Big Blue is helping launch a stablecoin – coins that are pegged to fiat currencies – cryptocurrency.
IBM Corp. (IBM) has partnered with Stellar, a blockchain that shares technology with Ripple, and Stronghold, a startup, to launch USD Anchor. Coins of USD Anchor are backed by an equivalent amount of U.S. dollars on deposit at FDIC-insured banks by Nevada-based Prime Trust. According to Jesse Lund, IBM’s head of blockchain services, the startup plans to “enable all sorts of digital transactional networks to settle their transactions with digital fiat currency on the same blockchain networks.”
In short, this means IBM wants to create a network where digital fiat currencies can be used to settle transactions across multiple blockchains. “What we envision is a network that has multiple different asset classes living on it. You could have digital euros, digital dollars, digital pounds – and they are all really kind of running on the same networks,” said Lund, adding that this could expand the use cases of digital currencies beyond just trading in cryptocurrency markets.
IBM’s partners in this venture – Stronghold and Stellar – bring different sets of capabilities. Stellar is similar to Ripple in that its focus is on cross-border transfers. However, its markets are different. Unlike Ripple, which has forged alliances with banking institutions across the world, Stellar enables transfers within developing economies. As of this writing, Stellar’s cryptocurrency Lumens is the sixth most valuable coin in the world and has a market capitalization of $5.1 billion. (See also: What Is Stellar?) Stronghold is an anchor or a bridge between fiat currencies and Stellar’s network. “All money transactions in the Stellar network occur in the form of credit issued by anchors like Stronghold,” the company’s website states."
Do Crypto Markets Need Another Stablecoin?
As cryptocurrency markets have grown, the role of stablecoins has increasingly become controversial. The role of Tether, the stablecoin issued by cryptocurrency exchange Bitfinex, has come under a cloud after allegations surfaced charging the exchange withartificially proppingup bitcoin’s price. Bitfinex’s refusal to submit the coin to an audit has further complicated matters. (See also: Tether and BitfinexSubpoenaed By US Regulators). But there are a couple of differences between Tether and USD Anchor.
Prime Trust, the asset protection company that is backing USD Anchor tokens with fiat currency, claims that it has been audited. Then there are the use cases. Apart from its role serving as an on-ramp and off-ramp for trading at cryptocurrency exchanges, Tether does not have muchother utility. IBM has much more ambitious plans for its venture. The initial use case for USD Anchor is to enable cross-border transfers. According to Lund, the eventual goal is to expand efforts beyond digital fiat currencies and use the partnership to accomplish real world use cases, such as supply chains for tracking food supply. (See also: Global Food Leaders Team With IBM Blockchain).
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Now, let's delve into the article about IBM's collaboration with Stellar and Stronghold to launch USD Anchor, a stablecoin pegged to fiat currencies. This initiative aims to create a network where digital fiat currencies can be used to settle transactions across multiple blockchains. Here's an breakdown of the key concepts used in the article:
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Stablecoin:
- A type of cryptocurrency designed to maintain a stable value by pegging it to a reserve of assets, often fiat currencies like the U.S. dollar.
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IBM Corp. (IBM):
- A multinational technology company with a focus on hardware, software, and cloud computing. In this context, IBM is working on blockchain solutions, particularly in collaboration with Stellar and Stronghold.
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Stellar:
- A blockchain platform that facilitates cross-border transfers. It shares technology with Ripple but focuses on enabling transactions within developing economies. Stellar's cryptocurrency, Lumens (XLM), is mentioned as the sixth most valuable coin in the world.
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Stronghold:
- A startup acting as an anchor or bridge between fiat currencies and Stellar's network. It issues credit in the form of tokens on the Stellar network, facilitating money transactions.
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USD Anchor:
- The stablecoin created through the collaboration between IBM, Stellar, and Stronghold. It is pegged to the U.S. dollar, with each coin backed by an equivalent amount of U.S. dollars deposited at FDIC-insured banks by Prime Trust.
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Prime Trust:
- An asset protection company based in Nevada that is backing USD Anchor tokens with fiat currency. It claims to have been audited, providing transparency and assurance regarding the stablecoin's backing.
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Jesse Lund:
- IBM's head of blockchain services, who outlines the vision of creating a network where different digital fiat currencies can settle transactions across various blockchains.
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Cross-Border Transfers:
- The initial use case for USD Anchor, allowing for efficient and transparent cross-border transactions.
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Tether (USDT):
- Another stablecoin mentioned in the article, issued by Bitfinex. It has faced controversy and allegations of artificially propping up Bitcoin's price. Tether's role is primarily seen as an on-ramp and off-ramp for trading at cryptocurrency exchanges.
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Use Cases Beyond Trading:
- IBM envisions expanding the use cases of digital currencies beyond trading to real-world applications, such as tracking food supply chains.
In summary, the collaboration between IBM, Stellar, and Stronghold aims to introduce a stablecoin, USD Anchor, with a focus on enabling cross-border transactions and extending the application of digital fiat currencies to real-world scenarios beyond cryptocurrency markets. This initiative distinguishes itself from other stablecoins like Tether through its transparent backing and ambitious plans for broader use cases.
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