As more people look for safer alternatives to store and transfer their wealth, stablecoins have emerged as a viable option with practically no restrictions. These fiat-pegged crypto assets allow users to store value reliably, but do nothing to account for inflation of the fiat backing the asset.
e-Money has developed a new stablecoin, one more akin to a tokenized bank deposit than a fiat-pegged currency, as it fluctuates based on incurred interest rates. e-Money combines the best aspects of the three most popular stablecoin models: algorithmic stablecoins and collateralized stablecoins (which include crypto and currency-backed stablecoins), to provide additional value to end-users. Built using the Cosmos blockchain, e-Money is interoperable between networks, allowing for platform sovereignty alongside easy integration with other blockchains.
The Trouble With Algorithmic and Collateralized Stablecoins
Prior to the introduction of e-Money, there have been three categories of stablecoins that provide value to users, but have inherent problems. These categories, currency-backed stablecoins, crypto-backed stablecoins, and algorithmic stablecoins, are still very popular but can be improved.
Users tend to flock to the options that provide a reliable peg on the underlying asset, including during times of volatility. Unfortunately, to date there has not been a mainstream stablecoin that is immune to violent market swings. This has kept many people at bay from participating from more traditional markets and has caused stablecoins to be viewed as a potential regulatory risk.
The future viability of these stablecoins depends greatly on the relationship stablecoin issuers have with banks. If regulators bring forward new rules or issuers can’t cover the operational costs from interest held in reserves, there could be a potential price decoupling. There is also the problem of relying on a centralized institution responsible for maintaining the asset’s stability.