The move is aimed at instilling more trust in cryptocurrency and increasing its usefulness based on the technical advantages of blockchain, which is a decentralized, secure, and transparent ledger.
Stronghold is a financial institution building an asset-agnostic global payment and trade ecosystem. The Stronghold USD crypto-dollar, or stable coin, is federally insured by
Signature Bank, a New York-based commercial bank. Update: Stronghold said it decided to go with Prime Trust instead.
Stronghold will use the Stellar Network’s blockchain protocol to issue and transact Stronghold USD, while providing access to liquidity through its institutional exchange services and the custodial relationship with Prime Trust.
Stronghold also announced a new collaboration with IBM to explore uses for Stronghold USD within blockchain business networks on the IBM Blockchain Platform. The aim is to experiment with ways for financial institutions and other organizations to achieve faster, safer, and more efficient transaction processing and money transfer throughout the world’s economy.
What are stable coins?
The effective use of trusted stable coins can bring more liquidity for real-time foreign exchange and international settlement, as well as enable banks to issue credit into transactional networks and trade ecosystems. The unique attributes of stable coins leverage the positive properties of cryptocurrencies while limiting price volatility, adhering to the rigors and integrity of sound monetary policy, and ensuring regulatory compliance.
“The process for seamlessly managing and trading assets of any form, from digital to traditional currencies, needs to evolve as financial institutions are seeking ways to break into new asset classes like cryptocurrencies,” said Stronghold chief technology officer Sean Bennett, in a statement. “Stable coins can provide seamless access to all currencies, improving the global movement of money. We’re honored to work with Signature Bank and IBM to explore new ways to use Stronghold USD.”
In a statement, an IBM spokesperson said, “IBM is endorsing it and has consulted with Stronghold on the technology. IBM will be taking this to a broader range of clients moving forward. IBM is a partner of Stellar, the network on which this work is running. Stronghold USD is a new type of digital instrument that provides the foundation for transforming real-time domestic and international payments, backed by the U.S. dollar. This is the next milestone in IBM’s support of the token economy.”
New financial technology
Stable coins are an example, similar to digital tokens or digital coins, of the new financial instruments being developed to transform the way in which money moves.
They are designed to represent ownership of real-world assets and can be electronically exchanged directly between counterparties, resulting in immediate ownership transfer of the underlying assets themselves — a process called settlement. Instead of a 60-day wait, someone can be paid in a matter of minutes.
The value of stable coins is pegged to liquid or stable asset classes. In the case of Stronghold USD, the asset is U.S. dollar reserves held in custody by Prime Trust.
Issuing a stable coin such as Stronghold USD serves to strengthen confidence in their practical application for routine transactions by addressing the challenges associated with previous attempts at fiat-backed coins, where limited transparency into the underlying reserves that guaranteed the coin’s value prevented broad adoption.
Since federally insured cash deposits back Stronghold USD, it is not subject to the price volatility of a pure cryptocurrency like Bitcoin or Ethereum.
Stronghold USD still provides the benefits of secure, immediate exchangeability, anywhere, anytime, with low transaction costs and fewer intermediaries than traditional bank transfers. This makes Stronghold USD (and stable coins generally) practical for everyday transactions, large-value payments, and international wire transfers. Using Stellar’s advanced blockchain protocol, Stronghold’s platform can support digital assets and efficiently scale up to multiple fiat currencies.
IBM is working with banks and non-bank financial institutions to apply blockchain to modernize the multitrillion-dollar industry of cross-border payments and correspondent banking. As part of those efforts, IBM is exploring ways to integrate stable coins as settlement instruments within the networks it is developing and delivering to its clients on the IBM Blockchain Platform, particularly those requiring real-time international payments.
CEO Tammy Camp and Bennett started Stronghold in 2017. IBM has worked with more than 400 clients across financial services, supply chains, IoT, risk management, digital rights management, and health care to implement blockchain applications.
Update: 7/17/2018 at 8:26 am Pacific: Stronghold corrected its statement and said it is going with Prime Trust instead of Signature Bank.