The Quest for a Stablecoin; IBM Joins in with Stronghold USD

Wild price swings is the order of the cryptocurrency industry. From a total market capitalization of about $850 billion in January, the industry is now hovering around a third of that value.  This characteristic of bitcoin and other virtual currencies has greatly hampered its wider adoption and use in daily transactions.

Stablecoins like Tether which are pegged on the value of the US dollar have been devised to fill the gaping need for a more stable cryptocurrency. Stablecoins represent ownership of an underlying asset and a transfer implies the transfer of the asset. The added advantage is of course the fact that they make the transfer process fast and convenient.

While it has been dogged by controversy in the past, Tether is now the second most traded cryptocurrency after bitcoin. Traders often use it to cushion themselves against the high volatility in the market. It is also the coin of choice when transferring assets from one exchange to another especially after a number of banks and other financial institutions refused to deal with cryptocurrency related transactions.

Other stablecoins like Basis have since come up and the space is fast becoming crowded. In recent hours, IBM has unveiled its own stablecoin albeit with a different target in mind.

Dubbed Stronghold USD, the stablecoin which is built on top of the Stellar network is targeted at institutions and other organizations. The coin is built by Stronghold, a financial institution in collaboration with IBM.

Business to Business stablecoin

The aim is to experiment with ways for financial institutions and other organizations to achieve faster, safer and more efficient transaction processing and money transfer throughout the world’s economy, IBM said in a statement.

Each unit of Stronghold USD is equivalent to 1 USD dollar with the reserves being held by a state chartered trust company.

Apart from limiting price volatility, the Stronghold USD is also meant to provide support industries with compliance requirements.

“The digitization of real-world assets using blockchain can dramatically transform many forms of financial transactions conducted around the world,” Jesse Lund, global vice president of IBM Blockchain said.

“New types of fiat-backed instruments, like Stronghold’s USD token, have the potential to improve the backbone of international banking operations and payments, giving banks an easier way to integrate with public blockchain networks without significant changes to their core banking and compliance infrastructure,” he added.

Like all cryptocurrencies, Stronghold USD  is aimed at providing smooth and fast experience when transferring funds from one corner of the globe to the other without the associated high costs and inefficiencies.

According to Stronghold, the tokens may be made available to retail customers in the coming months.