This month, there has been plenty of movement on the stablecoin front. That’s not necessarily a good thing, given that stablecoins are supposed to be, you know, stable.

First, Tether (USDT) started trading well below the dollar, which it’s ostensibly pegged to on a 1:1 basis, dropping to under $0.92 on October 14. It has since rebounded to above 98 cents. For you math aficionados, you’re correct, that’s still not a dollar. To get back to its peg, Tether has been working to reduce supply, and announced today that it will burn 500 million USDT. In the real world, when a fiat currency begins to breaks its peg to, say, the US dollar, the country buys up its own currency (I’m simplifying here, but The Balance has a good explainer). The lower supply in the open market drives up the demand for the currency.

 

While Tether was tanking, Gemini dollar (GUSD), the Winklevoss’ latest foray into crypto, went the other way, reaching as high as $1.19 on October 16. Three other stablecoins – USD Coin (USDC), True USD (TUSD), and Paxos Standard Token (PAX) – all spiked well above the dollar around October 15 as well.

What happened? Manu Andorra, founder of Block0, an angel crypto fund, told ETHNews how Tether’s broken peg was related to GUSD et al’s rise:

 

“A crisis of confidence for Tether started to appear, followed by a Tether run…Tether holders were willing to sell at a discount their USDT because time was scarce, and they didn’t want to be the last one to hold, in case of a default. It was a panic sell. That’s why a premium appeared on other stablecoins like TUSD, PAX, etc. Tether holders wanted to move to another stablecoin, where confidence was higher. And when those coins have a smaller market cap in comparison [to] Tether – TUSD was 18 times smaller than USDT at that time – it [puts] huge pressure on prices.”

This narrative is already well-established. In essence, Tether was going down, and investors who wanted to secure their holdings hopped from one potentially destructive relationship into the arms of someone new, not minding they were paying $1.15 to get back a dollar. For those with access to US dollars, buying those probably would have made more sense.

But the recent decisions from two of the biggest cryptocurrency exchanges to list some of these stablecoins further complicates matters. Huobi declared on Friday it was adding four to its exchange: GUSD, PAX, TUSD, and USDC. In doing so, it also introduced Huobi USD (HUSD), its own stablecoin, as an additional layer. Users with one of the four newly listed stablecoins can trade it for another stablecoin, but not directly. Instead, they get credited with HUSD, which can then be converted into a different stablecoin, all without a conversion fee. According to its post, Huobi is bearing all “the risk of stablecoin instability.” The irony, of course, is that in embracing these new tokens, Huobi is explicitly stating that they may not do their one job well while also implying that its own stablecoin will.

 

The addition of stablecoins to the exchange presents a massive arbitrage opportunity. If, for example, PAX is at $.99 and USDC is at $1.00, big investors could make more than a pretty penny buying PAX at a premium and then selling it. Although Huobi didn’t state its thinking, one might assume this is a tactic to attract people to its platform, where it will still charge them fees to exchange stablecoins for other cryptocurrencies. If it doesn’t work, Huobi leaves itself an out, stating, “If the assessment of a stablecoin exceeds our risk control requirements, the stablecoin will be stripped from the HUSD system.”

Coinbase’s step of listing USDC, announced yesterday, is by comparison more measured. It can attract investors looking for a stablecoin solution while avoiding the messiness of creating multiple stablecoin pairings. But it’s still potentially problematic, as Jackson Palmer tersely illustrates:

Crypto investors may not care. What they want to know is: Is this bullish news for stablecoins? On the one hand, exposure on more exchanges is likely to boost the market cap of these coins, theoretically reducing volatility. Then again, market cap wasn’t behind Tether’s broken peg – it was a lack of trust that it had the dollars to back up its coin, something Gemini and the rash of stablecoin competitors have sought to address but haven’t yet had to contend with. While these emerging stablecoins have all moved more or less in lockstep thus far, it wasn’t so long ago that Tether was also “worth” a dollar.

Tether isn’t even dead yet (despite the obituaries), but exchanges are already rushing to find its replacement. They may be taking it for granted that stablecoins are worthy tools, without considering whether the concept is fundamentally flawed. Central banks around the globe have struggled to maintain their currencies’ pegs. Maybe crypto exchanges will do a better job of this, but the centralization needed to do so seems to defeat the point of the cryptocurrency experiment itself. And if the exchanges can’t stabilize the market? Well, at least, someone will be making money off of it.