Ever since the rise of cryptocurrencies, evangelists, and crypto believers have spoken far and wide of the benefits of a peer-to-peer, decentralized, and globally accepted currency. But, one aspect remains mostly unanswered: The price volatility.
What Is a Stablecoin?
Perhaps the one thing that hinders bitcoin from being widely used is the considerable price volatility with which it comes. No one would like to buy a coffee with 0.25 BTC one morning, only to realize that it costs 0.15 BTC in the evening.
After such market demand, researchers and developers have floated the idea of a “stablecoin.” Moreover, the world may see the first fully functioning, un-scammy rendition in the summer of 2018.
According to the Argon Group, “A cryptocurrency is stable in its purchasing power or is at most slightly inflationary as to incentivize the owners to spend their coins rather than holding on to them.”
A currency’s stability defines its rate of adoption and acceptance. And in a potential reality governed by cryptocurrencies, it is necessary to maintain low volatility to ensure all markets function smoothly.
The first step towards creating a stablecoin would be to launch a fiat-backed cryptocurrency, such that the fiat to crypto value remains 1:1, much like Tether. A guarantor would also be required to ensure the issued cryptocurrencies are never more than the value of fiat in reserve.
Although such an approach goes against the ethos of a completely decentralized payment system, it is the first logical step in that direction. For now, stablecoins simply cannot be backed by other cryptocurrencies, due to the above-mentioned price volatility. Such a system would collapse the minute an underlying crypto-asset experiences a loss in value.
Blockchain Startup Stably’s Stablecoin Product
According to the co-founder of Stably, Kory Hoang, “The digital currency economy is in dire need of a medium of exchange that is stable and more importantly, reliable. It also needs a steady value, so it can get past and see new horizons, above its current state.”
Stably’s long-term goal is to introduce a stablecoin, backed by a fiat currency, which boasts organic price stability and high reserve transparency. This goal now seems much more realistic as Beenext, the venture capital fund, and accelerator 500 Startups have fuelled Stably with their investment.
In a seed funding round for its stablecoin project, Stably has managed to raise a whopping $500,000.
The firm, founded in 2017, initiated its first round of funding in the first month of January and aims at adjusting the supply of their stablecoins based on the fluctuating prices and securing them to an underlying asset.
Stablecoins Cannot Be Decentralized
A strong competitor to the current market leader when it comes to stablecoins, Tether, is what Hoang envisions his product to be. He wrote:
“Tether’s first-mover advantage has paid off handsomely, but their dominance probably won’t last forever as more stablecoins start coming onto the scene.”
“Publicly verifiable on-chain transactions” and “quarterly reserve and transaction audits,” are some measures taken by the firm to be completely transparent with the public.
As stated on Stably’s site, the firm thinks that centralization is essential for price stability of stablecoins. This conjecture has naturally made rise a few eyebrows and decreases the luster of this currency for some.
“Our stablecoin derives its organic price stability from a centralized reserve of hard currency (e.g., Canadian or U.S. dollars) in the real world,” Hoang informs, while further establishing his point:
“While it may be true that this removes many aspects of decentralization, it is impossible for a stablecoin to possess organic price stability without actually being backed by a price-stable asset such as hard currency.”