As mentioned earlier, the payment sector has been the “killer app” of the blockchain. Bitcoin, the first application of this technology, is the cryptocurrency that has carried the market since its creation in 2009.
With a valuation of around one trillion dollars, it rubs shoulders with companies like Meta (Facebook) and Tesla.
Players like Bitcoin, Litecoin and Monero, are decentralized cryptocurrencies that rely on an open consensus mechanism. Their blockchain can be transparent or completely opaque. Here, the valuation of these currencies is based solely on a mechanism of supply and demand. No official team works behind these projects, they are only carried by volunteers (open sources).
These are currencies that work purely through mathematics and are in no way dependent on a central bank or financial institution. They are in limited quantity (ex: 21 million for Bitcoin) and no additional unit can be issued in the event of loss.
These players therefore offer an interesting alternative to traditional fiduciary currencies. They are independent of any State, elusive and in limited quantity. It is in view of these characteristics that they can be given the name of store of value.
New payment channels
Projects like Ripple (XRP) or Lumens Stellar (XLM) offer blockchains with a more closed consensus mechanism, in order to improve speed and reduce costs, to the detriment of decentralization.
Here, teams of professionals are dedicated to promoting their infrastructure with the aim of fostering the use of their network and the cryptocurrency associated with it. It is important to note that, unlike the cryptocurrencies mentioned above, their distribution is made according to the will of the management teams.
The aim of these projects is to replace existing payment channels, such as SWIFT or SEPA. Ripple notably offers xCurrent as an interbank payment channel (this channel does not use its cryptocurrency XRP). Their goal is to offer superior technology to the SWIFT system, which allows exchanges in seconds for less than a euro cent. Lumens Stellar aligns itself with the same offer by specifically targeting unbanked populations, in particular through its association with Circle (USDC) to offer transactions at less than $0.0003.
Stablecoins backed by state fiat currencies
USDT, USDC, USDP, BUSD, EURS, EURT… all of these acronyms refer to cryptocurrencies issued by private entities. These companies issue cryptocurrencies on an equal par (1:1) with regard to the number of dollars or other fiat currency they have in their escrow account.
However, these different players do not have the same practices in terms of managing the composition of their escrow account. Circle, the company behind USDC, audited many times, only keeps dollars within it, unlike players like Tether (Bitfinex), the issuing company of USDT, which also owns dollars, bonds states, stocks and cryptocurrencies. It will therefore be important to consider how these reserves of value are held, in order to protect against any risk of liquidity default or parity default.
These cryptocurrencies are particularly interesting to protect against volatility, while remaining in the ecosystem of cryptocurrencies. They are also more practical to use for making exchanges between individuals or companies: their stability, combined with the speed of exchange (a few seconds thanks to certain blockchains) make them a remarkable payment tool.
Algorithmic or decentralized stablecoins
To completely break away from fiat currencies, some players in the decentralized finance sector have taken up the challenge of creating stablecoins whose value would either be attached to a group of digital assets, or to a digital asset whose reserve would be elastic with regard to of demand, in order to ensure a stable value.
Maker, through the DAI, has set up a stablecoin whose value is pegged 60.3% to Ether (ETH), 15.5% to Bitcoin, 12% to USDC (stablecoin issued by Circle), 2.6% to USDP (stablecoin issued by Paxos) and 9.6% to other cryptocurrencies.
Terra, with its LUNA token, provides an elastic store of value, to issue stable cryptocurrencies. In the case of TerraUSD (UST), a stablecoin is issued whose reserve is attached to its LUNA token. As the demand for UST increases, the number of LUNA decreases, increasing its value per unit. The lower the demand for UST, the more the number of LUNA increases, automatically decreasing the value of the LUNA.
We have presented here the case of an asset whose value follows that of the American dollar, but there is on the Terra network the equivalent for the Chinese Yuan (CNY), the Japanese Yen (JPY), the Pound Sterling (GBP), Euro (EUR) and Korean Won (KWR). Terra therefore allows, through the use of algorithms, the creation of stable cryptocurrencies, particularly adapted to the world of commerce. They allow exchanges at reduced costs, in a few seconds and free from any volatility, independent of the management policies of escrow accounts or the traditional banking system.
Our positioning toward this sector
The payment sector is undoubtedly a promising sector.
As stated previously, the creation of a decentralized store of value is particularly relevant, especially in an inflationary era like ours, where national currencies no longer represent the same level of assurance as to the preservation of the purchasing power of populations. (cf: Nigeria, Venezuela, Argentina, Brazil, Turkey, USA, etc.). Moreover, the relevance of Bitcoin, a store of value and a decentralized means of payment, or projects like Terra, a currency stabilized by an algorithmic store of value, is exacerbated in view of the reaction of central banks to the COVID-19 crisis.
With regard to the offer of players such as Monero, which incorporates the characteristics of paper money (banknotes) in terms of its untraceability and the confidentiality it brings to transactions, it is also reinforced by the current political context. . In view of the policies pursued by countries such as China and Russia, which accentuate the authoritarian nature of their regime and total control over the exchanges carried out by their population, both inside and outside their borders, the need such tools becomes palpable.
Traditional stablecoins represent a good means of acceleration for States wishing to catch up with cryptocurrencies. These are now serious competitors vis-à-vis national currencies and the power to mint coins. These cryptocurrencies allow currencies like the dollar to remain at the heart of a new ecosystem like that of decentralized finance, leaving the American central bank with its traditional power of influence through money printing or raising interest rates.
It is therefore essential to be exposed to the leaders of this sector, in order to ensure the constitution of a store of value on the one hand, and to benefit from the offers of decentralized finance on the other hand. A “transparent” (Bitcoin) and “confidential” (Monero) store of value is a strategy that can be particularly interesting in the long term, because each of them has its own attractions. Performing operations in decentralized finance, using multiple stablecoins, makes it possible to take advantage of the current need for liquidity in this sector, while protecting against the variation of national currencies or the weakness of a single company private issuer.