When we transferred money overseas, we had to top up extra cash. Exorbitant remittance fees, foreign exchange rates, and commissions all meant that we had to transfer more than what our recipient needed, just so we could ensure that the recipient actually received the full amount. The extra cash? To the pockets of banks and services. It is a small wonder why cryptocurrency blew up: we can now transfer money at jet speeds and our recipient gets an amount substantially closer to the amount they wanted. actually “Cryptocurrencies, however, haven’t broken through for reasons beyond onboarding complexity.” Let’s paint a scenario: my friend at Seattle wants me to wire him $1K. No problem — I’ll send it in cryptocurrency, which you can then exchange to fiat. This way, you’ll receive your funds in less than an hour, and I don’t have to actually wire you more money to cover exorbitant fees! Him - “Wait, how do I convert to fiat?” Him - “What’s a wallet?” After an hour of explanations, I transferred $1K worth, paying a fraction of a dollar for what could be cost me $25. Him - “Mate, they’re worth $890!” Me - “Oh, don’t worry about it, it was worth $1K an hour ago. Blame the market.” Riding Crypto’s High Highs, Low Lows As an asset, cryptocurrency is notoriously volatile, with the most famous of all being bitcoin when it nearly reached . At the time of writing, . $20K on 17 December 2017 it sits around $8K Cryptocurrency itself was envisaged to be something that can truly shake up the financial ecosystem. It boasted high speeds, low fees, and eliminated the need for 3rd parties — like banks. People dreamed of the day where we start buying our coffee using cryptocurrency. Cryptocurrency also boasts a that fiat currency doesn’t have. It is decentralized, has cryptographically-stored records that enhance security and boasts comparatively low transaction fees as compared to foreign exchanges and remittance services. truckload of advantages Yet, cryptocurrency has its inherent flaws in volatility: on 17 December 2017, bitcoin reached an all-time high of USD$19,783.06, which plummeted within 24 hours, dropping below $14K. That is nearly a 30% price drop. Since bitcoin’s boom in the past years, more variations of bitcoin and other cryptocurrencies have all began to appear. Blockchain startups started raising huge sums of money and started offering Initial Coin Offerings, promising huge returns on their tokens. Today, there’s a dedicated page to act as the graveyard to house nearly . 1,800 dead coins Widespread adoption is what keeps a cryptocurrency alive, but most are unable to achieve the level of demand and utility necessary to maintain value. In response, demand for a digital asset that incorporated the advantages of distributed ledger technology but offset its instability began to grow, and that’s when — — first appeared to dominate the global stablecoin market cap. Realcoin now known as Tether Stablecoins mimic the function of a centrally-controlled fiat currency. They are typically pegged to a reserve asset, such as or like gold — and sometimes, to an . This allows them to be worth exactly $1 per token at all times while also enjoying the benefits of cryptocurrencies. the dollar commodities algorithmically-balanced basket of goods That means avoiding exorbitant transfer fees, slow transfer times and high security. Tether, however, had its own set of . credibility issues Typically, for a stablecoin pegged to a national currency, it means that the number of that particular stablecoin in circulation is exactly the same as the amount of money the issuer has — hence, the 1:1 ratio. We’d call this full-reserve backing. That relies on trust. How am I supposed to know that you have millions of dollars in the bank? Tether, under public scrutiny, crumbled and revealed that only . At a ratio like that — about $0.75 to every $1 — we’re looking at fractional-reserve backing, as claimed by Tether’s marketing materials. 74% of their tokens are backed by cash The rest? Loans and other asset classes. In response to Tether — which for all the gripes remains the most-traded cryptocurrency today, topping Bitcoin by nearly USD$3bn worth monthly circulation — challenges stablecoins were developed, promising even greater transparency and utility to really shake up the financial services ecosystem. Armed with 55 slides, the co-founder of , Tory Reiss, took to stage at Fluidity 2019. The presentation, titled “ ”, talked about the future applications of stablecoins. Trusttoken Programmable Currency Just like Tether, more stablecoins emerged with cutting edge technology and bigger goals — and according to Reiss, they can disrupt the finance ecosystem. Make Gold Great Again Like Trusttoken’s TUSD, stablecoins are typically pegged to a reserve asset and most of these tokens are mirroring the value of various national currencies. “There are very easy ways to release stablecoins, or tokens, to physically [custody] gold,” said Reiss. Those tokens can then be spent using a debit card. With each token representing a certain amount of gold, that means we can actually spend reserves of gold digitally, even though they are not very liquid in nature. Such stablecoins are called , which are different from fiat-pegged stablecoins. commodity-collateralized stablecoins For instance, every is backed by a fraction of gold stored in their vaults. With technology and reserve assets, the stablecoin can be backed by any commodity: from to even . Paxos Gold token oil bananas With blockchain, stablecoins also be backed by other things as well: from to . a basket of currencies collateralized debt Get The Best Interest Rates On Capital, Every Single Time In and , their national currencies are facing hyperinflation: savings are wiped out and becoming worthless overnight. Venezuela Argentina In Japan, the national currency of Yen isn’t facing such a terrifying devaluation, but their . Such interest rates refer to the loans that banks take from the central bank in the country. interest rate is negative or barely noticeable “Currencies are moving many different directions,” said Reiss, “But holding a basket — as we know through the power of diversification — can allow you to actually mitigate a lot of that volatility.” Though the negative interest rate is a monetary policy to incentivize credit and lending, it also means you have to a fee to keep your deposits in the bank, rather than receiving interest income. pay With stablecoins, it is possible to hold a basket of currencies instead. Using algorithms to balance our currency proportions, it allows us to get the best interest rates on every single transaction we have. Hence, regardless of the macroeconomic condition, we’re always going to earn interest on our capital. Though that may seem like a negligible amount in a short period of time, the aggregate interest across all the accounts will be frighteningly large. We Auto-Balance Our Investment Portfolio Every Time The , first posited by Harry Browne in the 80s, is an investment portfolio that will always perform similarly at any macroeconomic condition. However, such a portfolio causes investors to think in silos and focus on each asset class rather than the whole picture. permanent portfolio A stablecoin can represent the entire portfolio. Using an algorithm, the proportion of the asset classes are balanced without having the investor to manually do it himself — or paying exorbitant fees. For instance, if we were to trust an investment manager with the permanent portfolio, we are trusting that person to adjust the allocation of dollars manually under every macroeconomic condition. Such exist in many banks around the world. permanent portfolios On top of having the fate of your funds depending on the investment manager’s expertise and technology, you still have to pay monthly management fees. By contrast, having a portfolio automatically balanced by an algorithm without relying on an investment manager allows the investor to save on fees. On top of that, an in the long run. algorithm generally outperforms human judgment Most of us will benefit from having automation in our finances: the fewer decisions we make, the better. By having something that can be used really simply yet represent so many complexities beneath, it can give many people access to diverse investment strategies that we may have never done it ourselves. Are stablecoins the future? Reiss certainly thinks so. For most of us, we can only see what the future unfolds for the cryptocurrency industry, and perhaps one day, I’ll stop wiring money for good.

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