IBM has officially entered the stablecoin game.

Earlier today, IBM announced a partnership with FinTech startup, Stronghold, to create the first fully FDIC-insured stablecoin pegged to the greenback. The coin, termed Stronghold USD, will be deployed on the Stellar Lumens blockchain to leverage its proof-of-stake consensus mechanism to verify all transactions.

Blockchain-focused asset manager Prime Trust will be providing the collateral to ensure FDIC backing, meaning the USD reserves are guaranteed to enable the price stability function of the coin. The currency will be pegged “one-on-one” to USD, meaning 1 Stronghold USD equals $1.

“What is great about this is they are just basically digital dollars—digital fiat currency” says Bridget van Kralingen, IBM’s senior vice president of global industries, platforms, and blockchain.

Stronghold USD will be deployed to help banks and other financial institutions lower their foreign exchange costs associated with making cross-border payments. Until now, cross-border transactions in fiat currencies first required conversion to Stellar’s cryptocurrency, then another conversion was necessary to a second fiat to complete the payment.

One of the main concerns levied against cryptocurrency is the unrelenting price volatility inherent in the nascent asset class. With price stabilization, stablecoins are thought to be the solution that finally fulfills the promises of cryptocurrencies.

Tether, another USD-pegged stablecoin, serves a similar purpose to that of Stronghold USD. However, the primary difference between the two is that Tether owns the USD reserves in a bank account. Many believe the collateral is not nearly robust enough to support the rapid increase in Tether supply. Furthermore, many crypto investors have leveraged Tether to arbitrage the crypto markets.

Other stablecoins, such as Basis, Dai, and Havven, leverage a different collateral model called “on-chain collateralization.” As opposed to Tether and Stronghold USD, these coins leverage other cryptocurrencies such as ETH to provide price stability.

The support of IBM lends credence to the concept of stablecoins. Their support might just catalyze further institutional and public adoption of cryptocurrencies, which would then increase positive sentiment for the viability of cryptocurrencies as a whole. It is possible that the tech behemoth’s support of stablecoins can lead to a federal reserve-backed cryptocurrency.

If Stronghold USD succeeds in gaining significant traction, we could see all hell break loose (in a good way) for the cryptocurrency markets (to the benefit of all you cryptocurrency HODLers out there).

Feature Image by Odd Andersen — AFP/Getty Images

The post IBM and Stronghold Partner to Release USD-pegged Stablecoin appeared first on CoinCentral.

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