One of the newer ways to provide both economic value as well as utility value which could be for example “price stability” is thru the implementation of a stablecoin.
A stablecoin is essentially a cryptocurrency that is “collateralized” to the value of an underlying asset. An underlying asset could be other cryptocurrencies, fiat currencies such as the US Dollar or metals such as gold or silver.
Stablecoins really solve the challenge of dealing with volatility that a cryptocurrency traditionally has. If you ever held BTC, Ether, Dash, etc you know the price swings are wild.
This instability reduces the potential adoption of cryptocurrencies for everyday use cases such as payments or remittance
One of the more exciting stablecoin projects that was announced at the time of writing is the Facebook Libra project which is scheduled to be in production in mid 2020.
Facebook has over 2.3 billion monthly active users and this could present some significant opportunities for the “unbanked” meaning people that may not have access to a bank account at least easily or cost efficiently.
The opportunities is really apparent when we see the possible remmittance that could be realized. Imagine if only 10% of Facebook user base actually used it to send money overseas?
Figure 1 Money Remmittance
World Remittance Potential • •Example US has over 68 Billion in remittance outflows. Check out the link to howmuch.net which has really done a great job of showing the scope of international remmittance.
What is Libra?
Libra is built on an open-source blockchain called the Libra Blockchain featuring its own proof-of-stake protocol. The Libra mission is to reinvent money and transform the global economy so people everywhere can live better lives.
Libra is backed by a reserve of various assets designed to give it intrinsic value to Facebook users. Libra is governed by the independent Libra Association tasked with evolving the ecosystem.
Members of the Libra Association consist of geographically distributed and diverse businesses, nonprofit and multilateral organizations, and academic institutions. Founding members include Mastercard, PayPal, Stripe, Visa, eBay, Facebook, Lyft, Uber, Spotify, Andreessen Horowitz, Vodafone Group, Kiva, Mercy Corps, Women’s World Banking and more.
For those interested in learning more about Libra and how to deploy on GCP and AWS join the Liveonline Pearson Oreilly class Facebook Libra.
What are Stablecoins?
There are three types of stablecoins currently at the time of writing and some of these do have some enterprise adoption around customer-based interaction and eCommerce. These three types of stablecoins are as follows – asset backed off chain, asset backed on chain and Algorithmic.
Table shows a comparison between the three types of stablecoins and their funding model.
Figure 2 Stablecoin Comparative Overview
|Type of Stablecoin||Funding Model||Project Examples|
|Asset backed off chain||Fiat or Commodity backed||Tether. Gemini, USD Coin|
|Asset backed on chain||Crypto Backed||Steem, Maker, Huabi|
|Algorithmic||Algorithms and smart contracts. Known as Seigniorage Style stablecoin.||Terra, Karbo, Ampleforth|
From the chart above we can reference the different types of stablecoins that are common for blockchain based services and applications. Tether for example is a widely held stablecoin that ether allows you to store, send and receive digital tokens pegged to various fiat currency.
Stablecoins are commonly used on different exchanges for example to trade commodities in most use cases.
There is a link for finding out more about the Stablecoin Index below.
Stablecoins even in the case of the upcoming Libra release will provide significant opportunities for both the users and the business. The potential cost reduction could be life changing for folks in the third world.
The average fee on a cross-border remittance is around 7% this number is according to the World Bank and if Facebook could cut it to even 3% that would be impressive.
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