Algorand has been making some good grounds and deploying strategic partnerships to build the ecosystem. In this blog, I elaborate a bit on stablecoins and how Algorand, with all its features, is integrating them to expand their network and available liquidity to projects building on Algorand. A stablecoin is a cryptocurrency pegged to a stable asset such as gold or fiat currencies, making it less volatile as compared to utility tokens. Stablecoins came into existence to tame the high volatility, which is not a great trust builder to anyone who is looking to invest in the token markets, in the crypto market.
Have stablecoins been able to curb the volatility?
Yes, apart from the initial fluctuations which varied over 5 %, the fluctuations in major stablecoins have been less than 1%. Moreover, the introduction of stablecoins has been instrumental in enhancing the adoption of tokens as a form of investment; it has even seen attraction from institutional investors as well as banking and non-banking financial institutions alike.
How important is the underlying blockchain for stablecoin issuance?
The stablecoin projects have to be careful to be true to what blockchain stands for – security, accessibility, tamper-proof, transparent, and decentralized. With multi-chain technology being sought by stablecoin projects for networks and implementation expansion, it is imperative that the underlying blockchain protocols support such an initiative to be part of a truly decentralized ecosystem.
What’s in it for the underlying blockchain?
Liquidity, ease of access to investments for underlying projects building on a respective blockchain, as well as a wider network to expand its reach. This is not only beneficial to each specific blockchain but the entire blockchain ecosystem as it leads to more focus on adoption and less on internal competition.
Algorand and how it is placed for Stablecoins
With all tokens issued/created on the Algorand blockchain having inherent Algorand Standard Asset (ASA) characteristics (token issuance or swapping to the Algorand blockchain adds features) such as increased core security, simplified usage, low transaction costs, and transaction finality. Compared to others, ASAs are fast and secure as they are built directly into Algorand’s Layer-1. With the unique functionality of optional and flexible asset controls for issuers and managers for business, compliance, and regulatory requirements, tokenization on Algorand provides Role-Based Asset Control (RBAC). This includes optimal provenance with the option to quarantine asset accounts for investigative purposes, better compliance, and reporting by forcing the transfer of an asset where legal or other regulations require it, enhanced vigilance with whitelist model for privileged asset transaction thereby making them ideal for issuance of stablecoins.
USDT, the most liquid stablecoin with a market cap above 9 billion USD, was the first stablecoin to be issued on the Algorand blockchain thereby taking advantage of the ASA feature upgrade in Algorand 2.0 for widespread financial applications. This collaboration was meant not only to enhance liquidity access to tokens issued on Algorand but also to provide options for swift trading as well as instant transaction confirmation.
USDC: 2nd Stablecoin on Algorand
USDC, which has a market cap above 1 billion USD, recently announced to become the second stablecoin to integrate with Algorand to swiftly handle high-volume financial applications. Circle, the USDC issuance company, envisions to support a multi-chain framework to allow for multi-chain transfers to support use cases, developers, and the ecosystems. Algorand, due to its characteristic features that place it right up there to handle high-volume financial transactions at low cost and high speed is the perfect strategic partner to build the multi-chain transfer framework. The collaboration between Algorand and Circle is expected to encourage other blockchain projects to join this multi-chain system as well as create a foundation for developing a wide range of scalable, secure & compliant financial applications.
With multiple strategic partnerships coming through, it’s the vision to update its smart contracts to handle large ticket transactions and of course, its features; Algorand is well placed to be a blockchain protocol to be used to issue more stablecoins.