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With a number of stablecoins being released recently, we took the opportunity to share our thoughts on what might contribute to their success.

Audit: where a stablecoin is backed by another asset, it is important that an independent auditor can verify the holdings of those assets. The absence of a robust audit process and of frequent reports could lead to a loss of confidence in the coin.

Delivery: a stablecoin that allows its holders to easily and efficiently take delivery of the underlying asset could make it more attractive than alternatives. While the cryptocurrency has use itself, being able to secure delivery of the underlying, should the need arise, could increase adoption. It may also be worth considering the capability of the average user of the coin to actually take delivery. For example, taking delivery of currency or a kilogram of gold is typically easier than it is to accept delivery of a ton of copper.

Asset liquidity: basing a stablecoin on an asset with a liquid market allows for the coin to be easily be priced using the most recent market price. Furthermore, having a stablecoin based on a large and liquid market allows the coin to attract participation from those already trading in that market, thereby expanding its reach.

Use case: For a stablecoin to be successful, there should be an incentive to use it. This use could be entirely within the blockchain economy, such as on blockchain exchanges. However, where a stablecoin is based on an existing asset class, it may be possible to expand its use outside of the blockchain economy, as traditional businesses are able to more easily understand its value.

Why blockchain? Blockchain technology offers benefits to many physical assets. Considering the gold market specifically, combining gold and blockchain technology allows for gold to be easily used as currency once again, without many of the existing costs, if it is done the right way. Indeed, we may be moving past the point of asking ‘why blockchain?’ and instead should be focusing on what the best options are.

Ryan Case, Chief Commercial Officer of Kinesis, precious metals and cryptocurrency expert.