INDUSTRY COMMENTARY: Stablecoin currency leaders comment on price volatility and bear market

INDUSTRY COMMENTARY: Stablecoin currency leaders comment on price volatility and bear market

June 28, 2018 0 By Ray

As the price of cryptocurrencies have sank to their lowest point in eight months, investors are looking for alternatives that offer the benefits of cryptocurrency, like decentralization, without the enormous price volatility to which most are susceptible. Since stablecoins are pegged to assets like the U.S. dollar, they lack the volatility of most cryptocurrencies. Stablecoins also provide a safe place for investors to store their capital during a crypto market crash, without the hassle and fees that come with transferring back to fiat currency.

Please see below commentary from several cryptocurrency space leaders on the advantages that stablecoins provide in a cryptocurrency market downturn:

  • Danny An, Co-founder and CEO of TrustToken, the blockchain platform that facilitates legally-enforceable ownership and control of real-world assets assets. TrustToken has created TrueUSD, a stablecoin pegged to the U.S. dollar
  • Scott Nelson, CEO of Sweetbridge, a global alliance that aims to leverage blockchain technology to enable frictionless commerce. Sweetbridge’s protocol uses a stablecoin, Bridgecoin, that can be used as an easily accessible liquid transaction currency by participants
  • Eiland Glover is the CEO of Kowala, the blockchain company behind the only assetless stablecoin autonomously pegged to the USD. Eiland can speak to the unique ability of stablecoins to open up access to the global economy, particularly for those in countries with highly volatile fiat currencies — such as Venezuela’s bolivar.

Commentary from Danny An, Co-Founder and CEO of TrustToken

The demand for stablecoins has increased as cryptocurrency markets experience a downturn. This trend reflects a growing recognition that stablecoins offer many of the same benefits of popular cryptocurrencies like Bitcoin and Ethereum, such as the ability to conduct seamless cross-border financial transactions, without the risks of price volatility. Stablecoins also save time and money for traders compared to transferring their crypto assets in and out of fiat currency.

Stablecoins are particularly useful in the context of the current bear market for cryptocurrencies as traders look for ways to secure their positions without moving out of the market completely. Fully compliant and fully collateralized stablecoins that are backed by the US dollar, such as TrueUSD (TUSD), provide traders and investors with a viable way to hedge while other cryptocurrencies may significantly depreciate or experience fluctuations.

Commentary from Scott Nelson , CEO of Sweetbridge

Given the volatility we’ve seen in crypto markets over the past year, stablecoins that can maintain their value against a fiat currency or a basket of currencies are clearly a critical tool for proper portfolio and treasury management – though the search for a stablecoin that can maintain such a peg in a sustainable and scalable fashion continues.

However, Sweetbridge sees the true potential utility of a price-stable coin not in crypto trading but in real-world commerce – the market for which completely dwarfs the size of any crypto market. To be adopted as a medium of exchange in a supply chain and commercial setting, such a currency would need to be not only stable in value but also sufficiently liquid so as to function as a cash equivalent on a company balance sheet. This stability and exchangeability, in conjunction with proper AML/KYC considerations and legal recourse provisions, will constitute, once developed, a true breakthrough application of this technology.

Commentary from Eiland Glover, CEO of Kowala

With the legacy banking system, people are essentially forced to give up their privacy and control of their funds in order to protect themselves from theft and to complete many types of transactions. Cryptocurrencies like Bitcoin and Ether solve these problems by allowing users to store and spend digital assets conveniently and securely—all while retaining total control. While these decentralized networks solve important problems, however, they also create new ones. Foremost among these is the extreme volatility of most cryptocurrencies.

The prospect of storing the Bitcoin you bought at $20k on the blockchain and watching it shrink to $6k is not superior to using a bank account. If we want to make cryptocurrency useful as a day to day means of payment and reliable store of value, we must find a way to create stable cryptocurrency.

Projects like Tether, TrueUSD, and the upcoming Circle stable coin attempt to solve this problem by creating cryptographic IOUs backed by real dollars stored away in some vault. These asset-backed tokens are NOT cryptocurrencies, however, because they are still fully centralized.

But we do not have to give up the benefits of true, decentralized cryptocurrencies in order to get stability—we can have both. Cryptocurrencies like kUSD, the stablecoin we’re building at Kowala, retain the benefits of decentralization while also creating stability.

kUSD is not asset-backed at all. Instead, just like Bitcoin, it is “backed” by nothing other than mathematics and market forces. kUSD features stability algorithms that allow the kUSD blockchain to act like a robot that monitors its price on exchanges and constantly and transparently adjusts its money supply bring supply back in line with demand, maintaining stability.

Self-interested traders can predict exactly how the money supply will be adjusted under varying market conditions because those unchanging rules are baked right into the blockchain. This means they can front-run the algorithms and make profitable trades whenever the price fluctuates even slightly around $1. Traders thus help hold kUSD even more firmly at its target price and provide the liquidity the market needs.

This symphony of software and self-interest is enabled by Kowala’s two-token system, which includes the stable cryptocurrency, kUSD, and also a separate mining token, called mUSD. Holders of the mining token use it to stake their proof-of-stake mining nodes that run the network. In exchange, the miners benefit whenever the demand for the kUSD stablecoin increases, which, in turn, triggers the blockchain “robot” to issue new kUSD stablecoins. These are paid to miners in the form of block rewards.

The mining tokens also allow the kUSD blockchain to function at a very high speed, high volume, and low cost.

Soon, technologies like kUSD will transform cryptocurrency use by allowing people to benefit from the advantages of decentralization without volatility. When this happens, we will finally have cryptocurrency ready for mass adoption.