Are Stablecoins The Future Of Cryptocurrencies

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Stablecoins: Money of the Future

Guest post by Thomas Coughlin from Allocated Bullion Exchange

Thomas is the Chief Executive Officer of Allocated Bullion Exchange.

Stablecoins are currently the fastest growing sector of the cryptocurrency market, worth $186 billion; these constitute cryptocurrencies whose values are pegged to real life commodities like gold or the US dollar. This is opposed to traditional cryptocurrencies—such as Bitcoin or Ethereum—whose markets are very volatile and can fluctuate by 10-20 percent in the space of a few hours, causing massive uncertainty among investors.

Governments across the globe, from Australia to Sweden, are realizing stablecoins’s potential and developing their own, in addition to official blockchain funds which develop GPB and Japanese Yen-pegged coins.

Types of Stablecoins

There are numerous stablecoins on the market, which fall into three main categories: fully collateralized, partially collateralized, and uncollateralized. Uncollateralized stablecoins are designed to increase and decrease supply in the same way a bank buys and sells its debt in order to stabilize purchasing power.

The stablecoin Basis refers to this as having an algorithmic central bank and uses ‘crypto-bonds’ which have attracted criticism for being too similar to the flaws of the traditional banking system. Broadly recognized as the most reliable type of stablecoins, however, are those which are fully collateralized with steady units of value, such as gold or US dollars.

The biggest stablecoin currently on the market is Tether, which is backed by the US dollar. They claim to have actual reserves of dollars to back each unit of Tether, although critics point out there is inconclusive proof.

Mitigating Volatility

Nevertheless, despite the strength of the US dollar, it is still subject to the same volatile financial markets as other fiat currencies. Political and economic downturn devalues currencies, with measures taken to reduce government deficits, such as quantitative easing, which results in inflation.

In contrast, the price of gold has remained stable for hundreds of years—proving itself a reliable quantitative measure of value. For centuries, currencies around the world were made of or backed by gold. In fact, until 1971, the US still operated under the gold standard—a monetary system whereby the value of a country’s currency is directly linked to a fixed price of gold.

Today, central banks and government policy control monetary systems. This creates periods of economic growth— which are always followed by crashes. A central system of floating rates has had devastating, unpredictable effects on savings. In contrast, gold has a vast, stable global stockpile, growing on average only 2 percent each year from mining activities.

Era of Digital Currencies

It’s becoming more apparent that we are entering an era of digital currencies. Sweden’s central bank, Sveriges Riksbank, is in the final stages of developing the e-krona. This stablecoin is pegged to the Krona and will act as a digital equivalent of the country’s fiat currency. So far, 87 percent of global central banks are now investigating the possibility of launching their own currency-backed stablecoins, with Australia to launch theirs in 2020. Additionally, the multi-million blockchain fund Xiong’An, which is 30 percent funded by the Chinese government, is planning to launch a Japanese Yen-backed stablecoin.

Worldwide, stablecoins in their fundraising ICO phases have attracted millions of dollars’ worth of investment from reputable multi-national corporations. This proves that stablecoins are a respected alternative to traditional banking, valued for their reliable software that leaves no room for error.

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Regulations and Gresham’s Law

However, a vital element required for stablecoins to flourish is better market regulations, as many are concerned about the security and legitimacy of cryptocurrencies. Government and international bodies across the globe are already fighting this, including multi-national accountancy firms and tech start-ups, such as Elliptic.

A crucial issue also plaguing cryptocurrencies is Gresham’s law of money, which states that “bad money drives out good.” This means that if there are two or more active currencies, the most valuable currency is always overtaken as it is traded less due to investment motives. Volatile cryptocurrencies face this problem of hoarding behavior.

Stablecoins in possession of a yield system, however, promote the use of a currency whilst equally distributing back wealth. There should also be efficient measures in place to recover one’s collateralized assets, providing simple processes in which to verify or retrieve these assets. Transparency will be intrinsic to stablecoins’ future success.

Impact of Stablecoins

Stablecoins have the potential to transform the cryptocurrency scene and move blockchain technology into the mainstream.

