Stablecoins and digital currency

Stablecoins and digital currencies represent a bridge between traditional fiat currencies and the world of crypto-assets, offering the benefits of blockchain technology while maintaining a stable value.

While both stablecoins and digital currencies share a digital and blockchain-based nature, they serve distinct purposes in the financial ecosystem. Stablecoins are designed to minimise price volatility and are often pegged to a reserve of assets like US dollars, euros, or commodities, providing a more predictable store of value and a medium of exchange.

By comparison, digital assets are often characterised by their volatility, making them attractive to speculators and proponents of decentralisation. Understanding the nuances of stablecoins and digital currencies is crucial in navigating the complex and rapidly changing world of digital finance.

This was unpacked in more detail during a recent panel discussion at the recent London Blockchain Conference. The panel was hosted by Jon Southurst (Associate Editor at Coingeek) and included:

A Swiss Franc-backed stablecoin

Müller, whose team at Centi recently launched a Swiss Franc-backed stablecoin, noted that stablecoins are primarily an infrastructure project. While they can still be a profitable endeavour, it is vital to have the correct technology in place, he said.

Müller said that the launch of a Franc-backed stablecoin was a natural choice because of the company’s Swiss roots and connections to the financial industry. He added that the Franc is also a popular option because of its low inflation rate.

He explained that each holder of a stablecoin effectively has a claim of one Franc against Centi. This is further guaranteed by a Swiss bank which guarantees that should anything happen to Centi investors will still be able to get their money back.

Algorithmic stablecoins

The discussion then moved to the topic of algorithmic stablecoins. Algorithmic stablecoins are a type of crypto asset designed to maintain a stable value by using smart contracts and algorithms, rather than relying on traditional collateral like fiat currency or assets. These coins automatically adjust their supply in response to market demand, striving to keep their price close to a target value, typically one US dollar.

When the price of the algorithmic stablecoin deviates from the target, the protocol initiates mechanisms such as creating or burning tokens to restore stability. These coins aim to offer a decentralised and flexible solution for stable value, but they are also subject to unique risks and challenges, including potential vulnerability to market speculation and the need for user trust in the underlying algorithms.

‘Algorithmic stablecoins might work in theory until it really matters to be stable. When there’s a market downturn, in these cases, they historically fail,’ Müller said. This was echoed by Belding who expects non-algorithmic stablecoins to get ‘snapped up’ by big financial players and enter into the mainstream. This extends into governments and the development of Central Bank Digital Currencies (CBDCs), he said.

CBDCs are digital representations of a nation’s official currency, issued and regulated by the central bank or government. Unlike crypto-assets like Bitcoin, CBDCs are fully backed and controlled by a trusted central authority, making them a digital form of sovereign money. They are typically stored and transacted through electronic wallets and can be used for various financial transactions, from everyday purchases to cross-border trade.

BSV blockchain is pro-regulation

The BSV blockchain is pro-regulation and believes that the global adoption of blockchain technology requires enterprises and lawmakers to become comfortable with legal compliance by industry participants.

To ensure the development of a regulatory environment that both fosters lawful conduct and facilitates innovation, the BSV blockchain regularly engages with leading policymakers to advise on the development of positive policy.

We believe that regulation provides clarity on legal obligations, encouraging compliance, good governance, and accountability. It also fosters innovation and market development by providing a clear legal framework, building trust, and attracting investment.