Big Blue is helping launch a stablecoin – coins that are pegged to fiat currencies – cryptocurrency.
IBM Corp. (IBM) has partnered with Stellar, a blockchain that shares technology with Ripple, and Stronghold, a startup, to launch USD Anchor. Coins of USD Anchor are backed by an equivalent amount of U.S. dollars on deposit at FDIC-insured banks by Nevada-based Prime Trust. According to Jesse Lund, IBM’s head of blockchain services, the startup plans to “enable all sorts of digital transactional networks to settle their transactions with digital fiat currency on the same blockchain networks.”
In short, this means IBM wants to create a network where digital fiat currencies can be used to settle transactions across multiple blockchains. “What we envision is a network that has multiple different asset classes living on it. You could have digital euros, digital dollars, digital pounds – and they are all really kind of running on the same networks,” said Lund, adding that this could expand the use cases of digital currencies beyond just trading in cryptocurrency markets.
IBM’s partners in this venture – Stronghold and Stellar – bring different sets of capabilities. Stellar is similar to Ripple in that its focus is on cross-border transfers. However, its markets are different. Unlike Ripple, which has forged alliances with banking institutions across the world, Stellar enables transfers within developing economies. As of this writing, Stellar’s cryptocurrency Lumens is the sixth most valuable coin in the world and has a market capitalization of $5.1 billion. (See also: What Is Stellar?) Stronghold is an anchor or a bridge between fiat currencies and Stellar’s network. “All money transactions in the Stellar network occur in the form of credit issued by anchors like Stronghold,” the company’s website states."
Do Crypto Markets Need Another Stablecoin?
As cryptocurrency markets have grown, the role of stablecoins has increasingly become controversial. The role of Tether, the stablecoin issued by cryptocurrency exchange Bitfinex, has come under a cloud after allegations surfaced charging the exchange with artificially propping up bitcoin’s price. Bitfinex’s refusal to submit the coin to an audit has further complicated matters. (See also: Tether and Bitfinex Subpoenaed By US Regulators). But there are a couple of differences between Tether and USD Anchor.
Prime Trust, the asset protection company that is backing USD Anchor tokens with fiat currency, claims that it has been audited. Then there are the use cases. Apart from its role serving as an on-ramp and off-ramp for trading at cryptocurrency exchanges, Tether does not have much other utility. IBM has much more ambitious plans for its venture. The initial use case for USD Anchor is to enable cross-border transfers. According to Lund, the eventual goal is to expand efforts beyond digital fiat currencies and use the partnership to accomplish real world use cases, such as supply chains for tracking food supply. (See also: Global Food Leaders Team With IBM Blockchain).
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