Stablecoins and clearing banks: merging traditional banking with digital innovation

Written by Leven Li from Enabler Compliance Ltd

Stablecoins are a digital asset that aim to provide price stability, typically by pegging their value to an external reference or reserve, such as a specific amount of a commodity or a fiat currency like the US dollar. The design specifically focused to counteract the significant volatility seen in other cryptocurrency prices, making them more suitable for daily use as a medium of exchange, a unit of account, and a store of value. Within the design of stablecoins there are three different models:

·      financial-asset (commodities, fiat currency) backed stablecoins (such as USDC)

·      algorithmic based coins (such as Terra)

·      cryptocurrency based coins (such as DAI)

It could be argued that only the financial asset-backed stablecoins have intrinsic value. In general, cryptocurrencies are perceived as speculative instruments, and stablecoins have been synonymous with speculative trading through their pivotal role in providing liquidity on exchanges and a pillar of the foundation of …