Increased Interest Rates in the US Could Affect Cryptos
Robert Leshner, the founder of Compound, a startup based in San Francisco that focuses on generating interest rates for cryptocurrency funds, and also a professional financial analyst, believes a major issue with cryptos is that they don't earn interest.
To address this problem, Leshner launched Compound, a startup company that holds cryptos for users and provides them with a rate of return. The project is backed up by Andreessen Horowitz and also Coinbase Ventures. The company allows its users to deposit BAT, REP, ZRX, or WETH for the purpose of earning an interest rate.
Lesher had a plan for the company to include other cryptos later on and that includes stablecoins. He sees stablecoins, which are supported by an equal ratio to the American dollar, as easy to make with a great number of traders looking to purchase them.
On the other hand, he explained how companies who issue stablecoins are borrowing the buyers’ money for nothing in return because they are not compensating them with interest. In addition, they are charging the usage and Tx fees with the issuance of stablecoins.
Stablecoins Could Exceed Fifty
Leshner, who was an economics major at the University of Pennsylvania, further notes the fact that many firms are providing stablecoins just because it seems to be very profitable. It was recently reported that 2 stablecoins were just launched and are regulated, the GUSD and PAX.
Since that happened, a lot of other companies announced their plans to do the same and start launching their new stablecoin. Leshner envisions that the number of stablecoins in the market will exceed fifty, something that would not be too different from what happened back in the 19th century when"wildcat banks" in the United States started issuing their own notes in parallel to the legal tender of the U.S. dollar.
However, Leshner doesn’t think that the Federal Reserve will issue a stablecoin soon. He also attributed the high need for such currencies to the current liquid market for conventional ones because of the existence of a lot of foreign exchange market traders. He said that currencies based on blockchain technology and tokens are able to connect with smart contracts and that provides them with greater functionality than fiats.
In an interesting perspective, Leshner sees that the crypto market may be affected by the latest decision from the Federal Reserve about the rise in interests. Cryptos have always been a space with negligent interests, where easy money was achieved. He noted that an era of rising interest rates is taking place that cryptos are not familiar with and it will be a potential challenge to the prices of cryptos as it will be to most assets and that includes equities as well.