So, what is a stablecoin?

It’s a kinda special type of cryptocurrency that has been designed with a special purpose — to deal with volatility and put it under control. Most of the stablecoins are pegged to existing fiat currencies like USD and EUR, and this collateral just makes them stable. For instance, the largest by market capitalization and probably most known stablecoin Tether is designed to be equal to $1, and for about three years that Tether has been traded its exchange rate has proven to be generally reliable.

Source: courtesy of Coinmarketcap.com

A bit of history:

The idea of creating stablecoins more or less officially appeared in 2012 in the documentation attached to the first version of Mastercoin. The founders reported that the Mastercoin protocol will allow binding of a cryptocurrency to a sustainable traditional asset.

For several years, developments in this direction have been not active enough.

The first full-fledged stablecoin based on these developments appeared only in 2015 —it was Tether. It is pegged to the USD at the rate of 1:1 and designated as USDT.

Tether’s policy was to keep an amount in the reserve bank account corresponding to the number of coins issued. That is, if USD 50 million was in circulation, then Tether Limited should have been in reserve $ 50 million, and so on.

In January 2016, another well-known project in the crypto sphere, aimed at the creation of stablecoin, launched on the Ethereum platform — DigixDAO.

Coins were tied to 999.9 gold at the rate of 1 coin to 1 gram of gold. The gold that provided them was stored in a bank safe in Singapore. The stablecoin has been named DGX and it is reflecting the amount of gold in the Singapore bank, which was owned by the holder.

The state of stablecoins

At the moment there’re about 57 stablecoin projects being announced, 23 of them are alive and 34 at pre-launch phase.

Stablecoins have gained a sort of mass acceptance and adoption in 2018: eight stablecoins (42% of live coins) has been featured at least on one of most popular exchange:

Source: courtesy of Coinmarketcap.com

However, the story of stablecoin use and adoption to date is primarily a story about Tether (USDT). Tether is the second most actively traded crypto (approximately 60% of BTC daily volume). Tether has already entered the Top-10 crypto cryptocurrencies earlier this year and it currently corresponds to more than 90% of the total market value of all stablecoins.

Scenario for the future

I personally believe that the development of stablecoins will go further on the way of converting the most stable traditional assets into digital money. In this case, we should expect several varieties of digital dollars, euros, yen, rubles and other fiat currencies, as well as digital analogs of minerals and even shares of corporations (like digitalized-securitization).

Actually, I had a talk this summer with representatives of a large coal mining and trading conglomerate that were particularly interested in that type of stablecoins. Besides just making yet another stablecoin, it was announced that the integration of crypto exchanges and traditional stock or commodity exchanges might be a reasonable deal.

I expect that any sort of hybrids between traditional assets and crypto may occur in the nearest future. And it is highly probable that these assets will come under a “stable” label.