good sign for stablecoins.

CryptoMode Stablecoins Fluctuate
Source: Kaiko

What About Other Pegged Currencies?

While the PAX-USD chart looks somewhat erratic, Tether’s USDT chart looks marginally better. It too often offers slightly more than the $1 value but in a far less straightforward manner. Unfortunately, USDT suffers from drops below the $1 peg, which should never happen for any stablecoin on the market today or in the future. Particularly not when the price gap lasts a full day or longer, on average.

For the other stablecoins, such as USDC and BUSD, things look slightly different. USDC Is in the same boat as USDT, although its peg differential is far lower on both sides of the spectrum. However, going above or below the $1 value needs to be avoided at all costs. That is seemingly much harder to do than most people expect, putting the reliability of these currencies in question.

The only popular non-algorithmic stablecoin capable of somewhat maintaining a steady value is BUSD. It too has fractional dips and peaks below and above $1, but the deviation from the norm is much smaller. An exciting overall price performance by all these stablecoins since early May 2021. Stability is merely an illusion for most stablecoin holders, yet most may never know the value fluctuates so often. 


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