Possibility of a Stable Coin Seen from the Promotion of Regional Currency “Aquacoin”
In 2019, stable coins are attracting attention in the cryptocurrency market. In Japan, it is no exaggeration to say that the regional currency “Aquacoin” issued by Chiba Prefecture and Kisarazu City has been used to settle payments of ¥40 million or more, and has made the world aware of the possibility of stable coins.
Stable coins are not limited to such regional currencies, but there are various other developments by financial institutions, Tether, etc. with the seventh highest market capitalization (as of February 23, 2019).
In this article, I will explain in detail the features, types, and prospects of stable coins.
Local currency “Aquacoin” in Kisarazu City | Shopping use over 40 million Yen
The regional currency “Aquacoin” issued in Chiba Prefecture and Kisarazu City is gaining popularity. Aquacoin is a type of cryptocurrency where its value is linked to the Japanese Yen, and where one Aquacoin is always adjusted to be equal to the value of 1 Yen.
Locally, this Aquacoin is available for shopping, and more than ¥ 40 million was spent between March and June 2018. At this point, it is surprising that there was only this amount spent, despite the fact that it was still at the experimental stage of Aquacoin. In addition, QR codes for Aquacoin were introduced in 416 stores including restaurants, hotels, and hospitals from October 2018 mainly in Kisarazu city, and the total amount of cash deposited to exclusive smartphone apps in four months increased by 70 million Yen.
In Japan, “Sarubobo Coin” issued by Gifu Prefecture and Hida City is has been used for settlements totaling ¥540 million, and with financial institutions “J Coin” by Mizuho Bank and “S Coin” by SBI Holdings are also being developed.
Indeed, 2019 is a prosperous year for stable coins.
Attention for 2019! What is a stable coin?
Stable coins are cryptocurrencies where “stable = stable.” “Stability” here means that the currency value is stable. For example, although the value of Bitcoin is volatile, it was worth only about 30,000 Yen in 2015, but exceeded 100,000 Yen in 2016 and then surpassed 2 million Yen in 2017. The price stability is lacking as the price is now lowered to around 400,000 Yen at present.
In the case of stable coins, the value is stable although it is a cryptocurrency like Bitcoin. The reason is that it is linked to the value of the Yen like Aquacoin mentioned earlier, or linked to the value of the US dollar like Tether.
Even if most Alt Coins in cryptocurrencies crash, the stable coin price does not change. If the value of the Japanese Yen and the US Dollar slumps (or rises), the story is different, but in reality it will not happen that easily. In other words, stable coins have the lowest volatility (price fluctuation rate) in cryptocurrency.
Stable coin types
There are three major types of stable coins.
Legal currency collateral type (Tether, TrueUSD, etc.)
Cryptocurrency collateral type (such as Dai)
Unsecured type (Basis, Saga, etc.)
The legal currency collateral type is linked to the value of another currency, such as the Japanese Yen or the US Dollar and the cryptocurrency collateral type is like Ethereum. For example, Tether, a famous stable coin, is linked to the US Dollar, so its price is the same as the current USD (approximately ¥ 110 as of February 23, 2019). Collateral is also guaranteed by a central authority in Tether.
On the other hand, there is no institution that guarantees collateral in with the “Unsecured Type”. However, currencies such as Basis are linked to the US Dollar and can be bought at the same price as the USD price. So how do you keep the value of the US Dollar without collateral?
“Unsecured” stable coins control the amount of currency supply like a central bank on a blockchain and define the currency value. The price adjustment is conducted automatically from the information on the chain, so no central authority is needed, and it attracts attention as an ideal stable coin.
What are the benefits of stable coins for investors?
The advantage of stable coins is that their low volatility makes it easy to protect asset values. For example, stable coins can help preserve value if the volatile currency’s legal currency in a developing country suddenly falls.
Many people will remember Greece’s financial crisis in 2013. The value of the country’s currency crashed, and at one point there was turmoil surrounding not being able to get funds from a domestic bank. At the time Bitcoin that was used and many people succeeded in cashing in with a dedicated ATM.
However, because the price of Bitcoin is volatile, the currency value is not always guaranteed when exchanged. If such a financial crisis occurs and you could exchange it for stable coins, you would not lose the value of your assets.
Various stable coin types, such as “legal currency collateral type,” “cryptocurrency collateral type,” and “unsecured type,” were born around Tether. In Japan, stable coins developed by financial institutions in addition to “Aquacoin” and “Sarubobo Coin” are attracting attention. There is no doubt that cryptocurrency will be more practical if the environment for where they can be used for payment expands, taking advantage of the stable price of stable coins. If cryptocurrency is convenient, positive image may spread to cryptocurrencies other than stable coins.