In the world of virtual and digital money, there are quite a few interesting options to pursue. Cryptocurrencies are all the rage right now, but they may not necessarily be the end-all solution to some of the problems in the financial sector. Stablecoins – not to be confused with the Stablecoin cryptocurrency – make a lot of sense in this regard as well, mainly because their values are pegged to something else with value. This helps reduce volatility, broadens their mainstream appeal, and may offer some other interesting features down the line.
Stablecoins can Exist and Thrive
In most parts of the world, there is no such thing as a stable form of money. Even fiat currencies are subject to fluctuating exchange rates, diminishing purchasing power, and massive inflation. For their part, major cryptocurrencies are subject to massive volatility, which makes them both attractive to speculators and unsuited for mainstream use.
Reducing this volatility has proven impossible so far. At the same time, there have been a few projects which have tried to do something similar to stablecoins, although very few of these efforts have been successful in the long run. Tether is the current stablecoin in existence, although it is subject to massive scrutiny due to its rapidly increasing supply and lack of independent auditing. It isn’t all that easy to create a stablecoin unless you are, unfortunately, a bank or a government.
By definition, a stablecoin is an asset – not a currency – which offers price stability characteristics. It is mainly designed to be used as a unit of account and even as a store of value. So far, most assets have been subject to wild volatility at times, even those that are considered to be a strong store of value. Gold, for example, has always been a safe haven as a store of value, even though its price per ounce has been anything but stable.
Some people would like to think the US dollar is a stablecoin, but that is not entirely true. More specifically, it experiences both volatility and inflation, and its purchasing power fluctuates quite a bit. At the same time, it is still a pretty reliable unit of account and a store of value. Sadly, it’s not something individuals can control themselves, as all US dollars are the property of the Federal Reserve. It is difficult to find a stablecoin which people can control at any given moment.
Whether or not we will ever see such a stablecoin remains to be determined. Smart contracts could help keep a stablecoin’s value stable and make it an effective unit of account. If we were to take the digital route, it is likely a counter coin would need to be created as well. The stablecoin could be backed by collateral in any form of value, including cryptocurrency. The counter token would potentially earn interest from the borrower of a stablecoin.
An example of a stablecoin and a counter token in the crypto world is NuBits and NuShares. It is not a perfect system by any means, yet it goes to show there is a lot of potential in the world of digital stablecoins. Whether or not any team will succeed in bringing such a project to the masses remains to be seen. It is certainly something worth looking into, although it will require a lot of work and research.