What’s ahead for stablecoins?

August 5, 2019

Stablecoins have received a lot of attention recently, in part as a result of the news around Facebook’s Libra crypto project. But a great deal more is happening in this space and you may be wondering what’s ahead for stablecoins in 2019 and the following years. We’d like to share our views on this. First, a quick recap.

What are stablecoins?

Stablecoins belong to a family of cryptocurrencies, where the value of the coin is pegged to the value of another, usually highly liquid, stable asset. They function in a similar way to electronic tokens paid with on WeChat or AliPay - fast transactions, lows costs - but instead of being recorded on a centralised ledger, transactions of stablecoins take place on the blockchain. 

How stablecoins maintain stability can be achieved in different ways:

  • Fiat-backed: Some stablecoins are backed by fiat currency. Upon deposit of fiat, a stablecoin is issued by the firm, which then holds the deposits in their reserves for future redemption. This type of stablecoin can also be backed by a basket of currencies. Tether’s USDT is a fiat-backed stablecoin. 
  • Crypto-collateralised: In this case, stablecoins are backed with other cryptocurrencies, held in a smart contract. The amount of crypto used to back up these stablecoins exceeds the value of the stablecoin itself, so that price fluctuations of the underlying crypto do not affect the value of the stablecoin. Coins such as stable.PHP, bitUSD, and bitCNY are crypto-collaterised stablecoins.  
  • Asset-backed: These stablecoins are backed with tangible or intangible assets that has usually has economic value, such as USDVault which uses precious metals. 
  • Algorithmically stabilised: These stablecoins attempt stabilisation through algorithms that may, for example, control the supply of tokens to influence price. There aren’t many of these types of stablecoins yet as the technology is still being refined, but NuBits’ USNBT is one of the more successful projects.

So, what’s ahead for stablecoins? 

1. Central bank alert 

Following the announcement of Libra, the People’s Bank of China has already indicated it will be issuing its own digital currency. Likewise, in The Philippines, UnionBank will be issuing UPHP, with support from the country’s central bank. 

We believe we’re going to hear a lot more from central banks who will have to address concerns over risks associated with monetary policy, capital flight, money laundering, but also consumer protection. Some banks may decide to issue their own stablecoins. Others may step in to issue licenses on strict conditions, and allow access to central bank reserves. 

This development forms part of a larger trend, where we’re going to see a lot more regulation come into this space.

2. Innovation of stablecoins for different use cases

Some stablecoins are less easily regulated than others. We believe we’re going to see a lot more innovation happen around stablecoins in the private sector. 

Large firms, including Facebook, or even Walmart which is mulling its own stablecoin, are likely to fall within the purview of regulators due to their preference for fiat-backed stablecoin models, and thus may get caught up in long-lasting legal procedures. 

Private companies and entrepreneurs that focus on decentralised solutions - such as crypto-collateralised and algorithmically stabilised models - may find it easier to deploy their products. As a result, we’re going to see different types of stablecoins take off - pegged to different currencies and assets, addressing different use cases. 

3. Integrating markets

As more stablecoins, pegged to commodities and different currencies, become available, we’re going to see a lot more mobility between traditional markets and crypto.

This is something we’re already seeing with our own stablecoins. In addition to offering bitUSD, bitEUR, and bitJPY, we’ve also created stablecoins for the Hong Kong Dollar (sparkdex.HKD), the Philippine Peso (stable.PHP), and have planned to roll out a lot more stablecoins pegged to local currencies such as the Indonesian Rupiah and Vietnamese Dong. Eventually we will create stablecoins for each of the world’s 180+ local currencies. 

What we’re seeing is that stablecoins are facilitating access to crypto as well as making it easier for people to convert crypto to cash

Once on our platform, it’s pretty common for users to trade into different tokenised currencies and crypto assets to spread risk, without having to go through brokers. 

We believe we’re going to see more of these bridges between fiat and crypto. This will benefit the industry greatly and bring more capital into the market. 

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