Just like fiat currencies, cryptocurrencies such as bitcoin are not backed by any physical asset, commodity, or any precious metal. The current value of bitcoin is driven purely by speculative interest and this is the main reason for market volatility. However, there is a form of digital money that is stable and is backed by an underlying asset; it is known as a stablecoin.
The idea of stablecoins predates bitcoin, but the supply of stablecoins actually exploded in 2020. Following the 12 March 2020 crypto market crash, the stablecoin supply soared from 6 billion to 12 billion. According to the Coinmetrics “The rise of Stablecoins” report, the popularity of stablecoins is on the rise due to multiple reasons. First of all, stablecoins serve as a digital replacement of fiat onramps for crypto investors. Secondly, given their ease of international transfer, they are being heavily used in global remittances. As a matter of fact, stablecoins are being exchanged more frequently than bitcoin and Ethereum.
Benefits offered by stablecoins
Stablecoins are pegged to real-world assets like a fiat currency, precious metals, or any other crypto. Stablecoins are not as volatile as other cryptocurrencies and they offer the following advantages:
- Fast transactions
- Digital wallets
- Privacy and low transfer fees
What does the future hold for stablecoins?
Stablecoins are expected to be cryptocurrencies’ best hope as we head towards 2021. According to the experts, the popularity of stablecoin is expected to grow multi-fold for the following two reasons:
- Crypto traders want a panacea to the instability of crypto markets.
- Tether, the existing leader of the stablecoin industry has some shortcomings and other stablecoins are yet to catch up.
How to build a stablecoin?
Before you begin with stablecoin development, it is important to understand what kind of stablecoins can be built.
- Collateralized Stablecoins
These are the stablecoins that are backed by some kind of collateral. Collateralized stablecoins are categorized into three types based on the type of collateral.
- Fiat as collateral
A stablecoin that is backed by fiat currencies like the US Dollar, EURO, or any such currency is called fiat-backed stablecoins.
- Asset as collateral
A stablecoin backed by assets like gold, diamond, or oil is called an asset-backed stablecoin.
- Crypto as collateral
A stablecoin backed by a cryptocurrency like bitcoin or Ethereum is known as a crypto-backed stablecoin.
- Non-collateralized stablecoins
These are also known as algorithmic stablecoins and are not backed by any collateral. They use algorithms to derive their value from demand and supply.
- Hybrid stablecoins
Hybrid stablecoins are a combination of the above two. They are backed by a crypto asset and are also algorithmically modeled.
Select the type
Before deciding the type of stablecoin you must build, it is important to know the kind of liquidity you need and the kind of decentralization model you want to follow.
Select the platform
Sometime back, Ethereum was the only platform to build stablecoins. However, recently, the platform has faced some major speed issues and the focus is shifting towards other platforms like EOS. Each platform has its own advantages and disadvantages. Decide upon the right platform for stablecoin development.
Liquidity maintenance strategy
To run a successful stablecoin, it is important to maintain liquidity. To monitor the same, an automated monitoring system can be integrated. Apart from that, you need to strategize a way to distribute revenues from transaction fees.
After designing the stablecoin, smart contracts are designed. These algorithmically driven contracts establish the interaction between the stablecoin and blockchain platform. Once these contracts are written, developers head to a testnet launch. After thorough developer and community testing, the mainnet is launched.
At Antier Solutions, we offer end-to-end stablecoin development services — right from the whitepaper creation, stablecoin consulting, stablecoin development to stablecoin marketing.
Get in touch with our subject matter experts to discuss your stablecoin plans.