One of the biggest issues with cryptocurrency has been its volatile nature. While stock markets are volatile themselves, crypto markets have taken it a step ahead. Being a digital asset with no actual connection to the real world, cryptocurrency hasn’t found global acceptance as expected because of its volatility.
The concept of stablecoin came into the picture to solve this issue and promote the mass adoption of cryptocurrency across the world. Stablecoin is a type of cryptocurrency with a lesser-volatile price when compared to other assets such as gold, fiat currencies, and other commodities.
This makes it possible for a stablecoin to be used in the real world to make payments and conduct various monetary transactions. At the same time, other properties of cryptocurrency such as using the blockchain technology can be continued. This would allow people to get the benefits of both market stability and blockchain technology for transparency and security.
However, a stablecoin is currently being used in the crypto market to minimize risks during high stability periods in the market.
Benefits of Stablecoin
While the main aim of a stablecoin has been to reduce volatility, there are many other benefits of using it during various financial transactions. It doesn’t come as a surprise that exchanges, companies, and financial institutions are now looking at stablecoin with interest and focusing on Stable Coin Development to release their exclusive stablecoins into the market.
- Transparency: As stablecoins are traded on the blockchain network, full transparency is possible. This is further backed by regular audits performed by various exchanges.
- Faster Processing Speed: Processing financial and crypto transactions using stablecoins takes less time. Especially when traders need to convert fiat to crypto or vice versa, the time taken for the process is quite long. This can affect their investment as the prices change midway. By converting crypto to stablecoins, the process is simplified and also allows traders to complete the transaction before the price fluctuates again.
- Easy to Program: Stablecoins are program codes. By making changes to the code, the features of the stablecoin can be changed as per the requirements. Many companies offer Stablecoin Development Services to organizations and institutions that wish to develop their stablecoins.
Global Entity: Being globally acceptable and useful is an advantage of cryptocurrency. In short, crypto has no geological border restrictions. Stablecoin offers the same advantage coupled with an increased storage value as there are not subjected to the speculations in the market.
Low Fee: Transaction processing fee has been costly for fiat and crypto. The conversion from fiat to crypto or vice versa has even higher charges. Stablecoin can help reduce these costs when the currency is converted to stablecoins to complete the transaction.
Types of Stablecoins
The following are the four types of stablecoins in the market.
- Fiat-backed Stablecoins– These crypto coins are associated with the value of the related fiat it is being backed by. For example, the value of one Tether, the first and most-used stablecoin, is equal to the value of one USD.
- Crypto-backed Stablecoins– It is similar to a fiat-backed stablecoin, except that the cryptocurrency is considered as collateral. Stablecoins cannot be used with the 1:1 ratio when backed by cryptocurrency.
- Commodity-backed Stablecoins- These stablecoins have real value as they hold a tangible asset. Assets such as real estate and precious metals are commonly used interchangeable assets for commodity-backed stablecoins.
- Seignorage-style Stablecoins/ Non-collateral Stablcoins- Seigniorage is the difference in the actual value of the money and its printing cost. They are not backed by assets. Instead, they are based on an algorithm for the demand and supply for the coin. If the demand increases, new coins are produced, and if the demand decreases, coins are removed from circulation. These exist only on the blockchain network.
The Popularity of Gold-backed Stablecoin
Gold has been a favorite for centuries. This precious metal has a lot of fans. Over time, people started using gold for trading as much as for storing. That was when the concept of digital gold currency entered the market. In 1995, the first fully gold-backed digital currency, E-Gold, was released. While others tried to create their gold digital coins, none were successful.
But with the popularity of blockchain and cryptocurrency, the gold-backed digital currency got a new lease of life. Many exchanges have already announced their gold-backed crypto coins while some are still working on Gold Backed Stable Coin Development. The stablecoin issued will have a 1:1 ratio with gold; i.e., 1 token= 1 gram of gold.
Recently, in January 2020, Tether announced the launch of Tether Gold (XAUT) to sustain the growing demand for this new digital asset. According to a report shared by Bitcoin.com on 26th Jan 2020, there are around 77 gold-backed crypto projects while about 30 such other projects have failed.
This failure, however, is not making exchanges wary of developing their gold-backed digital assets. The main reason is that unlike physical gold, which has to be stored in a physical location, these digital assets do not require such arrangements. Yet, they provide the advantage of trading in the gold market and gaining handsome returns. Also, gold has a global value and is fully fungible.
There will be a lot of competition in the gold-backed digital asset market. For an exchange to be successful, it has to offer transparency, quality, security, and affordable services.
Use Cases for Stablecoin
- Making Payments: By using stablecoins to make payments, people can save the amount spend on transaction charges, which are usually anything between 2%-3% or even more).
- Trading Market: Stablecoins, especially the famous Tether, is already being fully utilized on the crypto exchanges to reduce the exposure of crypto before the traders fully cash out.
- Escrow: Escrow is a financial agreement in which a third-party service provider is enlisted to hold the money/ paperwork for a short time until the transaction is finalized between the actual parties. Stablecoins have automated this process by providing the required stability.
- Safety: Be it storage or time duration, stablecoins are a safe option for people who want to keep their investments safe over time and cannot save the investments in the bank.
- Cross-border Remittances: Making cross-border payments has become easier with stablecoins. There is no need to worry about the changes in price after currency conversion and the additional charges one has to pay for international remittances.
- Lending Advantage: Stablecoins are delivering a whopping 15% interest rate for debt investors in the market. No wonder many institutions are busy hiring the services of Stablecoin Development Company to build their exclusive stablecoins.
- Employee Payroll: Nippon Yusen Kaisha, a Japanese shipping company, has first started using stablecoins to pay employee salaries in November 2018. This has made it easier for overseas employees to manage their finances.
- 24*7 Settlements: Settlements take time to be delivered due to the restrictions in the banking hours. Since stablecoins are operated on a blockchain network, they are active 24*7. The amount will immediately be reflected in the account of the receiver.
- Decentralized: Stablecoins allow for a better-decentralized ecosystem when compared to cryptocurrency. This is due to the stability of the coin.
Ultimately, we can say that stablecoins are here to stay. As the dependence on stablecoin increases, we will see new stablecoins being released to cater to the demand. With national banks and financial institutions developing their stablecoins, we might see this digital asset slowly integrate the general market with the crypto market.
At Antier Solutions, we offer customized stablecoin development services to our global clients. Backed by a cross-functional team, we deliver complete solutions — from coin development, smart contract development to marketing — to deliver tangible business outcomes. Whether you want to build a gold-backed stablecoin, crypto-backed stablecoin, or fiat-backed stablecoin, we help you accomplish your business goals with our mission-driven solutions.
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