Blog

Will stablecoins be the future of cryptocurrency?


Volatility is a huge obstacle for the adoption of cryptocurrency to become truly mainstream and be applied in commerce. Merchants are reluctant to accept crypto, knowing that its value can drop dramatically in a day. Thus, an optimal currency should provide a store of value and unit of account, both of which require low volatility. As a result, there is a growing desire to bring stability to the cryptocurrency market, and stablecoins are here to provide a solution! With stablecoins, one can convert euros, US dollars and more into the equivalent stablecoin like bitEUR, USDT, TrueUDS etc., and pay with it to any receiver on the other end.

Stablecoins 

A stable coin is a cryptocurrency that is pegged to another stable asset, like gold or the U.S. dollar. Stablecoins are global, but not tied to a central bank, hence sharing many of the same features as Bitcoin, yet are far less volatile. That is why they have been dubbed as the “holy grail of cryptocurrency”. Stablecoins allow for practical usage of cryptocurrency, paying for things in your daily life. Stablecoins are most likely to be the future of money because the barriers to adopt are very low, compared to getting everyone to accept payments in Bitcoin.

In addition to stablecoins being a hybrid of cryptocurrencies, Entrepreneur mentions that “stablecoins enable merchants and consumers to rely on balanced prices that are not affected by the high volatility of the crypto market.” According to Entrepreneur again, cryptocurrency has lost 80% of its value since the height of the bull run towards the end of 2017. Therefore, if the value of stablecoins is notaffected by the rapid change in the crypto market, it’s very likely that stablecoins can be trusted to replace the fiat money we predominantly use today.

So, without further ado, let’s explore some popular stablecoins you can use with  Blockbasis.

Tether

Tether is 100% backed by fiat currency assets in a reserve account. The conversion rate is 1 Tether USDT equals $1 USD. The Tether Platform is considered to be fully backed if all Tethers in circulation is less than or equal to all fiat that is held in the bank account. Tethers are close to a like-for-like swap from fiat to crypto, well integrated and established, however, they are centralized, not trustless, audit refusals.

TrueUSD

TrueUSD is also a US Dollar backed stable coin which is totally fiat-collateralized, transparently verified and audited and legally protected. The best part about TUSD is their transparency as their attestations are made public and anyone can access the reports, making it one of the most stable coins in 2019.

This stable coin is being managed by people who have worked with big organizations like Google, UC Berkley, and PwC. They are planning to tokenize TrueEuro, TrueYen, TrueBond as their asset in the near future so that stability can be introduced in the volatile crypto world. It  guarantees ownership recognition with financial and legal institutions, but not as popular as USDT, adoption rates are lesser

MakerDao

Maker is a decentralized autonomous organization that is pegged against the U.S. dollar, but is completely backed by ETH. Their stable coin is Dai and each one is worth $1 USD. Stability is maintained through an autonomous system of smart contracts. To receive Dai, you send your tokens to the Maker platform to lock those tokens up. Maker is one of the first in the space (First Mover Advantage), backed by ETH  on the blockchain and therefore transparent, but highly complex, slow-moving. 

Moreover, with Blocbasis, you can manage bitUSD, bitEUR and bitCNY which are market-pegged asset on the BitShares blockchain. They are often also referred to as smartcoins, a bitasset, or just USD, EUR, CNY in the context of blockchain assets. They can be freely traded, or transferred on the BitShares blockchain. And these digital tokens represent the same value as their underlying physical asset. Hence 1 USD in this wallet is worth $1 and can be redeemed as such.The bitUSD, bitEUR and bitCNY is backed by the BitShares core token BTS. This means that behind any of them, there are X amount of BTS that cannot be touched, traded or otherwise moved. These BTS are locked in a smart contract and serve as collateral.

Why stablecoins?

According to Value Penguin, credit card processing fees across major credit card companies such as Visa, MasterCard, and American Express average about 2% per transaction. Because of this, many smaller businesses charge customers more for credit card purchases, prohibit the use of certain cards with higher fees, and even take cash only. For businesses with large user bases, these processing fees add up to a lot of lost revenue, for instance, it will cost Walmart USD 10 billion in 2019 due to the processing fees, according to this Medium article!

However, these high costs of transaction can be reduced through the use of stablecoins, providing value for both businesses and customers. Customers will no longer have to be charged extra fees by businesses for paying with their credit card or be forced to pay with cash. And on the other side, businesses will be able to save on processing fees and no longer need to go through the complicated effort of optimizing their transaction costs with a myriad of payment companies and services. Because stablecoins are based on blockchain technology, transactions using stablecoins are immutable by nature, meaning there is no chargeback risk for the merchant.

Stablecoin here is like a bridge between the traditional and the crypto financial worlds. Stablecoins are a means to combine the stability of fiat money with all the advantages of the blockchain: fast, uncensorable transactions. They are also an invaluable tool for traders hedging their deposits. Stablecoins have been proven as the perfect answer to these requirements. Nowadays, you can sell your cryptocurrency holdings into stablecoin used by the particular exchange, if you expect the crypto to go down and protect your deposit this way without moving your money into fiat.

Conclusion 

The full adoption of stablecoins will ease the worry of having to time your purchase with the volatility of coins like Ethereum and Bitcoin. What is making stablecoin developments even more exciting, is that big tech is joining the party. Facebook recently announced their new Libra project, a stablecoin set to launch in 2020. These ambitious projects working on stable coins will bring us into a world where cryptocurrencies will be used in everyday consuming.