"Stablecoins”: The future currency
A useful currency should be a medium of exchange, a unit of account, and a store of value. But to this day, Bitcoin - which was touted as a viable alternative currency - has failed to achieve this.
You see, because bitcoin is so volatile, a consumer or an investor can significantly overpay or underpay for a product. A product that costs $7,000 can cost $8,000 or $6,000 in a few hours.
Also, it can be risky for companies to accept payments in Bitcoin if its value suddenly plummets.
Moreover, people want a store of value that escapes the local banking system, currency controls, or a collapsing economy.
Right now, Bitcoin (and most cryptos) can't offer them that.
But this type of cryptocurrency can...
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Stablecoins – Solving crypto’s volatility problem
Stablecoins are price-stable cryptocurrencies meaning the market price of a stablecoin is pegged to another stable asset, like the US dollar. That means, a stablecoin lets people buy and sell goods at predictable, foreseeable prices.
In addition, Stablecoins fulfil the “store of value” requirement of money — something that even real-world currencies don’t fulfil (Venezuela, Zimbabwe).
The fact is, building a stablecoin has long been considered the Holy Grail of the cryptocurrency ecosystem. And now this has been achieved.
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Today, you get three types of stablecoins…
#1: Fiat-collateralized – These stablecoins are backed by a real-world asset. This real-world asset is controlled and owned by a central entity.
#2: Crypto-collateralized – They’re similar in concept to fiat-collateralized stablecoins, except that crypto-collateralized stablecoins are backed by another cryptocurrency as opposed to being backed by a real-world asset.
#3: Non-collateralized – They’re not backed by any real-world or cryptocurrency asset, and instead it maintains value by people expecting it will maintain a certain value.
Here’s an example of a recently launched stablecoin…
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The Gemini dollar could be a new alternative “currency”
Last week, the famous Winklevoss twins’ Gemini Trust Companyrolled out the Gemini dollar.
This is a regulated stablecoin that lets users send and receive US dollars on the Ethereum network.
The rollout was hailed as a key step to increasing trust and economic activity in the volatile cryptocurrency industry.
The Gemini dollar has even received approval from New York Department of Financial Services and is one of the world’s first regulated stablecoins.
The coin will maintain an equal value with the US dollar.
Users will be able to convert US dollars into Gemini dollars through Gemini’s cryptocurrency exchange.
These can be withdrawn to an Ethereum address.
Users can also convert Gemini dollars into US dollars by depositing them into a Gemini account.
Gemini dollars also induce commercial buy-and-sell transactions by behaving like traditional money.
And they have three key features:
So it looks like the future of money is digital.
It’s issued by Gemini, a New York trust company and is strictly pegged 1:1 to the US dollar.
It’s built on the Ethereum network according to the ERC20 standard for tokens.
It combines the creditworthiness and price stability of the US dollar with blockchain technology and the oversight of US regulators.
And stablecoins represent an important step to making that happen on a daily basis.
See you next week,
Managing Editor, The South African Investor
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