Despite the initial appearance of success, such strategies often lead to increased long-term volatility. This is primarily because, in the face of market crashes, liquidity can become unidirectionally exhausted, causing deviations from the intended peg at the most critical times. This approach trades short-term stability for heightened long-term risks, as it narrows the probability of price movements while simultaneously increasing the consequence of large price shifts.

Moreover, the introduction of stablecoins, particularly within the Bitcoin ecosystem, presents a conflict of interest. The high demand for a stable dollar coin leads many to overlook the inherent risks associated with such projects. In times of market downturns, the repercussions become evident, underscoring the dangers of pursuing these ventures without heed to their potential for causing significant instability. Additionally, the volume of transactions in fiat-coins could surpass that of Bitcoin itself, creating a scenario where the economic activities related to these "stable" instruments could have more influence on the market than traditional Bitcoin mining and transaction verification processes. This situation reveals the parasitic nature of stablecoins on the Bitcoin network, emphasizing their incompatibility with the incentive structures designed to sustain Bitcoin's growth and stability. For further insights into the instability of stablecoins and their impact on cryptocurrency markets, readers are encouraged to explore the detailed analysis provided in the blog post linked here: On the In-Stability of Stablecoins.