But for everyone who believes in the need for a self-sovereign financial system, these fiat-backed ‘solutions’ aren’t solving enough. Cryptoasset-backed stablecoins, such as those already launched by Synthetix (formerly Havven) and Maker, are still the best solutions for stability if we’re to fulfill the purpose of blockchain technology. (In fact, I proposed recently on Twitter that we should rename fiat-backed stablecoins to fiatcoins to ensure the difference is clear.)
The potential for cryptocurrencies to cut out the ‘middlemen’ of remittance is well-established, and the astronomical fees to exchange between currencies is a margin that’s still begging to be blown out of the water. Here in Australia it’s been in the news again recently, as it’s estimated that in 2016 Australians paid $1 billion more on foreign exchange rates and fees than they would have in a competitive marketplace.
Despite the often huge charges, international remittance can form a crucial proportion of a national economy. A 2016 World Bank study showed that the reduction of poverty in Nepal was “dominated” by Nepalese working overseas and sending money back home.
Many problems can also be opportunities, and this is an exciting one for cryptocurrency. It’s perfectly feasible that a suite of multicurrency stablecoins backed by the same crypotoasset collateral pool could be seamlessly exchanged for each other with only negligible fees, using an oracle for live price feeds. Obviously, on-ramps and off-ramps are important infrastructure that are still being added to the ecosystem, and without them wider adoption will be challenging. But alongside their development we need to protect users from volatility and censorship with units of account that will attract new entrants, not repel them.
Apart from the decentralised qualities of cryptoasset-backed stablecoins, they also provide a greater range of functionality. Since fiatcoins (yes, I’m sticking to that name) must be backed by a fiat currency, they are only ever denominated in that currency equivalent (i.e. since USDT is backed by USD, Tether has not also created JPYT from the same collateral pool).
Cryptoasset-backed stablecoins do allow for the creation of several currencies against their collateral, since there is no direct correlation between the collateral and the stablecoin. Up to now, people have been willing to mostly use stablecoins denominated in a USD equivalent, but if the ecosystem is to keep growing, and if the recent troubles for Tether are anything to go by, then we need an alternative backed by cryptoassets.
For many people around the world who hold and use cryptocurrencies, seeing everything in the ecosystem priced in USD comes as a bit of a surprise. Often they’ll have spent their entire lives interacting with their own native currency, and the only time they have to do mental currency exchange calculations is when they’re on international vacations.
A study by the Society for Worldwide Interbank Financial Telecommunication (SWIFT) found that the USD accounted for just over 50% of the value of international currency usage in trade in 2014. While that’s obviously a significant amount, it still leaves the other half unaccounted for.
People’s right to transact with a stable cryptocurrency shouldn’t depend on their willingness to use a foreign unit of account. If wider adoption is the next step, we need to reduce friction, not increase it.
It’s not only individual users for whom using USD can be a turn-off. Here in Australia I’ve spoken to plenty of merchants — e-commerce and otherwise — for whom offering products in USD is, well, foreign. I’ve received plenty of direct feedback that if we could offer an AUD stablecoin they would be far more willing to have a conversation around integration.
Merchants are an important piece in the adoption puzzle, and their preferences should absolutely be considered at this point in stablecoin development. And often, their preferences come down to what is good for the customer. Merchants are deeply invested in user experience, and pricing goods in a familiar unit of account is a crucial part of the user journey.
A decentralised multicurrency stablecoin would be a major step towards the underlying utopian vision of cryptocurrency: people in full control of their money, no matter where they are in the world.
Kain Warwick is the founder of Synthetix (formerly Havven), a synthetic assets platform that launched in 2018 to solve the issue of volatility. He is also the co-founder and CEO of blueshyft, a retail payment network of over 1200 locations across Australia.