e-Money’s Interest-Bearing Assets Are Evolution of Stablecoins

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by Andy Watson · 4 min read
e-Money’s Interest-Bearing Assets Are Evolution of Stablecoins
Photo: e-Money A/S / LinkedIn

e-Money provides predictable value to stablecoins, something that may be hard to maintain long term for the first generation of stablecoins.

Stablecoins are one of the most widely adopted use cases for cryptocurrency, generating hundreds of billions of dollars in daily trading volume. There are three primary types of stablecoins: Algorithmic stablecoins and asset-backed stablecoins which are further divided in two categories, crypto-backed stablecoins, such as Maker (DAI) or Kava (USDX) and the second type are currency backed tokens. Stablecoins offer stability that comes with fiat currency and the benefits of Blockchain such as transparency, decentralization and trust. However, with so many different types of stablecoins and respective drawbacks, it can be difficult for investors to pick the best.

One company is looking to overcome the shortcomings of existing stablecoins. e-Money is building the Next generation of stablecoins that are interest-bearing currency-backed stablecoins reflecting various global currencies. Essentially, e-Money stablecoins are more closely related to a spendable bank deposit than a digital representation of cash.

The Problem with Current Stablecoins

Crypto-backed and algorithmic stablecoins allow users to store and transact with a non-volatile token, but each model has its drawbacks. The latter are not collateralized, making it harder to maintain their peg and adding risk. For crypto-backed stablecoins there is also the problem of over-collateralization, a method that is inefficient – and ineffective too if the collateral asset falls below a certain rate. They also don’t scale well with large economies, as they fundamentally lack market liquidity. If an organization wants a $100M loan, that’s not something crypto-backed stablecoins can easily facilitate. Additionally, the problem with algorithmic stablecoins is the extensive fees incurred when transacting between the pegged asset and the stablecoin, creating slippage and a wider price spread.

Currency-backed stablecoins are more reliable, although also more centralized, presenting their own set of unique problems. The most concerning matter is the relationship the token issuers have with banks, which can be threatened or shut down if the government or regulators decide to apply pressure and act aggressively, which some have. There’s also the issue of covering operational costs from interest generated from reserves, which is not guaranteed. As countries like Japan, countries within the Eurozone, and possibly even the USA experiment with negative interest rates, the industry will have to take on additional risks when these rates occur. When customers have to pay banks to store their money instead of the other way around, there will be a dilemma for many existing issuers of currency-backed stablecoin.

e-Money Provides a Dynamic Solution

Unlike varied traditional stablecoins, e-Money does not offer a one-to-one peg to the currency it represents, even though the underlying asset (currency in the form of bank deposits and government bonds) is denominated in the same currency. e-Money stablecoins are interest-bearing, where the interest accrued on the underlying assets is reflected in the value of the tokens, conferring these financial benefits onto token holders.

Furthermore, the interest-bearing nature of the stablecoins also makes e-Money stablecoins equipped to face unprecedented economic conditions. In periods with positive interest rates, e-Money token holders will see the value of their tokens rise in line with the interest accrued on the underlying assets. In the same manner, in events of negative interest rates e-Money tokens can simply reflect this negative interest rate in the value of the tokens. This makes e-Money’s stablecoins buoyant in times of extreme volatility in a way that no other stablecoin is.

Since e-Money will be producing a variety of stablecoins such as the Euro (EUR), Swiss Franc (CHF), Swedish Krona (SEK), Norwegian Krone (NOK), and the Danish Krone (DKK), each will host a different interest rate. This allows users to capitalize on available rates and store their savings in many varying fiat-based options.

A totally fair and transparent stablecoin, audited by Big Four accounting firm Ernst & Young once per quarter, e-Money plans to become a local and global currency simultaneously. e-Money is not looking to replace fiat currency fully, but to act as an upgrade that will greatly facilitate transactions. Connected to the Cosmos network, e-Money will handle thousands of transactions per second and provide immediate finality to users, an essential aspect for a widely adopted transfer of value asset. e-Money will be connecting to the Ethereum, Avalanche and Polkadot networks in the foreseeable future.

e-Money provides predictable value to stablecoins, something that may be hard to maintain long term for the first generation of stablecoins. e-Money stablecoins are arguably the most reliable and robust stablecoin in the blockchain space, since there is always a willing buyer of e-Money stablecoins. This willing buyer has the capacity to buy back all issued stablecoins against fiat and is in fact “the reserve”. e-Money wants to become the backbone and infrastructure for the internet of money, enabling easy transactions for users, merchants, governments, NGOs, and other entities in a borderless, permissionless, and transparent manner.

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Andy Watson
Author Andy Watson

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