Today startup Stronghold announced a USD Anchor token on the Stellar Network. The Stronghold USD is asset-backed with reserves held by a regulated state-chartered trust company.
One of the aims of tokens and cryptocurrencies is decentralization and reducing the need for trust. However, with a stablecoin there’s a trust company which is acting as custodian. And in this case, that trust company is only two years old.
At the same time Stronghold announced a collaboration with IBM. The tech giant plans to explore using the StrongHold USD to help organizations achieve faster, safer and more efficient transaction processing and money transfer.
Stronghold USD is not a typical cryptocurrency. They are pre-approved tokens designed explicitly as a B2B solution for banks, global companies, and asset managers. However, the company did not preclude making the token available to retail customers in the future. Plus they explicitly stated that they could easily support multiple different currencies going forward.
The startup is betting that by providing transparency about underlying reserves, they will be able to maintain the stability of the currency. There have been multiple attempts at pegged tokens many of which have failed to maintain a stable price.
The most successful stablecoin is Tether which turns over roughly $2.5 billion a day but is mainly used by cryptocurrency traders. Tether also claims bank deposits back the stablecoin. However, there have been issues around transparency.
What’s the relevance for enterprise?
Many blockchain transactions result in intercompany payments. By using a token the payments can be made instantly via a blockchain.
There’s an additional less obvious advantage. One of blockchain’s biggest business benefits is automatic reconciliation. By using the same bank account for blockchain-related transactions and non-blockchain transactions, you lose part of the reconciliation benefit.
If instead, you use a token then you rarely use a bank account. Hence a company will have fewer more significant ‘real’ bank transactions that involve buying and selling tokens. And these are far quicker to reconcile than hundreds or thousands of smaller transactions.
“The process for seamlessly managing and trading assets of any form from digital to traditional currencies, needs to evolve as financial institutions are seeking ways to break into new asset classes like cryptocurrencies,” said Stronghold’s co-founder and CTO, Sean Bennett. “Asset-backed tokens can provide seamless access to all currencies, improving the global movement of money. We’re honored to work with IBM to explore new ways to use Stronghold USD within.”
“The digitization of real-world assets using blockchain can dramatically transform many forms of financial transactions conducted around the world,” said Jesse Lund, global vice president of IBM Blockchain. “New types of fiat-backed instruments, like Stronghold’s USD token, have the potential to improve the backbone of international banking operations and payments, giving banks an easier way to integrate with public blockchain networks without significant changes to their core banking and compliance infrastructure.”