Following a crash in prices of cryptocurrencies and a cooling in investor frenzy, the sector has seen a new star emerge on the horizon: “stablecoins”. In February, US-based investment bank JPMorgan Chase announced that it is issuing a cryptocurrency dubbed “JPM Coin”, which possesses a similar feature as stablecoins. It is pegged 1:1 to the US dollar, meaning the value doesn’t fluctuate.
Along with Bitcoin, Ethereum, and others, “stablecoins” belong to the family of blockchain-powered cryptocurrencies, but they are designed to be pegged to the price of real-world assets, with an aim to minimize the price volatility.
Amid the crypto startups that are seeking to cash in on the growing appeal of stablecoins is Hong Kong-based Bitspark, which recently a Hong Kong dollar-pegged stablecoin called Sparkdex.HKD.
While most other cryptocurrencies are exposed to sometimes drastic fluctuations, stablecoins are designed to retain a relatively stable value towards the existing assets that it is pegged to, trying to remove the major hurdle to the mainstream adoption of cryptocurrency: price volatility.
To some, in terms of real-world applicability, stablecoins behave more like strong fiat currencies like the US dollar, and with the advantages of crypto, such as fast international payments, and availability to anyone with an internet connection.
“Sparkdex.HKD is tied to Bitspark’s reserves of physical cash in the Hong Kong dollar. When we receive cash deposited by a customer, and put it in a vault in Hong Kong, we then issue the equivalent value of Sparkdex.HKD tokens to the customer,” Bitspark’s co-founder and CEO George Harrap told EJ Insight.
“Every Hong Kong dollar is held in the vault, in physical cash, and we will release quarterly reports of the holdings in the vault for the public,” he said in an interview.
Sparkdex.HKD is an example of a fiat-collateralized stablecoin, which is collateralized by an equal amount of fiat currency, held by a central custodian, in this case, Bitspark. Holders of these tokens are guaranteed the option to redeem their token for fiat at any time.
Founded in 2014 in Hong Kong, Bitspark facilitates the purchase and selling of cryptocurrencies for the users of its platform, mainly money transfer and foreign exchange companies from around the world. Its platform enables them to buy cryptocurrencies, which could be sent overseas instantly. The crypto are then exchanged for fiat currency in the country of destination, transferred to the account of the receiver, and then withdrawn from banks or money pick-up points there.
In its previous practice, Bitspark adopted mainly Bitcoin in the platform, where customer funds were converted into Bitcoin before transferring overseas, and that was then sold in exchange for fiat currencies in foreign countries, to complete the cross-border transaction. However, the drastic price volatility, as well as the low liquidity of the largest cryptocurrency in emerging markets, such as Sri Lanka and Cambodia, led to an exchange cost and time lag in the process for Bitspark users.
With the stablecoin initiative, users who deposit cash to Bitspark will receive the equivalent value of Sparkdex.HKD tokens, meaning that the physical assets can be instantly converted into crypto, and then they can use the tokens to buy other cryptocurrencies, say other stablecoins pegged to the foreign currencies, in a simpler process.
In order to make it easy for users to deposit and withdraw fiat currencies into and out of Bitspark with Sparkdex.HKD stablecoins, Harrap plans to establish a network of physical shops, comprising of money transfer shops using Bitspark platform, for the exchange between Hong Kong dollars and the stablecoins, meaning that holders of Sparkdex.HKD can visit the shops and instantly redeem the equivalent of Hong Kong dollar cash.
For now, the process of on- and off-ramps for assets moving from traditional financial markets into crypto is tedious and transactions can take a long time, which many see as a huge hurdle to widespread adoption of cryptocurrency. But Bitspark’s stablecoin initiative, as Harrap claims, can be a solution.
“Imagine you can visit one of Bitspark’s locations, deposit physical cash, and with the stablecoin in return, you can instantly press a few buttons and send that to other parties around the world.”
In addition, Bitspark’s stablecoin initiative can be a tempting product for the exchanges, where retail investors flock in to trade cryptocurrencies.
“We have already spoken to a couple of big exchanges around this place, and they are interested in this,” said Harrap. When investors deposit fiat currencies for crypto, exchanges nowadays can take weeks to process transactions and this often leads to increased customer service tickets, he said.
Bitspark’s solution offer exchanges a gateway for users to deposit and withdraw in physical cash; such exchanges won’t need to have a bank account (to receive users’ deposit) or worry about banking relationships.
Looking forward, Harrap believes future initiatives should focus on the introduction of stablecoins linked to currencies in developing countries around the world.
“Stablecoins allow people to take the ownership of their wealth, they don’t need a bank, and they can easily transfer their money across the Internet, or convert it into other currencies. I think that holds a lot of value,” he said.
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