Stablecoins need to maintain reliable peg to promote industry's growth and acceptance

Stablecoins, as its peg and name imply, tend to be less volatile unlike Bitcoin

Pablo Peillard, protocol lead developer and architect at Qidao, speaking at the Fantom Abu Dhabi Developer Conference on Tuesday. Khushnum Bhandari / The National

The stablecoin market needs to ensure its peg to actual assets is maintained in a rigid and reliable manner in order to support its growth and promote more acceptance, as investors and even governments look to the digital asset as a safer way to trade in the highly-volatile cryptocurrency market.

Stablecoins – a type of cryptocurrency that is pegged to a fiat currency – tend to be less volatile unlike Bitcoin, whose wild swings are influenced by simple factors such as tweets, most notably from Tesla chief executive Elon Musk.

"Not anyone can mint a stablecoin out of the air. You can have a stablecoin but if you don't maintain its peg on the actual decentralised exchanges where it matters, you're kind of stuck of something that's worth nothing," Pablo Peillard, protocol lead developer and architect at QiDao, said at the Fantom Developers Conference in Abu Dhabi on Tuesday.

Stablecoins, which aim to address cryptocurrencies' shortcomings by pegging their value to a unit of an underlying asset, are often issued on faster blockchains and backed by state-issued tender such as the dollar, pound, euro and highly liquid reserves including government treasuries or commodities such as precious metals.

Around $3 trillion in stablecoins alone were transacted in the first half of 2021.

For example, Tether, the world's biggest stablecoin backed by gold and with a market cap of almost $70 billion, was designed to be always worth $1 – similar to QiDao – maintaining the same amount in reserves for each Tether that is used.

Mr Peillard said more use cases, such as taking a car loan, can generate more interest for stablecoins, with users assured of the peg it has to real-life assets.

"By maintaining the peg you're effectively saying this token is worth a dollar. Stablecoins, as long as we have good and decentralised ones, that is what we need," he added.