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Stablecoins are a subtype of cryptocurrencies that have their value pegged to a price-stable asset such as fiat currencies, commodities, or other digital assets. Stablecoin projects achieve this through ensuring that every token issued represents a specified quantity of the underlying asset being held in custody or on-chain. Regular or real-time auditing helps these projects to prove to users that no double spend or on-chain rehypothecation takes place.
While stablecoins have existed for a number of years, their prominence is quite recent and born out of concern for other cryptocurrencies’ price volatility. After the ICO boom of 2018, which left investors holding vast amounts of worthless altcoins, stablecoins emerged as an attractive option because of their tangible peg to a more reliable asset.
Today, leading stablecoins include Tether (USDT), Circle USD (USDC), and Paxos (PAX) in USD currency and Stasis EUR for Euros for example. Tether (USDT), the most well known stablecoin with an enormous market share, was launched in 2014 and since then has placed a spotlight on stablecoins even amongst traditional financial audiences. Though stablecoins have had their trials and tribulations, this particular form of digital currency has maintained its status as a trustworthy, reliable asset, with the potential to bridge the gap between traditional and crypto finance.
Stablecoins in the Real World
Stablecoins have several, varied use cases to boast, while relieving investor concerns about heavy price volatility in cryptos such as Bitcoin. For example, stablecoins have grown in popularity as a good hedging instrument for crypto traders. As the name implies, stablecoins are designed to be stable, setting them apart as an ideal safe-haven asset during periods of market fluctuation. Stablecoins deliver much-needed predictability and reliability for traders. The use of stablecoins in everyday crypto trading is growing swiftly; Tether was used in 40% of the transactions on Binance and 80% on Huobi, two of the world’s biggest exchanges.
Payments are likely to be another major use case for stablecoins in the future. Stablecoins are attractive to businesses as they eliminate the high transaction fees (approx. 2% per transaction) associated with credit cards. Ultimately, it’s a win-win for both consumer and business. Businesses avoid the transaction fees associated with credit cards and retail consumers gain access to instantaneous, cost-effective payments. Lack of fees, high speed transactions, and heighted efficiency will ultimately translate into wider reach. Flaws in traditional systems may drive individuals to trust fintech solutions and adopt crypto. Stablecoins are making crypto payments far more viable.
Cryptocurrencies’ capacity as a borderless store of value has proven to be highly sought after. For example, in Venezuela, sending money abroad is subject to high transaction fees, physically transporting money out of the country can lead to confiscation, and use of the country’s fiat currency is hindered by heavy inflation. Venezuela’s population has already famously turned to Bitcoin, but stablecoins would provide an even better solution — a store of value superior to Bitcoin that is not subject to market volatility. Stablecoins could be seen as a “universal” means of payment facilitating cross-borders payments.
While stablecoins are undoubtedly gaining prominence, particularly in the above mentioned use cases where they provide a stable store of value and reliable payment option, this form of digital currency is still in its early stages of development. The reality remains that more enhanced market infrastructure is needed to build a legitimate market for stablecoins to flourish.
Stablehouse is a market leading payment and FX exchange platform serving stablecoin issuers, merchants, end users, and traders. Our solutions address the issues of inconsistent liquidity, lack of transparency, insecurity, slow speeds, and inaccessibility which are currently preventing the stablecoin market from reaching critical mass. We are here to make mass adoption happen, filling vital gaps in the market today through our exchange platform for traders, POS system for merchants, and payments app for retail consumers.
Putting stablecoins into the hands of everyday retail consumers will require advanced payment technology at multiple levels — both for the consumers themselves and for the merchants to accept such currencies. Stablehouse has developed POS systems for merchants in Bermuda, to be rolled out globally in the future, to accept stablecoin payments. Consumers will be able to download a Stablehouse payments app to store and pay in stablecoins. All of this will be complete with know-your-client (KYC) and anti-money-laundering (AML) procedures.
Further to this, a clearinghouse of stablecoins that allows for the immediate quasi-fungibility between stablecoins is absolutely necessary to maintain the frictionless exchange of stablecoins via today’s leading cryptocurrency exchanges. The clearinghouse in development by Stablehouse will be similar to a check-clearing process between banks but at a far more efficient pace.
To learn more about Stablehouse and our work in driving forward the mainstream adoption of stablecoins, visit stablehouse.io, or follow us on Twitter at @stablehouse_io, or LinkedIn at https://www.linkedin.com/company/stablehouse/.