Ever since the US banking regulator — The Office of the Comptroller of the Currency has approved the use of stablecoins in financial transactions, the banking sector and crypto community has put the limelight on stablecoins. In this article, we’ll learn how to create and launch a stablecoin and understand the different aspects related to stablecoin issuance.
During late 2016, crypto tokens had a boom along with the growing popularity of bitcoin and other cryptocurrencies. Eventhough initially the crypto tokens were sought as a means to serve a particular utility, the agenda didn’t succeed in most of the utility tokens that were launched in the market. As the issued cryptocurrencies and tokens became extremely volatile, buyers gradually started to consider it as an investment. For example, see the image below, showing the volatility of a crypto asset named NEO. Over a week’s duration the value of the assest had increased from $16 to $25 and again dropped to $22.
A solution for the high volatility of cryptocurrencies turned out to be the need of the hour and as a result, the best cryptocurrency elements were clubbed with the stability associated with the FIAT currency, and tada! stablecoins were formed. This article takes a 360-degree view of the stablecoins and aims to educate you on the below topics:
A stablecoin is a cryptocurrency that withstands the fluctuations associated with the emerging market scenario. In simple words, this is a digital currency or crypto with its value pegged to the value of a commodity. It offers the benefits of cryptocurrency sans extreme volatility. For example, see the image below that shows the volatility of stablecoin named Tether. You can notics that the value fluctuation is almost negligible.
So stablecoins offer the benefits of being ubiquitous ledgers and are also used for payments that can be verified and recorded without the interference of a centralized financial settlement.
This subsidiary of cryptocurrency has seen tremendous growth in terms of market acceptance only because it offers reliability and can be used as a convenient medium of transactions, especially in the e-commerce space. In an article based on a market report, the global trading volume of stablecoins saw a tremendous surge from $12,5 billion to $82 billion through 2017 alone. The same report states that there had been a quadruple rise in stablecoins in 2019.
More recently, a block data report states that in January 2020, an estimate of 134 stablecoins was present in the market, out of which around 50% of the currencies are built on Ethereum alone. The main reason for this massive acceptance is the fact that it can be used as liquid digital cash for a seamless online transaction without the hassles of changing the currencies.
Now we have established that stablecoins unlock the benefits of decentralized technology in a way that stands still against the tides of inflation and deflation in the world economy. To take this further, let’s delve in and answer the question-
This question is isomorphic to “what are the benefits of launching a stablecoin?” So, we have jotted down some crucial points which will surely answer the question.
Stablecoins are perceived to be the future of day to day transactions and aspire to achieve the functions of FIAT money has today. When the bitcoin prices fell from $20,000 to $3,000 in 2017-18, and then partially revived to $15,000 in 2019, the stablecoins came as a light of hope and continue to take a positive lead in 2021 as well.
As of today, federally chartered banks are allowed to use stablecoins, or cryptocurrencies with relatively stable prices, for standard banking transactions like payment activities. In the near future, we can expect more relaxations in usage of stablecoins across different industries.
The stablecoin’s stability is self-explanatory to being an imperative choice for owning your cryptocurrency. Since you can peg a stablecoin into a stable FIAT currency or a commodity like gold, you can use this cryptocurrency as a vehicle to exchange currencies without a financial institution playing a mediator role.
Since stablecoins help you use safer and smarter financial protocols on the existing blockchain network independently, all the automatic stablecoin transactions are transparent. This transparency also makes such transactions traceable. It eases the payment processes related to loans, salary, subscriptions, and other corporate payments.
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Such automatic transactions are transparent, irreversible, and traceable and, therefore, are ideal for loan payments, salary, subscriptions, and rent payments.
Cryptocurrencies no doubt diminish the gap between global traders, but only a few of them support fiat currencies owing to the strict regulations. Since stablecoins offer crypto FIAT trading pairs you can easily use them for cross-border transactions without changing the currencies.
Therefore, even if you are in the US, you can easily send the stablecoin to your client in India without the additional processing fees or the losses you may incur while changing the currencies.
Now that you know the benefits of creating stablecoins, you need to understand its types as well, right?
Let’s delve into it right away!
As the name suggests, this stablecoin is pegged into FIAT currency at a 1:1 ratio. To ensure such a cryptocurrency is collateralized at all times, you will need to perform regular auditing requires constant auditing.
These stablecoins depend on an algorithm that uses the difference in the value of money and the printing cost, which changes the supply volume to control the prices. It is based on the Seigniorage shares system.
The cryptocurrencies like Bitcoin and Etherium can be used as collateral instead of FIAT currency to create stablecoins. These compensate for the volatility of conventional cryptocurrencies as disregard the use of a 1:1 ratio for the crypto lateral.
Real priced commodities like real estate, gold, and other precious gems and metals can be pegged into the cryptocurrency to form a stablecoin. These prove to be a tangible asset to back up your business or savings.
As now you are familiar with the types, let’s get to the crux of the article:
Let us discuss this step by step:
You must know your business intentions for creating a stablecoin. For example, if stablecoins for you is a long term investment, then creating collateral or algorithmic stablecoins is the best for you.
To make the best decisions you must find answers to:
Once you figure out the answer to these questions, you will be able to identify what type of stablecoin is the best fit for you. So you can move on to the next step to find the best platform to launch your stablecoins.
When stablecoins were first developed, the only option to launch them was at Ethereum, but not today. From 2016 to 2018, stablecoins were predominantly launched at Ethereum, but you have many more options with increased popularity. New entrants in the blockchain market like Tron, EOS, and others gave way to several stablecoin projects from 2019.
Even with these technologies, more than 50% of the stablecoin projects through the year 2019-2020, were launched on Ethereum. It offers better interoperability and greater transaction bandwidth for you to sell or buy stablecoins with much ease.
Launching your stablecoin does not stop here. You need to maintain the liquidity, or else the whole point of having it will be lost. For this, you must integrate an automated integration system that offers you the daily currency rates and index rates from the Consumer Price Index and Personal Consumption Expenditures. The other way to maintain liquidity is to split the transaction fees between stablecoin value and the liquidity reserve value.
Stablecoins are your currency and need an appropriate design and visuals that best sums up the investors’ advantages in your coins. By system design we mean you have a proper blueprint of how your token users can carry out the transactions. By visuals, we suggest you have a proper platform like a mobile app or website that lets users transparently interact with your token.
So you have designs and visuals ready, now is the time to develop and integrate them with a blockchain platform. This is imperative to add safety and security to your stablecoins. After rounds of test runs, you can now launch the stablecoins at the main market.
Stablecoins are most likely to be the default mode of transactions in the future, and therefore, investing in creating your stablecoins is worth every effort. However, when you see the intricate process of creating and launching such a cryptocurrency, it is obvious to get intimidated. You need a proficient and technically sound team like us, to help you get started, and get you onboard to your journey of creating the stablecoins that can reap heaps of benefits for your organization.
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