Stablecoins Will Have to Adapt To Survive The Current Recession

The coming altcoin news feature stablecoins as the focus group that is facing new challenges. As it stands, stablecoins will have to adapt to the recession caused by the COVID-19 and the fact that it is hard to earn a profit simply by holding USD in reserve or by purchasing US Treasury bills.

While some stablecoins operate using alternative business models, the ones which rely on such rates and yields for their revenues are now in a serious bind. Analysts believe that relying on interest rates will no longer be possible in the current environment. However, they are not expecting any major stablecoin issuers to go bust soon.

As the cryptonews show, most stablecoins will have to adapt and weather the storm by operating at a loss during the crisis – or be forced to diversify their sources of revenue in order to manage.

“Many stablecoins fund operational expenses through interest on funds held to back their issued coins, but a 0% or negative interest rate environment would definitely create problems for this model,” explains one research analyst named Brant Downes.

Downes works for Smith + Crown. In this specific example surrounding stablecoins, he is referring to Tether (USDT), USD Coin (USDC), TrueUSD (TUSD) and Paxos Standard Token (PAX). Normally, their reserves of USD would bring the stablecoin issuers a steady stream of income. Now, however, such income is likely to dry up.

“There are several factors that influence how this will unfold,” Downes adds. “One is the extent to which interest rates descend to 0%, or below, and the length of time at which they might remain there. Another is the range of revenue sources stablecoin issuers maintain. Those merely operating a fiat-backed stablecoin will be impacted earlier and more severely,” the analyst noted.

Stablecoins have to adapt to the current recession and could definitely have a “tough time surviving” under the current circumstances. However, some analysts believe that there are always other ways for stablecoin issuers to prosper. One of them is the possibility of carrying out market-making activities and charging fees for issuing and redeeming their coins.

At the end of the day, a collapse of stablecoins is still something that is unlikely. However, stablecoins moving away from their pegs for shorter periods could be imagined.