A stablecoin is a cryptocurrency that’s price pegged (i.e. fixed at a certain amount) to a real-world asset such as gold, or the dollar.
The best known is Tether, which is pegged to the US dollar.
The way that it works is that issuers of Tether “tokenize” dollars by exchanging them for a stablecoin and depositing the dollars in a bank. Those dollars are then left untouched until somebody redeems the stablecoin for the dollars. It’s this confidence that the stablecoin can be redeemed that maintains the price peg. This is the key difference between a stablecoin and a cryptocurrency like Bitcoin, which isn’t backed by anything.
The number of stablecoin cryptocurrency projects has been steadily increasing, with around 57 of them at various stages of completion at a global level.
Clearly, there’s a demand for this type of coin, because of the wild fluctuations that are typically experienced with a standard cryptocurrency (as a result of speculative exchange trading and market forces).
In the Real Estate space, the SwissRealCoin is a stablecoin backed by a portfolio of Swiss real estate, an asset class that is proven to be highly stable. It is the world’s first stablecoin that promises to increase in value based on the growth in value of the underlying real estate.
In Australia, a company called Emparta is partnering with a local trading exchange called Bit Trade, to launch a stablecoin pegged to the Australian dollar. As an employment-based blockchain platform, Emparta plans to use the stable coin to help facilitate payments by employers.
The way it would work is an employer would pay wages in traditional fiat into a nominated treasury account, which then receives the money and mints the stable coin. When the person receiving the payment wants to redeem the funds, the coin is ‘burnt’ and money is sent back in Australian dollars.
This new platform could then allow employees to receive the funds in a split format — say, 80% stable coin and 20% Bitcoin — and they could then remit the Bitcoin component to family members overseas, thereby saving on currency exchange fees.
Are there any blockchain loyalty applications?
We’ve established that an Australian dollar stablecoin that’s transparently backed with a cold hard fiat treasury might be a much more reliable option for businesses and consumers that want to unlock the benefits of digital currency in today’s market.
For example, major loyalty programs such as frequent flyer programs are afraid of moving from its points-based system for a number of reasons. One of the arguments on the customer side is that anyone saving up their points for a flight, will not want to find their points holding suddenly halved, in the case of a market crash. A stablecoin would solve this issue.
What’s really interesting is that companies such as Qantas Frequent Flyer and Velocity Frequent Flyer are just the kinds of loyalty programs that do actually have large cash reserves to make something like this work. One of the other benefits for the consumer would be the opportunity to transfer a portion of their stablecoin into another cryptocurrency for speculative reasons, or to start a cryptocurrency portfolio for no outlay.
So, we absolutely believe there is a market for the stablecoin and hopefully, it will give rise to some very interesting projects in the coming years.
Max Savransky is Loyalty Director of Loyalty & Reward Co, a leading loyalty consulting firm based in Sydney. He has 10 years’ experience within the loyalty industry including roles at Mastercard Loyalty (Pinpoint), Silverneedle (Next & Sage Hotels) and Pureprofile. As Loyalty & CRM Manager at HOYTS, he launched the highly successful partnership with Qantas Frequent Flyer, including a world-first Qantas Points in-store redemption proposition. He is an active cryptocurrency trader.