The Who, What, Why and How

Published on by Cryptoslate | Published on

Stablecoins propose to be currencies capable of performing the functions required of digital currency with the added benefit of remaining stable.

Stablecoins can provide banking, credit and financial services to those currently un- or under-banked, a practice that is currently impractical with high-volatility cryptocurrency.

Finally, stablecoins will remain a reliable store of value on a censorship-resistant ledger, completely separated from local banking systems, currency controls or a collapsing economy.

Let's say you want to create a stablecoin equal to 1 USD. You can lock 1.5 USD worth of Ethereum as collateral, and if the value of the Ether drops, the stablecoin will still remain backed.

The scalability of the stablecoin is limited by the throughput of the blockchain the collateral is stored on.

If the underlying blockchain has privacy measures then the stablecoin will, too.

An initial allocation of stablecoin tokens is created and is pegged to another asset, for example, USD. As total demand for the stablecoin increases or decreases, the supply automatically changes in response-for instance, issuing more coins to increase the supply, or decreasing it by buying back the stablecoins and issuing bonds for future payments.

Following on the heels of several notable false starts from high-profile stablecoins, liquidity and audit-friendliness have also joined the ranks of critical markers for a successful stablecoin.

Large-scale enterprise users will require a huge degree of liquidity but may undercut the public market by opting to only use the stablecoins among a select network-somewhat in the way the U.S. Treasury used to use $10,000 bank notes for transfers.

Stablecoins will help ease consumers into digital currencies-they will be familiar enough to lend security, yet novel enough to attract interest.