The Stablecoin Industry
In the traditional currency world, there is no such thing as a truly stable currency. This is due to the fact that all fiat currencies, such as the US dollar and Euro, are subject to fluctuating exchange rates and inflation. These fluctuations are usually small enough so that it does not prevent them from being the primary medium of exchange on a day-to-day basis.
In the digital world, we have seen that cryptocurrencies are subject to massive volatility. For a small portion of individuals, often referred to as speculative investors, this volatility supports their preferred level of risk. But for the majority of mainstream consumers, this volatility is not an attractive option and is not a practical solution for their daily transactions or for long-term investments.
In order to be successful, a stablecoin needs to offer protection from numerous volatility-inducing factors, whether they are those that we know today or 100 years from now. For example, we are seeing that as stablecoins become tradable on secondary exchanges, the market forces of supply and demand are imposing significant volatility on their price. Today there are two ways for any stablecoin to manage this volatility:
- By backing the coin with a currency, asset or commodity in hope that the market will trade the coin with the same value it has been pegged to.
- To design and implement creative internal protocols that stabilize the coin every time there is a fluctuation.
Element Zero proposes a new way to create a stablecoin based on a new methodology that completely eliminates the possibility of any price fluctuations from occurring in the first place.
Regardless of the currency type, stability is crucial to protect buyers and sellers from loss of value, either during a transaction or over the life of an investment. Without some form of stability, it is unlikely that cryptocurrency will ever be adopted as either a mainstream payment system or investment option. During a cryptocurrency crisis, even speculative investors need to temporarily park their funds with a stablecoin in order to avoid losses.
With stablecoins, a new opportunity exists to provide protection against volatility with the benefits of being able to address the needs that our increasingly digital lives demand. Stablecoins provide a reliable, predictable form of payment that are compatible and complementary to emerging technologies without requiring complex systems or processes.
