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.
Algo stablecoins mitigate the problems of a centralized power structure, but present unique issues of their own. One of the main obstacles is that the collateral is not in the same asset the stablecoin is pegged to, adding risk and putting pressure on the project and its ability to maintain the peg. Currency pegs hold their price via over-collateralization, but this is only effective if the collateralized asset price doesn’t drastically decrease in value. If this happens, there will not be enough value to justify the peg, and the entire ecosystem can collapse.
A final problem, one that will stifle the ability for algo stablecoins to reach mainstream adoption, is their inability to meet the needs of large buyers. Companies with billions or trillions of dollars of assets under management will have no way to interact with this type of system, as it cannot support the transaction level they require.
e-Money Combines the Best From Each
e-Money offers a solution that innovates on both models of stablecoins, providing an asset-backed option that changes in price based on inflation. e-Money stablecoins are interest-bearing currency-backed stablecoins reflecting various world currencies. They are also fully collateralized, interest-bearing, capable of providing immediate finality of transactions, cost-effective, and fully transparent. Additionally, e-Money is already working with multiple European banks to hold its stablecoin deposits and the company is audited regularly by Ernst and Young, one of the most respected Big Four accounting firms in the industry.
Users can send these stablecoins anywhere instantly, meaning they are borderless, permissionless, and efficient, enabling usage across web3, for local businesses, remittance, and even corporate settlement. e-Money inflates the supply of all its stablecoins by one percent each year, resulting in a controlled divergence meant to benefit stakeholders over time.
With this stablecoin system, e-Money is not working towards replacing fiat currency, but wants to act as a layer two solution that will enhance overall asset usability. Since e-Money uses Cosmos’ blockchain framework for its infrastructure, the network can handle thousands of transactions per second, setting the groundwork for a globally adopted platform.
Additionally, the company recently announced a collaboration with Avalanche, e-Money’s stablecoins will join top-five fiat-backed stablecoins TrueUSD (TUSD) and BiLira (TRYB) as fiat-backed stablecoins native to Avalanche’s DeFi ecosystem.
e-Money is expanding beyond the USD-dominated stablecoin market to deliver trusted currencies that can be used in both retail and cross-border payments. By launching on Avalanche, e-Money users will be able to send and receive stablecoins with sub-second finality, and low transaction fees. Providing predictable and interest bearing value to stablecoins is an innovation that will help users better manage their assets, something e-Money is hoping will empower people everywhere.