Ahead of the launch of Ripple’s new stablecoin, RLUSD, Ripple’s Chief Technology Officer David Schwartz revealed a cautionary note on the volatile and irregular pricing that potentially awaits during the new coin’s initial release. With growing excitement and speculation surrounding the stablecoin’s debut, it comes as a warning from Schwartz.
Anticipated Supply Shortages and Initial Price Volatility
In particular, David Schwartz says that, as RLUSD goes live, it could face severe supply shortages. This could lead to very temporary price spikes far above the token’s printed value of $1 peg to the U.S. dollar. An illustrative remark by Schwartz was that there is someone who pays $1,200/RLUSD for a very tiny fraction of one RLUSD. The fact that such quarters of the market are willing to pay a premium to be among the first holders of the new stablecoin, despite the precautionary note, raises the primary point that this stablecoin already has a lot of interest and there is no doubt that it will enjoy wide acceptance in the coming months.
However, as the CTO noted, this could produce somewhat odd market behavior. This is whereby the tools and exchanges appear to offer extraordinarily high bids for very small amounts of RLUSD. That can also create the wrong impression about the value of the stablecoin on the market, in particular for an average investor who is not remotely familiar with the details around the kinds of listings.
The Stabilizing Role of Arbitrage
These initial fluctuations will likely be arbitaged away by arbitrageurs. On dynamics, Schwartz explained: ‘Changes in prices around launch in the short term could be due to supply or demand shortages, but those changes shouldn’t last very long as arbitragers attempt to fix the market.’ These market participants will take advantage of the difference between the rendered price thanks to FOMO and the stablecoin’s pegged value to fix the price errors by their capital.
In the initial phases post-launch, we expect arbitrageurs would be extremely active in this buying and selling activity. Their interventions are essential for guiding RLUSD back to its foundational principle which is stability. This is the fundamental purpose of a stablecoin, said Walt Schwartz, to maintain a constant value with respect to its peg, in this case, the U.S. dollar. As it was with any stablecoin, He noted the core attribute of RLUSD is to not deliver speculative gains but to be a reliable medium of exchange and value storage, just as stable, pegged to the fiat currency, and build on the stability of the common fiat currency.
Temporary price surges should also be seen as short-lived anomalies, rather than true it can of the stablecoin market value. The RLUSD is expected to maintain a $1 close adherence as the supply becomes stabilized and market mechanisms can adjust to the new asset.
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A Warning Against FOMO
Additionally, in his advisory, Schwartz warned against the dangers of a dangerous impulse called FOMO (Fear of Missing Out), a common reason for irrational investment behavior in the cryptocurrency market. “Please don’t FOMO into a stablecoin!” he cautioned potential buyers. “This is not a get rich opportunity.” Given the number of wonderful projects already available in the hands of users of the digital asset universe, this warning might be especially appropriate for investors who may be tricked into believing that they will be able to find fast ways to profit in new listings like RLUSD.
This, according to the CTO’s message, is why it is important to have a sense of the investment landscape and the qualities of the assets. Functioning as stablecoins, they don’t yield high returns like speculative cryptocurrencies.
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