As cryptocurrency and blockchain continue to expand and find new solutions for the financial problems we face, we’ve seen a growing trend that I think is important for anyone building in this sector, to understand. The growth of stable coins has been a fascinating one to watch, and I think that it could be the blueprint for a lot of features that will be added to Bitcoin and cryptocurrencies in the future.
You see, when Bitcoin and many cryptos liked it launched, the value of the coin was set by the market, how many buyers versus sellers, it’s the same today. Speculators focus on the short volatility, HODL’rs focus on the price or long volatility and everyone who isn’t either is stuck thinking why would I want to spend this on something if it could go up or down.
The perceived price moving up or down has been an inhibitor of sorts when it comes to the biggest online play of all at the moment, and that is eCommerce. People don’t want to exchange goods and services for a store fo value that can flip 20% either way in a matter of hours, that’s not good business sense and an accounting nightmare.
But the free market had a solution.
Introducing stable coins
Ethereum made it all possible with its ERC-20 token standard to allow exchanges to launch stable coins like Bitfinex’s USDT or Coinbases USDC along with many others. These tokens were minted onto the blockchain each time a US Dollar was stored with the exchange, making it far easier to trade between crypto and fiat.
The idea of USDT has since grown to be supported by multiple blockchains; you can now take your USDT from Ethereum, use it on TRON or BNB chain for use with their exchanges, DEX’s and dapps.
Not only that, but it allowed for eCommerce transactions to be made using a token. Naturally, this being a custodial service was only a proof of concept for blockchain, and a few months later, it was taken further.
The algorithmic stable coin
The centralised nature of backed stable coins has always been a single point of failure, and it was only time before the concept became more decentralised. Dapps like MakerDAI allow you to collateralise your ETH and then mint stable coins with it to be used across the Ethereum network; this was a revelation as it allowed you to access a stable coin without KYC.
In 2020 we’ve also seen the call of governments to want to shut down stable coins, so they can maintain their monopoly on money. This should only serve to push the algorithmic and collateral backed stable coins further and gain more popular and widespread use.
Remember earlier I spoke about the blueprint stable coins have created for other features? Well, this is the end goal for me, I believe all roads eventually lead to Bitcoin. We’re on the final stretch here, so stick with me.
I recently spoke about the RGB network a layer 2 solution for Bitcoin, that allows for smart contracts to be built on top of the lightning network.
- If smart contracts can be created on the lightning network, then by definition, tokenisation can be done on Bitcoin.
- If tokenisation can be done on Bitcoin, stable coins can be created on Bitcoin.
And that’s exactly what’s happening, OMNI is a Bitcoin backed stable coin that uses the RGB protocol to mint stable coins based on the underlying asset in Bitcoin.
But if we can do it on ETH and TRON, BNB and other chains can follow why is this important?
That’s a good question if we take a gander at @coingecko today, USDT alone has a market cap of $19,889,559,480 that would be close to 33% of ETH’s market cap and far more than any other chain apart from Bitcoin and ETH.
You see there isn’t enough collateral for stable coins to make sense on these smaller chains, but with Bitcoin, it does. At a market cap of 350 Billion, there is more than enough collateral that can be locked up to create stable coins for trading and eCommerce.
It has enough collateral for multiple stable coins to exist for different national currencies like a GBP, CAD, AUD and EUR, depending on the markets need for it.
Bitcoin is already widely accepted by exchanges and merchants, so Bitcoin backed stable coins should have no problem getting listed on exchanges or added to wallets, leveraging the infrastructure and network effect of Bitcoin will take their stable coin further than any others, in my opinion.
Could stable coin growth expand Bitcoin?
Stable coin use on Bitocin, really kicks off the world reserve currency debate, as more capital comes into Bitcoin, more can be used to create stable coins, more stable coin use means more capital locked up, more capital locked up means BTC’s market cap expands.
It also shows how innovation can be and will be absorbed into Bitcoins network eventually and the role the wider ecosystem plays in supporting Bitcoin.
If we see a BUSD (Bitcoin backed USD) in the future, integrated with exchanges and wallets, I think it would not only help traders who want to hedge against volatility and make markets more efficient but also make eCommerce with Bitcoin simple and easy to use.
You could even be paid in your BUSD for example, keep some for expenses, and unwrap the rest to be held as Bitcoin for savings or investing in other services.