Exploring the Role of Stablecoins as a Medium of Exchange
23 May, 2023
Digital currencies have a significant role to play in the future of global financial systems. To many, it’s an answer to some of the flaws in our current financial systems. However, one of the main challenges of crypto is that it is inherently volatile. For this reason, stablecoins, a form of crypto that overcomes the issues of volatility, are growing in popularity with businesses, central banks and the financial sector taking notice of its benefits.
How AUDD helps overcome volatility in crypto
Broadly, stablecoins have a 1:1 backing to their linked digital asset, fiat, or smart contract. That allows them to hold value over time, helping solve the volatility problem in crypto. Like its peers, AUDD has been designed to serve this role.
Let’s use an example to illustrate this:
Joan is transacting in XRP via Ripple. If she expects XRP to increase in value, she can buy them with AUDD. If she expects the bullish strength to subside, causing the value of the cryptocurrency to slump, she can convert XRP into AUDD. Investors can also convert from crypto to fiat and vice versa via AUDD. The stablecoin comes in handy, especially for exchanges that don’t allow or have fiat currency capabilities available. Using stablecoin as a medium of exchange, investors are assured that their digital assets are protected against potential downside fluctuations.
However, AUDD offers more than just the stablecoin functionality. More specifically, investors have shown an increased demand for a stablecoin backed by a real-world asset, as opposed to one that is collateralised with cryptocurrencies and smart contracts.
AUDD, backed 1:1 to the Australian dollar, means that each AUDD holds one A$ against it for maximum protection. This means the risk of its value de-pegging, causing a market catastrophe, and investors’ losses are low.
AUDD’s design as a blockchain-agnostic solution will further strengthen its stability. Currently available on Stellar, AUDD will soon be rolled out on Ripple’s XRP Ledger and the Ethereum blockchain and potentially other reputable blockchains. With this roadmap, more blockchains will tap the power of AUDD in facilitating secure crypto transactions. This has the effect of overcoming the impacts of volatility felt in crypto markets as investors can hold the stable alternative in periods of turmoil.
How AUDD brings transparency to crypto transactions
A concern that investors have is whether stablecoins are sufficiently backed and how their reserves are protected. Questions have also been asked regarding the quality of reserves backing the stablecoins. AUDD is a trusted option as a stablecoin powered by Novatti (ASX:NOV), a publicly-traded fintech entity listed on the Australian Securities Exchange. As such, Novatti’s financial and other data is audited and ascertained under the Australian market laws and financial accounting standards. Novatti is also a strong advocate and active participant in shaping market regulations that govern Australia’s fintech sector.
Making crypto merchant friendly with AUDD
AUDD’s compatibility with Stellar makes it a suitable medium of exchange for merchants on the platform. Stellar Ecosystem Proposals (SEPs) enable users to experiment with multiple use cases like cross border payments or on/off ramp digital-fiat exchange. Integrating SEPs make it easy to deploy and use AUDD as a medium of exchange on Stellar.
To begin with, AUDD will be SEP-12 compliant, a Stellar protocol that will expedite the completion of Know Your Customer (KYC) and Know Your Business (KYB) processes, a must-have for businesses in an increasingly privacy-conscious world.. Besides ensuring regulatory compliance, businesses and merchants identify their customers more efficiently and to make better business decisions to help determine risks, meet reporting requirements or reduce costs.
Another AUDD protocol that is expected to benefit merchants is SEP-24.via a number of payment methods – such as bank accounts or credit cards – without leaving the Stellar blockchain. Such flexibility makes AUDD particularly suitable for merchants integrating crypto into their operations or those with on/off ramp business models.
AUDD will also integrate SEP-31, a cross-border payment API that enables payments between two financial accounts that exist outside the Stellar network, allowing Novatti to settle remittance payments in AUDD with counterparties. The principle behind it is to enable remittance businesses, both sending and receiving organisations, to use Stellar as a settlement layer instead of traditional rails. Using Stellar as a settlement layer reduces counterparty risk and lowers transaction costs.
An investor using Stellar to transact or store crypto assets can do it securely via its built-in decentralised exchange (DEX) feature. With the DEX, investors can buy supported assets using AUDD.
AUDD paving the way for the future of stablecoins
The bottom line is that the limited acceptance of crypto as a medium of exchange emanates from technical challenges. The good news is that technology is evolving, and stablecoins offer a trusted way to store wealth and preserve its transactional value. AUDD is the new kid on the block and a game-changer. It is backed by real-world assets and requires minimal integration via supported blockchains like Stellar.
The information in this blog is
- provided for informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any particular purpose;
- not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice; and
- general in nature and is not specific to you or anyone else.
You should not make any decision, financial, investment, trading or otherwise, based on any of the information presented in this blog without undertaking independent due diligence and consultation with a professional broker or financial advisory and you understand that you are using any and all information available in this blog at your own risk.
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