Andre Cronje, an outstanding Ethereum (ETH) developer and inventor of Yearn.Finance (YFI) decentralized liquidity protocol, has shared his views on the future of stablecoins. While being generally optimistic, he asked one really difficult question.
Welcome to Layer Two
Mr. Cronje is sure that the cryptocurrencies market should be prepared for releases of U.S. Dollar Tether (USDT) and USD Coin (USDC) stablecoins on the top of second-layer scalability solutions for major blockchains. The systems of this type advance the throughput of their basic "layers" by processing some transactional information off-chain.
USDC and USDT will soon both be available on L2.— Andre Cronje (@AndreCronjeTech) September 7, 2020
This will allows non-congested transfers of USDC and USDT.
This is great if you do payments in USDC and USDT.
From my experience USDT and USDC are trade instruments. Not currency. How much will really move to L2?
In general, Mr. Cronje appreciates the benefits of this migration for end users. With stablecoins live on Layer Two systems, the transactions of USDT and USDC will be confirmed with trivial latency. Thus, the user experience with stablecoin remittances will be faster and smoother.
However, Mr. Cronje approaches both popular stablecoins as trading instruments, not as classic digital currencies. So, he claims that the accurate value behind the stablecoins issued on the second layer will heavily rely on stablecoin issuers.
As a result, participants in crypto markets may read one more chapter in a long-lasting story about the credibility of stablecoin operators.
Engineers, entrepreneurs and investors raised a heated debate, discussing Mr. Cronje's statement. Blockchain expert Chris Blec admitted that this shift would make stablecoin operators struggle with additional regulatory barriers.
Payments are a strong use case. The problem with L2 on these is it gives Tether & Centre an easier way to force regulatory compliance.. ie KYC required for your fast & free L2 wallet.
However, other commentators are sure that switching to L2 can be performed even without strengthening KYC/AML proceedings.
It should be noted that U.S. Dollar Tether by Tether Limited has pioneered numerous experiments with stablecoin launch on side-chain solutions. For instance, the implementation of Plasma L2 solution for Ethereum (ETH) by OMG Network even caused a double-digit pump in OMG token's price.
Also, recently Tether and Bitfinex CTO Paolo Ardoino revealed that his team is experimenting with another Ethereum (ETH) scalability solution, ZK-rollups.