They will encourage the use of crypto payment applications, and their steady value means they can be used daily for shopping—currently an impossibility for volatile cryptocurrencies. Industry experts widely believe that non-volatile cryptocurrencies can provide a layer of infrastructure that could immeasurably expand cryptocurrencies’ percent user base. They offer a valuable link between digital coins and fiat currencies—free from the perils of inflation—as well as providing less risk for prospective investors.

There are bound to be initial issues with innovative technologies, and stablecoins will need concrete guarantees of their stability, greater governance, and transparency before they’re projected into the mainstream. Nonetheless, they have the potential to completely transform our financial institutions in the near future.

Guest post by Thomas Coughlin from Allocated Bullion Exchange

Allocated Bullion Exchange (ABX) is the world’s leading electronic institutional exchange for allocated physical precious metals. ABX has Modernised, Globalised & Integrated the precious metal markets by redefining the way physical bullion is traded.

Are Stablecoins The Future Of Cryptocurrencies?

In the world of cryptocurrencies, which is extremely volatile, innovations often arrive nearly every hour. While only a bit over a year ago we could see the bitcoin gold rush culminate with millions of dollars invested by people who didn’t have a clue of how cryptocurrencies worked, now the focus has shifted to stablecoins.

Some people believe that stablecoins could be the future of a decentralized monetary system, others see them as a new bubble. The interest in stablecoins among the crypto enthusiasts has significantly risen. The term stablecoin designates cryptos pegged to “real” currency (typically, the dollar).

Unlike bitcoin, ethereum and other digital tokens, the volatility of stablecoins is fairly low. It’s not by coincidence that they are similar to physical currencies. Anyway, the goal of the creators of stablecoins was to bring cryptos closer to fiat money.

Chart showing the price of TrueUSD (TUSD) since it was launched

While the majority of cryptos don’t fit for standard payment transactions due to their instability, stablecoins are the opposite. Thanks to their similarity to fiat money, they are easier to grasp and more trustworthy for an ordinary consumer. In addition, the tokens are backed by real money. Example: The number of USD deposited on a bank account belonging to the creators of TrueUSD is the same as the number of issued TUSD tokens. At least, theoretically.

The price fluctuation of tenths of a percent (up to a few percents) has so far been supporting the vision of the creators of stablecoins. The long-term stability of the stablecoins is achieved in two ways: IOU and collateralization.

IOU stablecoins

Stablecoins was known as IOU (I Owe You) such as (True USD, USD Tether) are backed by underlying assets held by a particular entity on a bank account. The entity is usually an organization that takes care of the running of the cryptocurrency.

A clear disadvantage is the absence of true decentralization. Money used as backing belongs to a particular organization that can use it for whatever purpose it wants.

Collateralized stablecoins

True decentralization of stablecoins is promised by holding a financial backing through Ethereum smart contracts i.e. collateralized stablecoins (such as Dai, Gemini Dollar, Basis). Like IOU, stablecoin is funded by the same entity that takes care of its operation. However, the funds are “locked” within a contract and owned by this entity which cannot do anything about them.

All actions with the assets (i.e. transfer to another account) are taken based on the decisions of the community of holders of the given stablecoin. Collateral allows the much-needed decentralization but complicates the management of the stablecoin.

Low volatility is achieved by flexibly reacting to demand & supply. When demand is growing, organizations issue new tokens. When supply prevails they buy the tokens back to boost demand.

An example of stablecoin: USD Tether

USD Tether is one of the first stablecoins created on the concept of the bitcoin blockchain. It was first put into circulation in October 2020 by Tether Limited, a company linked to Bitfinex. Currently, there are around 1.8 billion tokens circulating in the public domain (the peak was 2.5 billion).

Due to the 1 to 1 backing by USD, the trust in tether depends on the trust of the token holders in the entity that holds the fiat reserves. Yet, the company has not presented the desired audit report so far. All that Tether Limited showed was a letter from the bank confirming the balance on its account.

Chart showing the price of Tether Dollar (USDT) over the last year

Stablecoins are everywhere!

At present, more than 50 stablecoins are in circulation (or ready to be launched). Not all of them thrive. NuBits is struggling because of negative demand/supply ratio. Despite being pegged 1 to 1 to USD, the rate used by exchanges for trading is $ 0.04 and the downward trend continues.

