Emurgo, the official commercial arm of Cardano, is set to release USDA, a fiat-backed and regulatory-compliant stablecoin by the first quarter of 2023.
The USDA stablecoin is intended to protect users from crypto market volatility by pegging the token to the US dollar which is considered to be the world’s reserved currency. Users are assured that their stablecoins are secured by the Cardano network without worrying about high transaction fees. The tokens are also eco-friendly since Cardano uses proof-of-stake, which uses less energy than proof-of-work blockchains.
To guarantee full compliance with regulations, Emurgo announced that it has partnered with an undisclosed US-based regulated financial services company. They have also reiterated that USDA stablecoin is backed by “real-world” assets that will provide strong and long-term price stability
Emurgo is a global blockchain technology company that provides solutions for developers, startups, enterprises, and governments. The Company has worldwide offices in the US, Singapore, Indonesia, and India. It is also one of the founding entities of Cardano.
The USDA stablecoin is the first product by Anzen, Emugos’ new product suite which was made to bridge traditional finance and Decentralized finance (DEFI). Users can tokenize their dollar-denominated fiat and move them as Cardano-native assets through the Anzen portal.
Recent Events Have Prompted Calls for Regulated Stablecoins
Cryptocurrencies have volatile price movements and stablecoins allow users to invest in the space without worrying about volatility. Stablecoins are usually used to buy other crypto assets.
Stablecoins have been under scrutiny after Terra (LUNA) and Terra USD (UST) collapsed in May 2022. A stablecoin should be pegged 1:1 to the US dollar, but UST eventually lost more than 99.9% of its value after alleged exploits targeted the Terra Network. Unlike the USDA stablecoin, UST is algorithmic and is not backed by fiat but instead relies on mathematical equations and incentive mechanisms
The supposed underlying value or backing of each stablecoin has also been under scrutiny. In late 2021, The Commodity Futures Trading Commission (CFTC) slapped Tether Holdings Ltd, the Issuer of fiat-backed stablecoin USDT, with a $41 million penalty for misleading investors that its assets were 100% backed by fiat currencies. Tether also settled with the New York City Attorney General for misrepresenting its assets.
Questions around stablecoins have sparked calls for stricter and clearer regulations. There is a proposed Stablecoin Transparency Act in the US Congress, that will require, “Stablecoin issuer to hold all reserves associated with each fiat currency-backed stablecoin they issue”. Issuers are also required to publish monthly reports of reserves that have been audited by a third party.
Is the USDA Just Another Stablecoin?
A quick search on Coingecko will reveal there are at least 89 stablecoins at the time of writing and USDA is not the first attempt to create a stablecoin project on Cardano. Djed, an algorithmic stablecoin by Coti, was revealed in 2021 by Cardano’s Founder Charles Hoskinson. Unlike the USDA it will not be backed by fiat or any reserved asset. The Ardana Dollar (dUSD), a collateral-backed stablecoin, is also being developed. Instead of fiat, dUSD will be backed by crypto tokens. These stablecoin projects are not yet live on the Cardano blockchain.
While it is too early to say if it will prosper, it seems like the project is taking the right steps. Backing the project with fiat is an assurance that users can convert their stablecoins at any given time. The push to follow all pertinent regulations will also make sure that USDA won’t engage in anything anomalous. It is also built on top of the Cardano Network, considered to be one of the top cryptocurrency projects.
USDA is ticking all the right boxes, but it should be expected that users will be wary in light of previous events. But if it keeps all its promises, then it will a big win for everybody in the crypto community.
Image from Unplash
