Stable Coins and the Mass Adoption of Cryptocurrency

The TRON — Tether partnership will add another stable coin to the cryptocurrency sector. This latest example in the proliferation of stable coins will add use cases for digital currency and help increase mainstream adoption.

The TRON — Tether Partnership

In March 2019, Tron (TRX) and Tether (USDT) announced a partnership to issue a stablecoin supported by the TRON Blockchain. According to a press release, the new coin would allow users to trade US dollars and transact within the TRX ecosystem.

On April 16, 2019, the new TRX-USDT launched on TRON’s Blockchain. The addition of a stablecoin brings a lot of benefit to TRON. It broadens the TRON ecosystem and existing use cases in the retail and decentralized finance sectors. For example, it makes it possible for dApps based on the TRON protocol to compete with Paypal and Stripe for cross-border remittances and payments between merchants and shoppers.

Most significantly, however, the new stablecoin will increase the liquidity of digital assets and encourage institutional and corporate users to consider using cryptocurrencies. This is why the emergence of yet another stablecoin offering is good for the entire cryptocurrency sector.

Volatility is a Barrier to Adoption

Cryptocurrency markets are notoriously volatile. On April 1st, 2019 the price of Bitcoin spiked 20% in one day. Such rapid changes in value are a barrier to the mainstream adoption of cryptocurrency. Why? A volatile currency is not desirable for retailers and businesses who want stable and predictable prices. Similarly, customers do not want to use a cryptocurrency to make a purchase only to have it increase in value right after and leave them feeling like they overpaid.

There are clear use cases for cryptocurrency that are held back by the fact that its value fluctuates so dramatically. Prime examples are the markets for global remittances and cross-border payments. Remittances are funds that people working in foreign countries send home to their families. Remittances account for approximately $700 billion in cross-border value flows according to the World Bank, and this market is expected to grow 25% from 2019 to 2024.

Enter Stablecoins

In short, stablecoins are a mechanism to address price volatility. Such a hedging mechanism is necessary at this stage in the development of the cryptocurrency sector to make prices more predictable.

For this reason, stablecoins will play an integral role in the shift from fiat to cryptocurrency-based economies. Experts have estimated that over the next two years stablecoins will become the most “tokenized liquid asset” and account for a substantial amount of growth in the cryptocurrency sector.

Different Kinds of Stablecoins

There are two mains types of stablecoins. There are ones that are collateralized with Fiat currency (e.g. Tether) and ones that are collateralized with digital assets (e.g. Maker’s Dai). The former are the most common but the latter are gaining traction.

Tether (USDT) was the first stablecoin. It is fiat collateralized and pegged to the US dollar. Tether became popular during the altcoin rise in 2017–18 and still dominates the stablecoin sector. In December 2018, it accounted for 75% of all stablecoin trading volume and is the seventh largest cryptocurrency by market capitalization.

A key feature of Tether is it works on a meta-protocol that allows its tokens to function on different blockchains. For instance, there is a Bitcoin-based version of Tether (USDT-Omni) and an Ethereum-based version (USDT-ERC-20).

A New Stablecoin to Rule them all?

The benefits the TRON blockchain brings to the stable coin sector are substantial. Compared to USDT-Omni, or example, the TRC20 based USDT has advantages, such as zero transaction fees and instant transactions. Right, when the price of Bitcoin spikes the network struggles to meet user demand for USDT-OMNI transactions. Whenever there are big BTC price increases or declines the network does not operate at peak efficiency. As TRON CEO Justin Sun states, “these problems will be solved after we launch the USDT Tron, and we migrate the majority of the USDT-Omni to USDT-Tron.” Thus, TRON’s ultimate goal is to move USDT from its Bitcoin-based protocol to the Tron Network.

The TRON stablecoin will also have more versatility compared to USDT-OMNI. As Sun explains:

“[TRX-USD] is based on the smart contracts, so you can do lots of the deployment work on top of the USDT, which Omni blockchain cannot offer.” — Justin Sun, CEO, TRON Foundation

What about the Ethereum Network? There is also a USDT coin built on Ethereum that is compatible with dApp development. Justin Sun addressed this point as well in a recent interview by saying that the competition between TRON and Ethereum is ultimately a good thing:

We all know that Tron and Ethereum are competing… but I think that definitely produces a better product [and] the competition between Ethereum and Tron benefits the whole industry…. I think in the future we will even collaborate with lots of the Ethereum developers.” — Justin Sun, CEO, TRON Foundation

$20M USDT Incentive Plan

As part of this friendly competition, TRON Foundation has announced a $20-million incentive plan for TRX-USDT holders that includes a 20% initial Annual Percentage Rate [APR] for holding the stable coin, which is significantly higher than USDT-Omni. TRON also announced a promotion spanning over 100 days where users can swap for USDT-TRON and be rewarded more USDT-TRX

In addition to TRON-powered decentralized exchanges, three major crypto exchanges — Huobi Global, OKEx, and Gate-io — have announced their support for the Tron-based version of Tether in official announcements, in which both Huobi Global and OKEx cite user demand for more stable coin trading.

Conclusion

It is clear there is a need for stable coins at this stage in the development of cryptocurrencies. The price volatility that characterizes the current market limits liquidity and is a significant barrier to mainstream adoption of digital currency, as well as the development of new use cases. This is why the new TRX-USDT stable coin will help drive growth in the sector.

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