The StartEngine Summit hosted its ‘Tokenize the World’ conference on October 19th in California, which featured 11 panel discussions. One panel discussed how Stablecoins can bridge the gap between tangible assets and the blockchain, and the potential for a future with nation-state operated Stablecoins.

Stablecoin activity has increased drastically in recent months. The controversial Tether, for example, has a current market capitalization of $2 billion.

TrueUSD, DAI, and USDC have a combined market capitalization of more than $255 million.

Many have invested serious interest— and finances— into the new coin type. But what exactly is a Stablecoin, how do they function, and what does their future look like?

Answers to these questions were precisely the dialogue which flowed from the following industry leading experts:

What is a Stablecoin?

Stablecoins aim to eliminate the risky volatility that is seen throughout cryptocurrencies.

Many digital currencies, such as Bitcoin, are intended to function as mediums of exchange. Yet for various reasons, most are primarily used as a form of investment, rather than a legitimate currency. The volatility in digital currencies results in significantly increased risk when compared to traditional forms of legal tender, such as the USD, the Euro, or the Chinese Yuan.

Most Stablecoins have a value which is pegged to the USD or another currency with far less volatility than seen in the crypto marketplace.

The stability of the traditional fiat currency is then carried over into the realm of digital currencies. With added liquidity and decreased volatility, a Stablecoin is hoped to act similar to that of a traditional currency.

How do Stablecoins Work?

According to Reiss, there are essentially three types of Stablecoins.

The most common method involves a fiat or asset-backed coin. Here, one Stablecoin functions as a digital representation for a specific asset, such as one coin for one USD. The value is equivalent between the two, and the coin can be redeemed for the asset when requested.

Another model involves algorithmic Stablecoins. In this case, a digital authority is created which can either issue or destroy bonds in order to stabilize the on-chain currency. In this case, there is no need to trust economic markets.

A third type is known as crypto collateralized Stablecoins. Here, several different cryptocurrencies are put in one group, which serves as collateral for an issued Stablecoin.

The Future of Stablecoins Explained by the Experts

According to the panelists, the future looks very bright for Stablecoins. Two panel members have already participated in discussions with government bodies about the creation of government backed Stablecoins.

When asked about the possibility of actualizing a nation-state operated Stablecoin, Trautwein responded with the following:

“Yeah definitely, at some point. This gets really interesting when you have countries where they have more integration between technology and the government proper. Because there are some countries that are actively looking at this, there are some people that we’ve been in talks with who are involved with their country’s attempts to create government issued Stablecoins. We think that’s great, we think that’s the next revolution for the fiat-backed side of things, because you have an upscaling of trusted actors. So we’ll probably see a bank-issued Stablecoin, I would say, within the next two years.”

Reiss went on to agree with Trautwein’s comments, and provided further details of similar talks his company has had:

“We’ve had two different governments, both of island nations, that have reached out to us and said ‘hey, we’re very interested in issuing a government backed Stablecoin. But we need a technology provider.’ […] So those are projects that we’re starting to get involved in. So I share Sam’s opinion- and, I mean, two years is generous I think […].”

What do you think about the future of Stablecoins? Will we see banks and governments issue Stablecoins within the next few years? Let us know what you think in the comments below.

Image courtesy of Twitter.

The full conference can be viewed on YouTube, here.

Market Capitalization rates courtesy of CoinMarketCap.com, as of October 22, 2018.