That is the topic of my latest Bloomberg column, here is one excerpt:
Even if all goes well, why should those different brands of stablecoins remain priced at $1 apiece? In most well-functioning markets, suppliers compete on innovation, quality and price. That diversity is the natural outcome of trying to figure out which coin systems — fully stable or not — are best.
If market prices do not communicate this information, how can you discover it? In my vision, higher prices will signify a coin’s quality and attract more business; the coins with strictly fixed prices will fill a niche; and the coins with lower prices will lose business, or otherwise serve as discount issues for those of lower means.
On a more positive note, if you think stablecoins serve so many new and marvelous functions, you would expect many of those assets to sell for more than a dollar.
For another look at why prices won’t stay fixed, consider the incentives of a stablecoin issuer. Let’s say your issue is currently one-to-one with the U.S. dollar and you are holding 100% reserves of very safe assets. Might you then be tempted to go down to 98% reserves? 95%? If the price of your coin stays at $1, fine, you come out ahead. If the price declines in proportion to the new and higher risk, you as an issuer still have broken even. So it seems that coin issuers will have an incentive to test the one-to-one exchange rates by diluting their backing.