Zerodha’s Nikhil Kamath was stunned by the news of a possible gold-backed stablecoin that Russia and Iran may be contemplating to be able to trade with eachother. If the idea is able to takeoff, Kamath predicted a “new economic order” in the making.
He tweeted: “Iran and Russia to issue a new stablecoin backed by Gold. Damn, if this picks up could be day 1, event 1 of establishing a new economic order everywhere. No idea why it’s getting no oxygen from the global press…”
Russia’s Deputy Finance Minister Alexey Moiseyev said the country is working with a number of others to issue a new cryptocurrency backed by gold to aid cross-border trade. This will bypass the dollar for international trade, helping Russia revive trade using the stablecoin. Russia is currently barred from using the US currency in the wake of sanctions over the Ukraine war.
What are stablecoins?
Stablecoins are cryptocurrency that are pegged to a reference asset. This reference asset could be a fiat currency or some commodity – like precious metals. For example, if the Stablecoin is pegged to the Rupee, then 1 stablecoin would hold as much value as 1 Rupee. Stablecoins were designed to withstand market ups and downs, being far less volatile than other cryptocurrencies, thus making it a more dependable medium of exchange.
Why peg to gold?
For a cryptocurrency to be gold-backed it must be issued or created by a company that holds gold in its vaults. The concept of gold-backed cryptocurrency emerged in 2017 when bitcoin stood alongside the gold price, reports say.
Linking cryptocurrency to something physical like a real-world commodity made sense. Besides, gold has always been a hedge against geopolitical upheaval and inflation.
Why use stablecoins?
Stablecoins have always been easier to swap for other cryptocurrencies than it is to swap US dollar to bitcoin, for example. This also bumped up the desirability of stablecoins.
Stablecoins also offer better settlement times and foreign exchange rates in a trading environment. Traditional banking may have slower settlement times but, stablecoins, which are based on blockchains that operate 24X7 overcome this problem.
