📰 Table Of Contents
Challenges Faced by Next Generation Stablecoins
South Korean analysts are predicting new challenges for the next generation of stablecoins as the industry evolves. The use of algorithms in stablecoin development is expected to introduce new risks for token holders, with experts expressing skepticism about their algorithmic designs.
Stablecoin Market: Evolution of Coins
Stablecoins are currently primarily used for purchasing assets on exchanges, with some also being utilized in remittance and payments spaces. According to researchers at the South Korean Bithumb crypto exchange, there are four generations of stablecoins:
- First-generation coins like USDT, which use fiat currencies as reserves
- Second-generation coins like DAI, which incorporate crypto as a source of reserve value
- Third-generation stablecoins, utilizing algorithmic features
- Fourth-generation stablecoins, such as Ethena (USDe), designed to address risks faced by third-gen stablecoins
Limitations and Opportunities
Project teams issuing second-generation stablecoins proceed cautiously due to the large proportion of cryptoassets in their reserves. While this approach helps protect value, scalability issues have been observed.
Third-gen Problems and Advantages
Third-generation stablecoins rely on algorithmic features to control the supply and demand of coins, maintaining asset price stability without fiat or crypto collateral. While scalability is maximized in favorable market conditions, challenges arise in maintaining a fixed value without collateral in less favorable scenarios.
Experts’ Views on Fourth-gen Stablecoins
Despite concerns about the risks associated with fourth-generation stablecoins, experts acknowledge their increasing market share and the attention they are drawing to emerging assets. The market share of USDT has decreased from 80% to 70% since the emergence of fourth-gen stablecoins, signaling a shift in the stablecoin landscape.
Ian is a cryptocurrency enthusiast blending humor with professionalism. With an engineering background and a storyteller's heart, he simplifies the blockchain world with sharp analysis and a touch of wit. At Cryptowire, he brings his unique perspective to make digital financial innovation accessible to all.
