By
Chimamanda U. Martha
May 6th, 2024
Stably is a venture capital-backed startup seeking to bring stability to the volatile cryptocurrency market through a secure, transparent medium of exchange. Having already raised around $500,000 in seed funding they kickstart the StableUSD project.
The new token is backed 1:1 by U.S. dollars that are held in escrow by Prime Trust, a regulated trust company in Nevada that has already supported a number of stablecoin projects. Now, everyone can apply to be a verified client to create and redeem StableUSD. A client can then send cash to the company’s regulated trustee to initiate the transaction while Stably submits the transaction to the smart contract.
That will mint new StableUSD tokens and send them back to the client. The creation process should also work with Bitcoin (BTC), Ether (ETH), or Tether (USDT).
As they claimed in their blog post, they see the urge in high standard of public transparency that a fiat-backed stablecoin requires. Therefore, they announced a partnership with Prime Trust, who has agreed to be the regulated trustee for the StableUSD fiat reserves.
Users of this future platform will be able to view Stably’s fiat reserve’s balance in real-time via a live feed from Prime Trust’s API.
Additionally, they have engaged with leading accounting firm Cohen & Co., who will conduct weekly attestations for our fiat reserve.
The launch came during the attacks that the market’s leading stablecoin, USDT is not fully backed by fiat. The company that’s behind it, Tether Ltd., has long maintained that USDT is collateralized 1-for-1 but has been unable to get an audit to put the doubts to rest.
Also, last week, there came news about Tether destroying 500 million USDT tokens, a tactic that many believe is the company’s way of intentionally contracting supply. The USDT token has recovered since its fall, but questions remain and its share of the total stablecoin market cap took a substantial hit.
It is possible that the reason for Tether’s pull away from the $1 mark lay in renewed rumors around Bitfinex’s financial health. Two weeks ago Bitfinex said that its customers were still able to withdraw cryptocurrencies and fiat-currency holdings without the interference, although fiat deposits have been temporarily paused for certain user groups pending the implementation of a new deposit system. This missive appears to have been what staunched the selloff.
This week however, Tether issued a letter it which they stated that they were banking with Bahamas-based Deltec Bank and Trust Limited and that the reserves are secured.
To show proof of its bank balance, Tether released a letter dated November 1 that appeared to come from Deltec, confirming “the portfolio cash value of your account with our bank was US$1,831,322,828” as of October 31.
Still, there is no name attached to the letter, and the signature is just a cube. The letter also says that it was provided “without liability, however arising, on the part of” the bank, its shareholders, directors, employees or officers: and that it’s “solely based on the information currently in our possession.”
Stablecoins like USDS and USDT allow investors to more quickly trade cryptocurrencies by bypassing any delays caused by transferring funds via banks to exchanges. Other recent entrants to this space include the Winklevoss twins’ Gemini dollar (GUSD), TrustToken’s TrueUSD (TUSD), Circle’s USDCoin (USDC) and the Paxos Standard (PAX), among others.
For now, it seems like crypto is shifting to centralization in 2018 as many companies, including Stably’s new enterprise, will only let people who pass their Know Your Customer (KYC) procedures access the services of the company to generate or to redeem USDS. You might even hold the token, but you can only redeem them if you are registered. Many of the better-known stablecoins operate on this simple idea that the buyers pay a dollar to receive a digital token. The dollar is then held in reserve.
If a buyer later decides to cash out, he can redeem his tokens for dollars at a one-to-one ratio. Buyers can also swap dollar-backed tokens for other cryptocurrencies, such as bitcoin or ethereum, at various exchange rates. Certain other stablecoin projects seek to use algorithms to control the money supply by adding and deleting coins so that the trading price always stays at one dollar.
Stablecoins are Still Not Solution for Conventional Cryptocurrencies
Conventional cryptocurrencies, such as bitcoin, trade at prices that are not stable and therefore they are unattractive as units of account. Prices in stores, work contracts, or even pay checks are never (or rarely) listed in Bitcoin.
Stablecoins, on the other hand, seem to be solving these problems. Because their value is stable in terms of dollars or their equivalent, they are attractive as units of account and stores of value. They are not mere vehicles for financial speculation. This is a new form of cryptocurrency chained to another asset such as fiat currency, precious metal, or even another cryptocurrency. Usually, Stablecoins are thought of as the low risk and reliable crypto option. Their value lies in their ability to store and efficiently transfer rather than grow wealth, and they bridge the gap between physical and digital currency
However, it’s important to distinguish three types of stable coin:
The first type is fully collateralised: the operator holds reserves equaling or exceeding the value of the coins in circulation. This model has a problem with trading a liquid dollar, supported by the full faith and credit of the US government, for a cryptocurrency with questionable backing that is awkward to use.
The second type of stable coin is partly collateralised. In this case, the platform holds dollars equal to, say 50%, of the value of the coins in.
The problem with that is if some coin owners harbour doubts about the durability of the peg, they will sell their holdings. The platform will have to purchase them and other investors will scramble to get out before the cupboard is bare. The result will be the equivalent of a bank run, leading to the collapse of the peg.
The third type of stable coin, which is uncollateralised, has this problem in spades. Here the platform issues not just crypto-coins but also crypto-bonds. If the price of the coins begins to fall, the platform buys them back, in exchange for additional bonds. More bonds will then have to be issued to prevent a given fall in the value of the coin, making it even harder to meet interest obligations.