What are StableCoins?

2018 could even be called the year of the Stablecoin

If Bitcoin has become a digital gold crypto asset that’s spurred a new ecosystem of cryptocurrencies, stablecoins are one of the types of altcoins that are becoming more mainstream in 2018.

With the hyper-inflation that’s occurring in countries such as Venezuela, stablecoins are seen by some to be the answer to help national currencies that are experiencing a state of extreme flux. In this regards when even the likes of Forbes calls stable coins the latest entrant in crypto’s search for utopia, they are actually on to something.

While crypto markets remain incredibly volatile and unpredictable by nature, stable coins are designed to remain the same. Stablecoins are altcoins designed to represent another stable asset — such as fiat money or even gold. Stablecoins, in this light, provide a way for easy trading of crypto assets without the usual high risk that accompanies trading of cryptocurrencies as extremely volatile assets.

Commonly known stablecoins you may have heard of are Tether, worth exactly one US dollar and the 8th most valuable altcoin on coinmarketcap. There’s some evidence large scale Tether trading can manipulate Bitcoin’s price. There are many more well known stablecoins such as Havven, Digix Gold, TrueUSD, USDX, MakerDAO, Basecoin, Carbon, etc…

Stablecoins are getting Validated

While stablecoins are not that new a genre of cryptocurrencies, their use case in 2018 is becoming a lot more clear and providing validation. After privacy altcoins they might be one of the most discussed kinds of cryptocurrencies. The reason is obvious with volatility being nearly synonymous with cryptocurrency trading and with a few countries each year at risk of or experiencing hyperinflation with grave consequences.

The invention of money as a widely adopted form of exchange of value likely occurred as recently as 14,000 to 7,000 years ago. Bitcoin and blockchain with cryptocurrencies does herald a new kind of digitization of money and trust. Taken in this context, stablecoins represent an important intermediary between value at a time of great flux with so many altcoins, kinds of trading and investment and the uncertain future of fiat and paper money itself.

In 2018 stablecoins are no longer alone in the wild, the world is realizing the incredible value they are going to have. In times of economic crisis and breakdown of the value of fiat currencies, crypto stablecoins could be incredibly useful for easing how consumers navigate such periods of financial and even political uncertainty.

If Bitcoin and cryptocurrencies were perceived by banking and government as rogue digital currencies that developed from some counter-cultural element, it’s more than a bit ironic that the best stable coins might actually, far from being used as nefarious means, help maintain order in times of civilization's upheaval. If privacy coins are like an anonymous untraceable means of exchange on some dark web, stablecoins could be just the opposite. 2018 has seen a lot of widespread adoption of blockchain and crypto by enterprise, government and banking consortia as well as the rise of hundreds of new crypto hedge funds and altcoin discovery and crypto-trading ecosystems.

While stablecoins certainly aren’t a sexy holy grail of cryptocurrencies, like scalable dApp blockchains might be, they are a promising safe haven where value could be stored during volatile periods in the market and as a more decentralized and trustworthy means of exchange and transaction.

Whatever stablecoins are today, many of the most interesting projects even in 2018 are definitely still in the development or closed testing phase of their implementation. As such, while I’m extremely optimistic about stablecoins, it’s a validation of crypto that, like blockchain adoption, will take some time.

According to Whitepark Capital, stablecoins are cryptocurrencies that are usually backed by another asset, in most cases, a fiat currency like the US dollar, a commodity like gold or silver, another cryptocurrency, or in the case of a seigniorage share stablecoin, economic policies. As such, stablecoins are helping crypto make connections we previously didn’t suspect would occur. As companies such as Coinbase and Binance grow up and ecosystems like Bakkt are born, I think we will witness new applications of stablecoins we haven’t even thought of quite yet in 2018.

Crypto is challenging the ways we conceive of decentralization, trust, investing, trading and unfortunately for 2018 crypto’s volatility has also hurt mainstream interest of investors in altcoins. Thus if volatility has hindered the trust of cryptocurrency market valuations, we have to admit the decentralized economy is just now being born and that rapid price fluctuations themselves inhibit the value proposition of altcoins as valid means of exchange, thus stablecoins bring some hope of how crypto assets could actually become digital money or real cryptocurrencies in the real world. Stablecoins are thus likely more important than many crypto investors realize.

Stablecoins as Crypto Intersecting Societal Impact

Stablecoins could more easily adhere to regulation, have a trusted and stable value and be a useful construct for fiat currencies to start to create a blockchain version of their currencies. In a world where Wall Street itself has become more volatile, where there exist trading wars and where we are possibly due for a next global recession, in 2018 it’s becoming clear that stablecoins are a focal point for the intersection of crypto and societal impact and social good.
Nobody wants dreaded hyperinflation of their fiat currencies and with central banks inevitably using (digital) fiat currencies on the blockchain, stablecoins have a truly remarkable future. Since by their very nature stablecoins are crypto-assets that maintain a stable value against a target price (eg. USD) for regulation, user experience and specific transactions they could be far superior in real-world use cases.

While it’s still early days for stablecoins you can see the main ones here on a stablecoins index. CryptoSlate also has a list here. We know that the leading stablecoins will offer incredible convenience and could theoretically even come from a payments or retail brand. There’s no doubt that the financial incentive to create a leading stablecoin is immense — but the protocol design remains challenging.

While several altcoins are stores of value and units of account, how many are truly mediums of exchange? For digital money to work it needs safeguards to ensure that it is trustworthy and for that it needs to be stable, or relatively stable enough in its value to obtain mainstream adoption.
In 2018 cryptocurrencies are indeed not simply the refuge or escape hatch from today’s monetary and financial system bereft with corruption, they also represent its future.

Centralized crypto exchanges, crypto hedge funds and more scalable public blockchains are just the beginning. Decentralized crypto exchanges and more radical utilization of blockchain and cryptocurrencies are on their way. Stablecoins represent a notable part of that collective future, one based on decentralization that empowers us all — while minimizing the risks of the global economy itself and the future of crypto of how we exchange value online.