The fashion for so called stable coins, whose price is pegged to real assets and fiat currencies, is unlikely to correct the instability of the cryptocurrency market and bitcoin, Professor of Economics at the University of Berkeley believes.

Although stablecoins in value terms are attractive enough, providing investors with a stable instrument for value storage, their model is imperfect, wrote Professor of Economics at the University of California at Berkeley Barry Eichengreen. He starts with distinguishing three types of stablecoins: fully collateralised, partly collateralised and unsecured.

According to Eichengreen, there are problems even with stable coins fully secured by reserves in fiat, and the main one is high expenses of providing those reserves, which should completely cover the cost of coins in circulation. This is too expensive model, which makes doubt its scalability.

"One of us then will have traded a perfectly liquid dollar, supported by the full faith and credit of the US government, for a cryptocurrency with questionable backing that is awkward to use. This exchange may be attractive to money launderers and tax evaders, but not to others."

The main problem with partly collateralised stable coins is that rumors and speculative messages, which are so common on this market, can hit hard the price of such cryptocurrency. In the case of its sharp fall its emitent will have to urgently redeem some of its coins in the free market in order to keep the price from falling.

"But, because the stock of dollar reserves is limited, other investors will scramble to get out before the cupboard is bare. The result will be the equivalent of a bank run, leading to the collapse of the peg."

Uncollateralised stablecoins are the most vulnerable.

"The issuer’s ability to service the bonds depends on the growth of the platform, which is not guaranteed. If the outcome becomes less certain, the price of the bonds will fall. More bonds will then have to be issued to prevent a given fall in the value of the coin, making it even harder to meet interest obligations."

Earlier, Cameron and Tyler Winklevoss, founders of the US-based crypto exchange Gemini, announced that the New York State Department of Financial Services approved their request for their first stablecoin issuance. Gemini Dollar was released this Monday on the Ethereum blockchain and is pegged to the US dollar.

It is "strictly pegged" to the base currency, while the Gemini Trust is responsible for the correspondence between the number of tokens in circulation and dollars in reserves.