Stablecoins as the Future of Cryptocurrency?
The idea of stablecoins as the future of cryptocurrency is hard for me to swallow because of those instruments’ limitations. In particular, most stablecoins work with just one fiat currency: the US dollar.
A stablecoin is a crypto-asset that contains one unit of a fiat currency such as the US dollar. For instance, CarbonUSD (CUSD) is an EOS-based cryptocurrency linked to a blockchain trust that contains a US Dollar. To explain, the trust automatically releases a dollar when you spend a CUSD token.
Similarly, the USD Coin (USDC) contains an Ethereum smart contract that pays $1 when you spend one USDC token. Notably, the USD Coin is the creation of CENTRE a collaboration between Coinbase and crytpo asset-trading giant Circle. Pointedly, American investment banking behemoth Goldman Sachs (NYSE: GS) is backing Circle.
Other stablecoins like USD Coin (USDC), CarbonUSD, and Tether (USDT) are pegged to the US Dollar. To clarify, “pegged” means these altcoins prices’ are supposed to be equal to $1 US Dollar.
Stablecoins as the Future of Cryptocurrency or not?
However, Stablecoins have a very odd characteristic. Interestingly, dollar-pegged stablecoins’ often trade for more than $1 on many cryptocurrency exchanges.
For instance, Tether’s (USDT) Coin Price was $1.01 on 4 March 2019. Meanwhile, USD Coin’s (USDC) Coin Price was $1.02 on the same day according to CoinMarketCap. Moreover, BancorX gave CarbonUSD (USD) a Coin Price of $1.02 on March 4, 2019.
Thus, Mr. Market thinks stablecoins are more valuable than the actual fiat currencies they supposedly peg the stablecoins to. Hence, stablecoins’ value differs from fiat currencies, which points to their instability.
Are Stablecoins more valuable than fiat currencies?
An obvious conclusion is that speculators think stablecoins are more valuable than fiat currencies. My guess is that speculators give stablecoins more value because they are easier to trade and sell.
Notably, the markets for some stablecoins could be vast. In particular, I think there will be a lot of demand for stablecoins in nations with weak or inflation-prone fiat currencies. For example, the residents of Venezuela prefer US dollars to their worthless Bolivar currency.
Under these, circumstances, I have to wonder what will happen if a stablecoin’s Coin Price is double or triple the value of the fiat currency they supposedly peg it to. Plus, I have to wonder what a Central Bank will do if a stablecoin affects the value of a fiat currency. For instance, Venezuelan merchants could demand payment in Tether or CarbonUD instead of the Bolivar.
Thus stablecoins have the potential to wreak extreme economic havoc if they become widely adopted. Hence, we need to inspect these instruments because more of them are coming online. In particular, a new generation of stablecoins is moving beyond the US Dollar.
Stablecoins move Beyond the Dollar
Importantly, several organizations are bringing out stablecoins linked to cryptocurrencies other than the dollar.
Notably, efforts to create Bitcoin Stablecoins are underway. In addition, several organizations attempting to solve the blockchain scalability problem through stablecoins and sidecoins. In detail the scalability problem is the limited capacity of cryptocurrency. For instance, Bitcoin can only handle seven transactions a second making it useless as a large-volume payment solution.
However, sidechains like the Lightning Network, the Raiden Network, Ripple, Liquid, Lisk, and EOS can theoretically handle over 1,000 transactions a second. Hence, they can use sidechains a commercial payment solutions.
Unfortunately, sidechains are less-encrypted than traditional blockchains which makes them more vulnerable to hacking. To clarify, all the encryption limits blockchain’s capacity and slows it down. Conversely, Sidechains increase the speed by lowering the encryption and the level of security.
First Yen Stablecoin J-Coin coming
Notably, J-Coin; the first stablecoin pegged to the Japanese Yen, is being developed by Crypto Garage and the Mizuho Financial Group. Reportedly, the J-Coin will trade against Blockstream’s bitcoin-pegged token Liquid Bitcoin (L-BTC), Coindesk claims.
Strangely, Liquid Bitcoin or Liquid is a sidechain that functions as a Bitcoin (BTC)-pegged stablecoin. In addition, J-Coin will participate in SETTLENET, the Japanese government’s cryptocurrency sandbox, a Press Release reveals. SETTLENET utilizes a fast Bitcoin conversion mechanism called an Atomic Swap.
Liquid is an inter-exchange settlement network designed to connect cryptocurrency exchanges and financial institutions. Liquid’s creators at Bitstream hope to enable faster Bitcoin transactions and increase scalability through Liquid.
Interestingly, one of Liquid’s goals is to tokenize fiat currencies, securities, and cryptocurrencies. Hence, you can use Liquid to create stablecoins. In fact, J-Coin is apparently, Liquid’s first stablecoin.
They designed the J-Coin project to promote cashless payments, the Nikkei Asian Review reports. Interestingly, account holders could make J-Coin payments with Quick Read (QR) Codes. Thus, J-Coin will apparently work with a digital wallet similar to Alipay or Walmart Pay.
