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What are Stablecoins?

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By definition, a currency should meet the following criteria; be a medium of exchange, a unit of account and a store of value. While decentralised digital currencies have served as an excellent speculative asset, the same cannot be said for their use as a medium of exchange, store of value or unit of account. For the case of dominant cryptocurrencies like bitcoin and ether, it makes little sense trying to store value in a currency whose price fluctuates by 10 to 20 percent on a regular basis. In such a scenario a solution would be the use of stablecoins.

Understanding Stablecoins

Across the globe, there are very few places that have a stable currency. Even popular fiat currencies such as the euro or US dollar are not immune to fluctuating exchange rates, inflation, and diminishing purchasing power. Still, the fluctuations are usually so small that people prefer using these government-backed currencies. However, in the case of cryptocurrencies, these fluctuations are more significant resulting in higher volatility. The volatility makes them attractive to investors who are looking for speculative digital assets, but quite less effective as spending currencies.

For many, the picture of an ideal cryptocurrency is one that is balanced in its purchasing power or is slightly inflationary, to motivate the owners to spend their coins rather than holding them. This ideal cryptocurrency would achieve the following properties of a currency, namely, be used for transactions and payments, act as an asset or store of wealth and used as a unit of account. This perfectly engineered cryptocurrency is also known as a stablecoin.

In simple terms, stablecoins are price-stable cryptocurrencies that have their value pegged to another asset such as the US dollar.

Benefits of Stablecoins

Popular cryptocurrencies like bitcoin (BTC) and ether (ETH) attract a lot of retail and institutional money due to their volatile prices. While such volatility may fuel speculation, it hinders real-world adoption of applications built on top of these digital currency protocols.

For instance, it would be unfair to pay someone a salary in bitcoin when you know the purchasing power of their wages keeps fluctuating. The same applies to entrepreneurs and consumers who find their exposure to price fluctuations when transacting in cryptocurrencies to be risky. In regards to applications built on a blockchain, any application that requires low volatility cannot be denominated in an underlying currency that fluctuates by almost 20 percent in a day. Furthermore, significant changes in the value of a cryptocurrency also preclude consumer loans on the blockchain, prediction markets, derivatives and long-term smart contracts that require price stability.

Not everyone in the cryptocurrency community is keen on speculation. Some prefer a store of value on an immutable distributed ledger, bypassing financial intermediaries and inflationary fiat currencies. Currently, mainstream cryptocurrencies cannot adequately provide that. Instead, the momentum is shifting towards achieving price-stability in cryptocurrencies through the creation of stablecoins.

How Can Price Stability be Achieved?

The classification of stablecoins includes three major types: fiat-collateralised coins, crypto-collateralised coins, and non-collateralised coins.

Fiat-collateralised Stablecoins

In this case, a certain amount of traditional currency is deposited as a collateral and coins are issued in the ratio of one-to-one against this fiat currency. The coins can also be pegged to other items such as gold, silver, or oil just to name a few. This is by far the simplest way to build a stablecoin. However, it requires a central authority to guarantee the issuance and redeemability of the stablecoin. Also, to ensure the stablecoin is fully collateralised regular audits have to be performed.

Crypto-collateralised Stablecoins

These stablecoins are almost similar to their fiat counterparts, the only difference being the collateral is not a real-world asset but is instead another cryptocurrency. Many will argue that the drawback to this is cryptocurrencies are unstable, which means the collateral will fluctuate. That is why these type of stablecoins are over-collateralised so as to absorb price fluctuations.

For example, someone deposits $300 in ETH to receive stablecoins worth $100. This means even if the price of ETH depreciates by 20 percent, the stablecoin can still retain its price as there are still $240 in cryptocurrency collateral backing the value of the stablecoin. The obvious flaws for crypto-collateralised coins are their more prone to price instability than fiat-collateralised coins. In addition, they can also be spontaneously destroyed due to their over-collateralisation, which has a high loss exposure in the case of a cryptocurrency market crash.

Non-collateralised Stablecoins

These are not actually backed by anything except for the hope they will retain a certain value. The system builds on smart contracts that algorithmically increase and decrease the supply of the price stable cryptocurrency.

Stablecoins in the Market

While there are several stablecoin projects in various phases of development today, a few have gained some level of notoriety.

One such project is MakerDAO. MakerDAO is a decentralised autonomous platform on the Ethereum blockchain whose token Dai is pegged against the value of the US dollar. Price stability is maintained through an autonomous system of smart contracts.

Another project is TrueUSD, which is a US dollar-backed stablecoin that is 100 percent collateralised. TrueUSD’s legal framework allows users to exchange USD directly with an escrow account. Their public and audited smart contracts ensure a 1:1 flat rate for TrueUSD and USD in the accounts.

Alternatively, Basecoin can be considered as a non-collateralised stablecoin since they rely on consensus to decrease and increase the supply of their coin. Still, their price is pegged at $1.

So far we are yet to witness a stablecoin go mainstream. Part of the problem is no team has managed to develop a universally accepted stablecoin without having to compromise on features such as decentralisation, privacy or security. The reality is lack of price stability is holding back cryptocurrencies from displacing most forms of fiat currency and promoting decentralised applications. The successful implementation of a stablecoin could just be the catalyst that opens the door for further innovation in the crypto-ecosystem.

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Particl Launches Decentralised Marketplace With Zero Commission Fees

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Privacy-focused cryptocurrency project Particl has launched a decentralised marketplace with zero commission fees. The new e-commerce platform is leveraging blockchain technology to compete with the likes of Amazon and OpenBazaar.

Privacy and Zero Commission Fees

ParticlCryptocurrencies can be difficult to spend on a day-to-day basis and Particl wants to solve this through its private coin, PART. On the Particl marketplace, users can put the digital currency to use.

The new decentralised marketplace respects user privacy and does not require personal information from its users. The platform only requires a shipping address. Moreover, the decentralised nature of the Particl marketplace ensures that no commissions are added to sales as is the case on Amazon.

According to an article on Big Commerce, fees for sellers can be as much as 45 percent of a product’s cost on Amazon. Particl’s zero-free model, therefore, enables sellers to significantly increase their revenue and lower their prices to stay ahead of the competition while still making a profit.

“Using a combination of P2P and blockchain technologies, Particl Open Marketplace can provide a verifiable private shopping experience that ensures no user data can be created or collected by any party other than the one you are transacting with. The Particl protocol also brings the cost of buying and selling online to the bare minimum as no central entity can charge fees,” said Particl’s Project Marketing and Strategy Manager Paul Schmitzer.

How Particl’s Decentralised Marketplace Works

Particl is uniquely approaching fraud and trade insurance through the use of a double deposit escrow system without intermediaries and with zero fees. This system is based on MAD game theory where two parties deposit PART coins as collateral into a smart contract. Once the transaction between them is complete, the coins are released back to the parties and no fees are charged. This system allows users to be in control of their transactions and to eliminate fraud.

 

Since the marketplace is decentralised, the protocol generates all listing fees and redistributes them to the global network of users.

Particl is made up of three components: an untraceable multi-purpose privacy coin, a private decentralised marketplace where users can shop with cryptocurrencies, and a platform where developers can build decentralised applications.

Particl allows a wide range of cryptocurrencies and uses atomic swaps and third-party integrations to convert these coins to PART during transactions. The company will soon add more payment options to its marketplace.

In 2018, Bitcoin Africa talked to Particl’s spokesperson Desi-Rae about the project. Read the full interview here.

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South Africans Can Now Buy Ether (ETH) Using Rand on Luno

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Global cryptocurrency exchange Luno has now enabled crypto traders in South Africa to buy ether using rand on its platform.

Trading on Luno

LunoLuno offers users an easy and safe place to buy bitcoin and ether and to learn about cryptocurrencies. The exchange has more than 2.7 million customers across 40 countries.

Luno also has a dedicated Ethereum series on its learning platform to help users make informed investment decisions.

Commenting on the new launch, Luno’s General Manager in Africa, Marius Reitz, said: “The direct Ethereum/Rand pair will make it quicker, simpler, and cheaper for customers to interact with and use Ethereum on the exchange. We are working on a number of enhancements to our platform and this pairing has been introduced in response to demand from our customers. Previously, customers could buy Ethereum through our instant buy option but having this ability directly on the exchange makes it faster and cheaper for traders.”

According to Reitz, Luno makes sure that every coin listed in its exchange has undergone due diligence. “There are over 2000 cryptocurrencies. However, many of these are scams, so customers need to trust that the exchange they use has verified the track records of cryptocurrencies available on their platforms. Luno limits the currencies on offer to those on which we have completed extensive research and due diligence and we are satisfied with their credibility in terms of security and adoption. Luno will be adding additional cryptocurrencies to its platform later this year,” he explained.

Luno Report

A recent report from Luno showed that South Africa and other emerging markets would like to see a change in the current financial system.

“Individuals in these markets cannot afford to, and should no longer need to, pay high exchange rates, accept national currency devaluation or lose out when they simply transfer money. Access to a more inclusive financial system will enable people everywhere to think of new and better ways of exchanging value and technology allows this,” Reitz elaborated.

Luno plans to upgrade its platform, expand its team, and open new offices in expectation of the next surge in the value of cryptoassets.

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Emerging Markets More Likely to Adopt Cryptocurrencies from Global Brands, Luno Study Says

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A new study by digital asset exchange Luno indicates that emerging markets are more likely to adopt cryptocurrencies from global brands. This finding was collected from a survey called the ‘Future of Money’ carried out between May 17, 2019, and June 7, 2019. The survey interviewed over 7000 respondents from Nigeria, South Africa, the United Kingdom, France, Indonesia, Italy, and Malaysia.

Emerging Markets, the Future of Money and Libra

According to the ‘Future of Money’ survey, the early adopters of cryptocurrencies are likely to come from emerging markets. The findings, therefore, show a close connection between emerging markets and the future of money confirming the view that those with “less appear to take greater financial risks.”

For instance, more respondents from Nigeria and South Africa than in the UK said a single global currency would make the current financial system better.

African man with smartphoneThese results come at a time when Facebook recently announced that it will introduce Libra, a new digital currency in 2020. The aim of Libra is to help people make financial transactions online, especially in emerging markets where banks are not servicing the population as well as they should be.

Luno’s CEO Marcus Swanepoel said: “As some of the world’s largest tech giants announce they are launching cryptocurrency coins, we believe developing markets will be the lead adopters. Our research shows that in these markets people are more financially savvy because they have to be, which means that they need and understand the benefits the new coins can offer.”

To further show why the future of money could have a greater impact on emerging markets, data from the survey indicated that 33 percent of people in Indonesia are more likely to remain within a set budget compared to 0 percent in the UK.

Additionally, the number of people that establish a monthly budget is 80 percent in Malaysia, 65 percent in Nigeria, 73 percent in South Africa, 74 percent in Indonesia, and 54 percent in the UK. Asked why money is crucial to them, the respondents said it was to secure their families’ well-being (60 percent) and to pay for education.  This answer was given by 25 percent of the respondents from Nigeria compared to 8 percent in the UK.

Luno is a global cryptocurrency company headquartered in London and with offices in South Africa.

Grassroots Adoption

Crypto adoption will probably take place at the grassroots level than at the institutional level, Swanepoel observed. He based this argument on the findings that most people from emerging markets will probably seek financial advice from family, friends, and colleagues than from government organisations.

“It is very clear that if money is not simply a ‘nice to have’ and is vital for your future, then you spend more time understanding it, managing it, preserving it and to an extent being creative with how you maximise the use of it. Therefore, if a cryptocurrency can provide a secure and cheaper means of exchanging value better than the existing system, it will be used. This is why we believe that as new cryptocurrencies linked to global brands are introduced, they will find an important audience in emerging markets,” Swanepoel added.

Luno’s study paints a clear picture of what the future of money could look like. However, certain factors such as Internet connectivity could inhibit the fast adoption of crypto in developing markets.

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