Entrepreneurs issue their own money, accountants count transactions on the blockchain, and employees receive 7% per annum every second in their payroll accounts. And it all works with stabelcoins, cryptocurrencies whose value is tied to real assets. With this technology, today’s start-ups intend to change the field of finance – to make it more accessible and efficient.
Researchers at consultancy BDC specialise in analysing the cryptocurrency market. They chose 5 most innovative startups in the sphere of stablcoin for the year 2021. In the material, we will look at each of them in detail. You will find out what problems they are solving and how.
Imagine that it costs 150 rubles to produce one 100-ruble note. This is roughly what happens with conventional decentralised stackablecoins such as DAI. The collateral to secure them always exceeds the face value. Therefore, the supply of stablcoins is limited by the market’s willingness to bear the cost and is not related to demand. Such monetary policies limit the growth and adoption of decentralised finance (DeFi).
The Korean startup Terra launched TerraUSD (UST) in September 2020. It is the first decentralised steblecoin that implements two features at once:
Creation costs are equal to face value;
interoperability with different blockchains – a solution to another of DeFi’s current problems.
With an innovative monetary policy and the ability to work with different blockchains, the developers plan to take the place of the main payment system. Their solution will simplify monetary relationships in the real economy and increase the usefulness of DeFi applications and protocols.
The BDC Consulting study also reveals that Terra has previously piloted its algorithm in the creation of the TerraKRW Korean Won Stablecoin. More than 2 million active users pay with it at online shops in South Korea. In June 2021, TerraUSD is the fifth-largest stackablecoin by capitalisation, according to CoinMarketCap.
Companies that want to accept cryptocurrency face administration challenges: tracking wallets, bookkeeping, making bulk payments, calculating tax returns. Without special software, all these cryptocurrency transactions are time-consuming and complicate the work of companies. This is one of the reasons why businesses are so reluctant to adopt cryptocurrency.
US startup Multis is developing a platform to manage companies’ crypto-assets. It is an online business bank that supports not only fiat accounts, but also cryptocurrency wallets. For example, you can download transaction information from MetaMask wallet and export a CSV file.
Large retail companies have to accept payments from customers from different countries in different currencies. Optimizing such business processes and reducing transaction costs is helped by a proprietary Stablecoin. But it takes a lot of money and effort to set it up and register it with regulators.
In May 2020, Liechtenstein-based Frick Bank was the first in the market to offer Stablecoin as a Service (SCaaS). Any European company can come in and ask a bank to issue digital money that complies with EU regulations. Such Stablecoin can only be used to pay for goods and services for one company, so customers are less likely to go to competitors. The second use scenario is to optimise internal cash flow. The company itself uses stablcoins to avoid high fees and conversions between euros, Swiss francs and Norwegian kroner.
Frick is a leading European bank that is actively integrating blockchain innovations into its operations. For example, any miners can deposit their earnings into the bank’s cryptocurrency wallets, which work in the same way as classic accounts. In addition, Frick offers its customers to use USDC’s dollar-stablecoin instead of the SWIFT international payment system.
When exchanging foreign currencies and precious metals, banks withhold interest or set a less favourable rate. Often there may not be a direct exchange between the two assets and then you have to pay the fee twice. For example, to buy gold for dollars, you may have to first exchange dollars for roubles and then roubles for gold. Thus, it becomes difficult and unprofitable for an investor to manage their assets.
There are dozens of fiat currencies and cryptocurrencies running on the PegNet blockchain: pUSD, pEUR, pETH, etc. Importantly, PegNet does not need real asset collateral like other stackablecoins. Economic laws – game theory – are applied for this purpose. Expensive tokens are traded for cheaper ones, and cheaper ones are bought for more expensive ones. Thus, if the exchange rate of one coin deviates from a fixed value, another coin helps to equalise the price.
It only costs 1/10th of a cent to convert between any assets – whether one dollar or five million is exchanged. This frees up the high fees that can exist in banks and other blockchains. In addition, companies can convert their assets to preserve capital during market downturns. For example, if one asset depreciates rapidly, the company transfers it to another with a more stable price.
For new users, getting financial services in decentralised apps is proving more difficult than in online banking. At the very least, one has to understand cryptocurrencies, wallets and exchanges. At the same time, everyone knows how banks work, and competition is forcing them to create convenient and customer-friendly services.
In 2020, the startup ZeFi began developing a dollar account at the intersection of traditional and decentralised finance. From a user’s point of view, ZeFi is no different from a conventional digital wallet, but the technological part is built entirely on DeFI. Once a dollar deposit is made, the funds are automatically converted into DAI stabelcoin and then made available for credit to users in decentralised applications. In this way, the ZeFi account holder will receive interest every second.