An example of a collateralized stablecoin is Gemini Dollar created by the Winklevoss twins. This currency built on ethereum blockchain first appeared in the market in September 2020. Like other stablecoins, it is pegged to the dollar. Trust in Gemini stems primarily from being approved and regulated by the New York Department of Financial Services. In addition, Gemini periodically publishes financial audit reports contributing to the overall trustworthiness of this stablecoin.

At the turn of the year, it is planned to issue new collateralized currencies. One of them is the Basis that has recently raised $133 million in funding.

Idea vs. reality: stablecoin market position

The key evidence of the “volatile stability” of cryptocurrencies is the way they behave in the market:

Crypto Low High High/low difference
USD Tether 0.91 $ 1.11 $ 18 %
True USD 0.97 $ 1.03 $ 6 %
Dai 0.89 $ 1.07 $ 18.37 %
NuBits 0,04 $ 1.4 $ 97.5 %
Gemini Dollar 0.97 $ 1.18 $ 17.8 %

Table comparing various stablecoins

The table demonstrates that in terms of price, Tether is more stable than Dai, but less than True USD. The value of NuBits, struggling to strike an equilibrium between demand and supply, continues to fall.

Don’t you think that things are evolving in the opposite direction than they should?

  1. Tether
  2. True USD
  3. Carbon USD
  4. USD Coin
  5. Gemini Dollar
  6. Basis
  7. BitUSD
  8. Dai
  9. Ubitz
  10. Rockz
  11. Vault
  12. Paxos Standard Token (PAX)

Author

More about the author J. Pro

Unlike Stephen (the other author) I have been thinking mainly about online business lately. I wasn’t very successfull with dropshipping on Amazon and other ways of making money online, and I’d only earn a few hundreds of dollars in years. But then binary options caught my attention with it’s simplicity. Now I’m glad it did because it really is worth it. More posts by this author

Standard Chartered’s Virtual Bank, Mox Will Usher in New Era of Banking for Hong Kong

By Lucas Cacioli Apr 09, 2020 2 Min Read

Mox Bank Limited, or Mox, the new virtual bank in Hong Kong recently launched by Standard Chartered , has now been made available to select customers via invitation in an external pilot. The aim of the pilot is to prepare the state-of-art virtual bank for the public launch scheduled for later this year.

According to the official release , D eniz Güven, CEO of Mox, said : “This external pilot is a critical step for selected external customers to use Mox, share their feedback with us and help us to refine our services. We are excited about this co-creation of Mox with customers, as we seek to make banking easier, simpler and more delightful. ”

Standard Chartered’s landmark virtual bank project was finally named Mox earlier last month . The bank was announced with the the stated mission help ing everyone in Hong Kong grow – “your money, your world, your possibilities.”

Güven spoke to that effect in the release when he said, “Mox is in the business of trust, and our goal is to win your heart share. We are delighted to begin this journey with our first generation of Mox customers.”

Mox Will Be a GameChanger

Hong Kong’s currency board and de facto central bank, the Hong Kong Monetary Authority (HKMA), introduced the virtual banking license in 2020 for a “new era of smart banking.” Since then, there have been eight licenses granted , one of which include d S tandard C hartered Digital Solutions Limited – the working title for MOX at the time. , the Virtual Bank by Standard Chartered (official name to be revealed), a joint venture between Standard Chartered Bank, PCCW, HKT, and Ctrip. HKT and parent PCCW are one of the dominant telecommunication companies in the region.

Virtual banking services in Hong Kong are set be a gamechanger and a disruptor for the financial services industry. have been popular in Europe, and the United Kingdom has coined an alternative term for virtual banks, known as the ‘challenger banks’.

The pilot will allow the invited customers of Mox Limited to experience the intial, yet impressive, suite of services which include quick approvals for loans and efficient account openings within a few seconds and with no minimum balance as well as cutting edge security and privacy maintanence.

According to Mox, everything is based on extensive research to identify what truly matters to customers and to solve real world pain points and the impressive list of feature does seem that they have thought it through to their “ Generation Mox ” customers.

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