Saturday, March 20, 2021


Stablecoins And How They Work The following text within quotes are from the article.

"A stablecoin is a cryptocurrency whose value is pegged to a real and stable asset like gold or fiat currencies, in order to combat the price volatility experienced by cryptocurrencies like Bitcoin or Ether."

"Many stablecoins are collateralized at a 1:1 ratio with certain fiat currencies, such as the U.S. Dollar or the Euro, which can be traded on exchanges. Other stablecoins can be pegged to other kinds of assets, such as precious metals like gold, or even to groups of cryptocurrencies.

This means that if you buy a stablecoin that is pegged to the U.S. dollar at 1:1, meaning 1 stablecoin is equivalent to $1, you can sell your stablecoin and redeem your $1 at any time."

"Stablecoins, as digital currency that can be used to make payments across the world, have the potential to serve th[e] huge unbanked and underbanked population." China - 225 million unbanked adults in 2017. India - 190 million. U.S -  25% of U.S. households (> 50 million adults?). "From migrant workers who want to send money home, to businesses who make payments to overseas suppliers or employees, stablecoins have the potential to replace traditional currency to facilitate faster, more secure, easier, and cheaper cross-border payments."

1. Fiat, the most common, pegged to the U.S. dollar or the Euro.
2. Crypto-collateralized pegged to other cryptocurrencies.
3. Commodity-collateralized backed by stable assets, like precious metals, gold, real estate, and oil.

Nigerians Turn to Stablecoins for Protection Against Inflation

The inflation rate of Nigeria's currency naira has been more than 10% since 2016 (link). So many Nigerians have turned to stablecoins for protection of savings. Informal small savings accounts, called esusu, are formed by around 12 or more friends, colleagues or neighbors. Allegedly, Nigeria’s informal “cash” economy accounts for around 64% of 
Nigeria's GDP.

Stablecoins are not as prominent in the U.S.A, presumably because the $US inflation rate has been low. On the other hand, the cryptocurrency that Facebook has talked about creating is the stablecoin type (link). I suspect Facebook's customers for its product would be largely foreign, or U.S. residents sending money outside the USA. 

Stablecoin Regulation in The United States

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