Blockchain has made a significant impact on a multitude of industries. As the world of blockchain and digital assets continues to grow and develop, creating more innovative solutions via distributed ledger technologies (DLT), new use cases for digital assets come to fruition. The nascent technology has the potential to change the way we think about payment systems, capital markets, and even fiat currencies. One such emerging use case is the stablecoin.
Digital assets (i.e. cryptocurrencies) present a number of attributes and functions much needed to unlock the potential of Blockchain technology. Through digital assets, such as Bitcoin or Litecoin, a new trustless form of payment has been established — a method that is transparent, secure, instantaneous, and decentralised, but also on occasion, more volatile in value. Most digital assets have tendencies to fluctuate on a daily basis, stifling mainstream adoption.
Stablecoins are a new adaptation to the challenges faced with today’s digital assets. They are an attempt to maintain the benefits of digital assets while minimising the perceived drawbacks. Stablecoins are still digital assets in design but aim to mimic fiat currencies that are known (overall) for their relative stability. Fiat currencies, such as the US Dollar (USD), Sterling (GBP), or Japanese Yen (JPY) are supported globally in the financial markets and operate with very little volatility compared to Cryptocurrencies. Stablecoins provide an opportunity to create digital assets that experience lower volatility and offer the potential to garner higher levels of adoption.
The stability of Stablecoins derives from their value being ‘pegged’ to other assets, such as fiat currencies, traditional commodities like gold, and even other digital assets. Fundamentally, Stablecoins intend to match more conventional forms of exchange, making for a more robust, user-friendly digital asset.
A stablecoin still operates the way digital assets were intended; as a means of transaction that is easy to use, scalable, and secure, but with that enhanced stability. The underlying asset to which the stablecoins is ‘pegged’ can vary from each project that utilises them, but that pegged collateral provides a solid base upon which to value the digital asset, causing fewer fluctuations in the markets. Most stablecoins are pegged at a ratio of 1:1, many with fiat currencies, with the most popular option being USD (Circle USDC or Gemini GUSD), which can be traded on exchanges.
Stablecoins are an option to keep the many benefits afforded to digital assets, without the loss of a trusted, stable, fiat currency or other reliable assets in which to emulate their value. Within the constantly changing landscape of blockchain technology, as it moves into new industries and provides better solutions for existing legacy platforms, Stablecoins become a new option that could help bring digital assets, as a whole, one step closer into to the mainstream.
Attributes of A Stablecoin
Although a given Stablecoin may be pegged to traditional fiat currencies or a commodity such as gold, it still does not denote any means of ownership of those underlying assets. The prices are merely matched, through varying methods such as algorithmic smart contracts, to a simplified exchange ratio that acts as a base for the value.
The regulated and insured Gibraltar Blockchain Exchange (GBX) operates a trusted Digital Asset Exchange platform, the GBX-DAX. Users of the exchange are able to trade an increasing number of high-tier digital assets, including the well known major cryptocurrencies like Bitcoin, Litecoin and Ether. To enhance the user experience, our AML/KYC cleared participants are able to trade using fiat currencies, with our onboarding capabilities, creating a straightword, easy access gateway to enter the digital asset markets. The GBX-DAX, provide a platform for tokens to be listed and traded on the exchange, complying with our institutional-grade standards and DLT regulatory obligations. Stablecoins, being digital assets, would be able to be traded on the GBX-DAX. As Stablecoins rise in popularity, we may see them become a regular staple on digital asset exchanges in the future.