Japanese Bank plans stablecoin payment solution
To explain, QR Code wallets start a transaction by scanning a bar code a point-of-sale POS) terminal generates. Notably, the world’s two most popular payment apps; WeChat Pay and Alipay, utilize QR Code, Statista estimates.
J-Coin could be the most disruptive stablecoin yet because Mizuho and Crypto Garage plan to offer stablecoin payments for retailers. Thus, J-Coin could be the first Stablecoin real people can use in the real world.
In addition, Join-Coin users will get free bank transfers if they spend J-Coin through their smartphones. In addition, they will not charge brick and mortar retailers for J-Coin deposits. Moreover, J-Coin deposits will be instantaneous, the Nikkei Asian Review claims.
Finally, Mizuho and Crypto Garage plan to create a sidechain payments network similar to Ripple’s RippleNet. The network could launch this month, and include 60 regional banks in Japan, Nikkei Asian Review claims. Importantly, Mizhuo is Japan’s second-largest bank.
STATIS plans Euro stablecoin EURS
Meanwhile, Stasis is experimenting with EURS the first Euro-backed stablecoin.
I think EURS fills an important need by offering a stablecoin-pegged to the world’s second most popular currency the Euro.
A Euro-pegged stablecoin is needed because not everybody trusts or likes the US Dollar. For instance, Americans that distrust their national currency need a dollar-alternative. Moreover, people outside the Euro Union widely accept the Euro.
Like liquid Malta-based STASIS offers a tokenization technology that allows you to build your own stablecoins. EURS is apparently the first stablecoin built with the STASIS technology.
EURS is the first EURO Stablecoin
STASIS aims to have built an ecosystem of financial institutions, law firms, and a top global accounting firm through its platform. Impressively, STASIS works with some major cryptocurrency exchanges including Globitex, HitBTC, and Changelly. In addition, you can purchase EURS with ePayments.
Hence, STASIS sounds like a money-laundering scheme, that is sure to attract authorities’ attention. However, there could be a big market for EURS in countries near the Eurzone that do not use the Euro. For example, Russia, where the Rubble is notoriously inflation prone.
Importantly, EURS is an Ethereum compatible because they build it with the EIP20 standard, a variation on the ERC20 (Ethereum Request for Comment) protocol for the creation of Ethereum-based tokens. This will increase EURS’ popularity because ERC20 and Ethereum are the most popular architectures for cryptocurrencies.
STASIS EURS is one of the best Stablecoins Around
Finally, EURS has real value, CoinMarketCap gave EURS (EURS) a Coin Price of $1.13, (the same as the Euro price on that day) a Market Capitalization of $34.984 million, and a 24-Hour Market Volume of $468,803 on 4 March 2019. There was a circulating supply of 30.979 million EURS on the same day.
Under these circumstances, EURS is one of the best stablecoins I have seen. It has a serious market and STASIS claims a Big Four Accounting Firm is auditing EURS for compliance. In fact, STASIS claims EURS complies with the standards created by the International Swaps and Derivatives Association (ISDA).
Importantly, EURS is part of Bancor’s liquidity network hence you can convert into other ERC20 tokens easily. However, EURS is not yet participating in the BancorX network which converts EOS (EOS) based cryptocurrencies like CUSD.
Hence, EURS may not be scalable because the blockchain scalability problem restricts Ethereum to less than 20 transactions per second (TPS). Meanwhile, promoters claim EOS (EOS) can process over 1,000 transactions.
Pound-Based Stablecoin launches
Not to be outdone, a group called the London Block Exchange is offering a LBXPeg. Importantly, LBXPeg is a stablecoin pegged to the pound sterling.
In fact, the London Block Exchange calls LBXPeg “the Crypopound.” The LBXPeg is an Ethereum-based stablecoin built with the ERC-621 (Ethereum Request for Comment) standard.
In addition, the Block Exchange claims it will issue the LBXPeg on other blockchains that meet British compliance standards. I imagine that means an EOS variant of the LBXPeg is coming.
However, many exchanges do not accept LBXPeg yet. For instance, I could find it on CoinMarketCap which indicates the LBXPeg is not available in the markets yet. In addition, LBXPeg is not in the Bancor Network yet.
Stablecoins are Big Business
Thus Stablecoins are now big business. However, these instruments have a long way to before gaining wide acceptance.
In particular, the mechanisms behind CUSD, J-Coin, EURS, and LBXPeg are complex. Notably, each stablecoin’s workings involves several difference steps and mechanisms. Hence there is a lot that can go wrong and many places for hackers and saboteurs to gum up the works.
My guess is that at least one stablecoin will crash completely or get badly hacked soon. On the other hand stablecoins are the future because they offer liquidity and ease of use.
To explain, liquidity means the cryptocurrency keeps value so real people in the world accept it. That is important because you could use the stablecoin to buy food for your family at the supermarket.
In addition, average people that will not trust a digital currency will trust a Crypto Pound or a Digital Dollar. Hence, I think there will be a huge market for stablecoins so speculators must pay attention to them. Stablecoins are the future of cryptocurrency because they utilize the killer app known as fiat currency.
For more information on stablecoins see the links below:
