What are stablecoins?
Stablecoins are the form of digital money whose value is tied to an external asset, such as gold or fiat currency, to stabilize its price. These stablecoins are backed by a reserved asset and aim to provide price stability. The price stability is achieved via collateralization or through algorithmic mechanisms of buying and selling reference assets.
How to create stablecoins?
Step 1: Identify the type of stablecoins
The first step is to identify the category of stablecoin that needs to be developed. The two significant types of stablecoins are collateralized and non-collateralized stablecoins. If the requirement is to bring long-term stability, then the preference should be algorithmic stablecoins. But for short-term stability where the underlying asset is reliable, the preference should be collateralized stablecoins. The following factors are necessary to consider to identify the type of stablecoins:
- amount of liquidity required from stablecoins
- decentralization required
- audits required to increase trust and reduce risks in stablecoins
- the complexity of the architecture
Step 2: Determine the technologies and platform to build the stablecoin
Numerous blockchain platforms are available that support the development of stablecoins, such as Ethereum, Tron, EOS and many more. While choosing the blockchain platform, the two main factors to consider are:
- greater interoperability,
- high scalability and transaction bandwidth
Every blockchain platform has its pros and cons. The user will need to identify his requirements, make an informed decision and select the blockchain platform that aligns with those requirements.
Step 3: Maintain the liquidity
Liquidity is the most crucial element for stablecoins. If liquidity is lost, the whole concept of developing stablecoin might go to waste. The following steps can help to ensure liquidity:
- Transaction fees
Revenues from transaction fees are partitioned, of which some part goes to the stablecoin partner and the remaining goes into the liquidity reserve to improve the liquidity.
- Evaluating inflation and value
Integrating an automated monitoring system to offer daily currency and index rates from Personal Consumption Expenditures and Consumer Price Index is necessary.
- Protecting from high supply
Users can redeem or sell stablecoins at current face value minus transaction fees.
Step 4: Create technical and visual designs
Designing stablecoins requires an understanding of the flow of transactions of stablecoins and the working of the entire system. The system design must aim to increase user interactivity with the token. It may include developing designs for web/mobile apps.
Step 5: Integration of blockchain platform and launching to mainnet
It is the development stage where smart contracts are developed to interact with stablecoins and launch nodes on the blockchain platform. Once the features of the stablecoins are developed and connected to the blockchain backend, launch it to the testnet. Fix all the issues that might arise and finally launch the stablecoin to the mainnet.
Cryptocurrencies majorly emphasize creating less volatile and more liquid digital assets. The world easily accepts Stablecoins as they can facilitate transactions without friction among the stakeholders and the parties that shuttle between crypto and fiat. If you’re planning to create stablecoin for your project, hiring an expert blockchain development company that can develop stablecoins for you is advisable.