One of the main characteristics of cryptocurrency is high volatility. Some users use it to their advantage, but for most it is inconvenient. Cryptocurrency can not be used as a means of payment, a medium of exchange or a commodity, if its value is unpredictable and changes twice a month. This is one of the main reasons why the introduction of cryptocurrency in the daily life of a person is so slow. The solution to the problem of volatility was sought repeatedly. One of the most successful and promising solutions was a special kind of cryptocurrency – stablecoin!
Stablecoin: what is it?
Cryptocurrencies were originally conceived as a decentralized means of payment, unrelated to traditional valuable assets and trying to distance themselves from assets.
Practice has shown that it is impossible to isolate completely from fiat currencies the exchange rate and the value of any cryptocurrency. It is determined primarily by fiat currency, most often the dollar. From this circumstance followed an obvious conclusion to maintain the stability of the cryptocurrency, you need to tie it to the dollar.
At the same time, it became clear that not only the dollar can be the key to the stability of cryptocurrency – any traditional valuable asset can become one. So there were ideas regarding the binding of cryptocurrency to gold, oil and other assets, long established with the traditional economy.
Further more. Now ideas are being expressed that cryptocurrencies can be tied to anything at all – from real estate to labor. Any product in demand in the world that fully provides a certain cryptocurrency will make it stable and stable.
These currencies are called stablecoins or simply stable cryptocurrencies. Stablebcoins are a type of cryptocurrency, which is 100% secured by one or another traditional valuable asset.
Unlike conventional cryptocurrencies, the price of which is largely determined by abstract factors and therefore highly variable, stablecoin fully attached to the value and rate of the asset, which are provided, therefore, have a stable price. That is, low volatility.
Stablecoin: the history of formation
The idea of creating stablecoin more or less officially appeared in 2012 in the documentation attached to the first version of Mastercoin. The founders reported that the Mastercoin protocol will allow realizing the binding of a cryptocurrency to a sustainable traditional asset.
The first full-fledged stablecoin based on these developments appeared only in 2015. The Tether cryptocurrency is the only one that exists to this day. Initially, it was pegged only to the dollar at the rate of 1-1 and was designated USDT.
A European analogue appeared in 2016. It was called, respectively, EURT. Later added the Japanese yen. Both subsequent currencies did not receive such distribution, as dollar.
Tether’s policy was to keep an amount in the reserve bank account corresponding to the number of coins issued. That is, if USD 50 million were in circulation, then Tether Limited should have been in reserve $ 50 million, and so on.
Coins were tied to 999.9 gold at the rate of 1 coin to 1 gram of gold. The gold that provided them was kept in a bank safe in Singapore. Directly stablecoin was a cryptocurrency DGX, reflecting the amount of gold in the Singapore bank, which was owned by the holder.
In addition, DigixDAO had DGD tokens that were paid for various operations with DGX and were not stablecoins because they were not secured with real gold, but DigixDAO’s reputation as a project that created the digital version of gold.
Many Dubai’s OneGram crypto project tried to turn gold into a cryptocurrency, which also offered one OneGramCoin for 1 gram of gold, Xaurum from Slovenia, Russian GoldMint, Malaysian HelloGold, AurumCoin and others.
There are also “silver” projects – Silvercoin, EthereumLink and Silver Back Coin. The Israeli developers tried to tie the diamonds to cryptocurrencies, releasing the Carat coin. In addition to them, stablecoin such as D1, Sparklecoin and Kela were based on the cost of diamonds at different times.
Oilcoin announced in the US as a cryptocurrency alternative to oil. One barrel will be equal to one coin. Oilcoin significantly ahead of Bilur, which appeared almost a year ago. Unfortunately, due to the not very convenient implementation of the currency remained unknown.
Now there are dozens of cryptocurrencies that are tied to a particular material value. Promising against the background of other looks “zirconium” ZRcoin, due to the popularity of not only zirconium dioxide, but well-conducted ICO.
A promising asset for cryptocurrency is lithium and other chemical elements that are actively involved in modern industry, nanotechnology, and so on.
Stablecoin: key benefits
Essentially, stablecoins can be considered to be entered into a cryptomarket by dollars, gold, oil, and so on. Naturally, compared to other coins that do not have such a powerful base, they are much more stable.
Take, for example, the mentioned Tether. 1 USDT should always have been worth 1 dollar. In fact, the maximum cost of USDT was $ 1.05, and the minimum was $ 0.92. However, this happened in moments of strong fluctuations in the crypto market and negative events related to the functioning of the currency itself, such as hacking and asset theft in excess of $ 30 million, which occurred in the fall of 2017.
Other cryptocurrencies after such events could have collapsed altogether, or at least their course would have decreased very significantly. The USDT fell by only 8% – despite the fact that by 8%, some cryptocurrencies periodically fall by themselves, without significant reasons.
During the strongest shake-up of the crypto-market before the New Year, when many currencies fell by 30–70%, Tether again stood at 8%. It is not known what will happen specifically with the USDT due to how developers react to events, but by itself the provision of the currency with the dollar of expectations justified.
In fact, a qualitatively implemented dollar stablecoin will allow the use of a dollar on crypto-countertops. Now, many Fiat exchanges do not support, and those that support, as a rule, require the user to pass verification.
For users who prefer to keep their savings not in banks, such a “cryptodollar” will help protect themselves from traditional financial structures. Of course, this also applies to other currencies secured by other assets.
A seller who wants to sell goods for $ 100 can, with almost no fear, accept 100 units of a dollar cryptocurrency, since they will not only be $ 100 at the time of purchase, but will remain in the future, even with market fluctuations.
DigixDAO implementations consist in the fact that the company has created a special decentralized user base in which each gold bar from the Singapore bank is reflected in the form of the program code of the blockchain or, more simply, the DGX coin. That is, each coin is literally provided with a specific ingot.
Finally, if a cryptocurrency is a code that is recorded in a computer’s memory, then a traditional asset often requires special storage conditions, funds to ensure these conditions, and so on.
Costs are often paid by the asset owner. For example, the storage of gold in the form of a DGX coin will cost 0.39% per year. Coin developers reimburse holders for expenses in the form of DGD, but DGD, unlike DGX, as already mentioned, is not directly secured with gold.
What awaits stablecoin next?
These drawbacks keep crypto users today from using stablecoins. Such a position cannot be called completely unjustified, because the stablecoins still represent a good idea, but are not ready to be introduced into everyday life because of insufficiently reliable implementation.
However, in general, they seem to be a promising type of cryptocurrency. Perhaps it is the stablecoin that will be the first to enter everyday life in the form of money, which will be provided with some kind of demanded goods, such as real estate.
Cryptocurrency transactions in this area seem to be very promising in general, since they make it possible to avoid a lengthy procedure for buying and selling an object through smart contract technology. The appearance of a special currency on the basis of smart contracts, which will correspond to the value of real estate, seems logical.
Another scenario is possible – when the development of the stablecoin goes further along the path of turning the most stable traditional assets into digital money. In this case, we should expect several varieties of digital dollars, euros, yen, rubles and other fiat currencies, as well as digital analogues of minerals and even shares of a number of corporations.
And who knows, perhaps a reliable stablecoin, recognized both by the crypto community and the traditional economy, will be able to become a rival to Bitcoin in everyday use, because it will be supported not only by the advantages of blockchain technologies, but also by real value.