IBM is exploring the use of a ‘stablecoin’ to facilitate fast and secure payments within the financial services sector. The tech giant has teamed up with institutional asset management platform Stronghold, which is federally insured by the bank Prime Trust, to test a cryptocurrency that is pegged to the U.S. dollar.

IBM Announces the Use of Federally Backed ‘Stablecoin’ Stronghold USD

‘Stablecoins’ have been around for quite some time now, usually being backed by one U.S. dollar for each token issued.

Tether, which was originally named Realcoin in 2014 by co-founders Brock Pierce (block.one) and Stanley Hainsworth, is the most famous example of pegging a digital coin to a fiat currency and the largest one by market capitalization.

Tether, however, is covered in controversy as it is frequently accused of running an opaque operation, and the recent fallout with its auditor Friedman LLP didn’t improve its image. Some fear that the company behind the coin does not hold enough USD to make up for the circulating supply of nearly three billion USD Tether.

Stronghold USD, which was launched on Tuesday on the Stellar blockchain platform, is issued for every U.S. dollar deposited at the company’s partner bank, Nevada-based Prime Trust, on a 1-to-1 ratio. Jesse Lund, vice president of Global Blockchain at IBM, explained why the tech giant is backing the ‘stablecoin,’ reports Reuters.

“The engineering work has been done on this token and we have seen a little bit of the early release of it. IBM will explore use cases with business networks that we have developed, as a user of the token. We see this as a way of bringing financial settlement into the transactional business network that we have been building.”

IBM is building a new trade finance platform using it’s Big Blue’s Hyperledger Fabric, which instead of being public like Bitcoin’s blockchain it only allows participation of a certain number of trusted parties. Tammy Camp, founder and CEO of Stronghold, explained how the pegged cryptocurrency will be able to make an impact.

“The token allows folks to do payments, foreign exchange between companies in a very seamless and frictionless and more secure way. It enables people to be able to trade that token with other assets and other tokens as well.”

Stronghold USD is backed by Federal Deposit Insurance Corporation-insured U.S. dollars, which provides a safer approach to a ‘stablecoin’, from an institutional lens. Using Stronghold’s digital coin, which relies on the platform developed by Stellar, IBM will be able to reduce exposure to volatility within the cryptocurrency market, hence make its product more attractive to the financial services industry.

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