Goldman Sachs called the condition for the success of algorithmic stablecoins

The bank’s analysts noted that if assets have no limitations on their use as a means of payment, it would create a stable base demand

18.05.2022 - 12:45

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What’s new? Analysts at investment bank Goldman Sachs explained that for the viability and long-term prospects of algorithmic stablecoins, they need to find a wider application for payments in the real economy. If such a use case were to expand over time, “it could create a more stable demand base for these assets,” The Block reports, citing a Goldman Sachs report.

Information on The Block’s website

What else do the experts say? The bank noted that stablecoins fulfill a need of the cryptocurrency market by allowing investors to trade less volatile assets without the difficulties of converting to fiat currencies. However, algorithmic stablecoins are vulnerable to “self-fulfilling crises,” situations where investors sell the currency for fear of depreciation, which can actually cause the asset’s rate to depreciate. Despite this, the bank believes that the asset can hold if there are sufficient demand and various use cases.

What is known about Goldman Sachs? It is one of the largest investment banks, founded in 1869. Headquartered in New York, the bank has offices in major financial centers around the world. As of 2021, the bank has $2,5 trillion in assets under management. Its market capitalization, according to Forbes, is $102,7 billion. The bank has a cryptocurrency trading desk.

What events happened before? In early May, US cryptocurrency exchange Coinbase entered into a partnership with Goldman Sachs as part of a project to issue loans secured by bitcoins. And at the end of April, the investment bank issued its first such loan. According to a bank spokesman, bitcoins stored in the borrower’s wallet were used as collateral.

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