Global cryptocurrency exchange, Luno in January listed the USD Coin, the first stablecoin and the sixth coin to land on the platform.
Interestingly, the week when the exchange announced it was bringing a new coin, was the same week Dogecoin went on a bull run that shot it to the position of the 8th most traded cryptocurrency. Luno has a tradition of listing only the most popular and well-known cryptocurrencies. Hence, many would have thought it was going for yet another big cryptocurrency. Dogecoin has since retreated.
But it went for a stablecoin. Why?
“Cryptocurrencies like bitcoin and Ethereum remain volatile currency options. The introduction of USDC empowers our users to hedge against volatility during market dips and ensures they can quickly and easily access funds on the platform when they want to trade or invest,” Owenize Odia, Country Manager of Luno Nigeria told BusinessDay. “We also want to ensure our customers can use Luno with ease. That means we think seriously about anything we add because we don’t want to overcomplicate it. It can be overwhelming if you are new.”
Launched in 2018, the USDC is a collaboration between Circle and Coinbase. The USD Coin is a service to tokenize US dollars and facilitate their use over the internet and public blockchains. You can always redeem one USD Coin for $1.
Although the 1:1 ratio to the dollar is the same for other stablecoins, the advantage USDC has is that it is offered by financial institutions that are reputed for observing the highest governance standards and transparency. Issuers of USDC report their USD holdings, which is published on a monthly period by Grant Thornton LLP, a US-based accountancy firm
In a blog post, Luno described stablecoins as a bridge between the traditional financial system and the new. A digital currency that is backed by the US dollar makes it easier to transfer money and to move it anywhere in the world almost instantly. This is unlike the difficulty and cost people experience moving fiat currency from one place to another. The reason fiat currencies are slow to move is that it has to contend with traditional financial institutions, their legacy processes, jurisdictional regulations, and so on. A stablecoin like USDC would easily bypass these barriers.
There are a variety of things that USDC can be used for. One of these is to hedge against volatility during bigger market movements – either in cryptocurrency or in a local currency such as the naira. USDC is ideal for a high volatility prone fiat currency like the naira. Holding USDC allows the user to store wealth in a currency that is historically more dependable as it is still the world’s reserve currency.
USDC can also be used for trading. Luno explains that when you sell your cryptocurrency asset and want to keep it on the platform instead of withdrawing it if you keep it on the platform as USDC, you would not need to pay fees when you want to withdraw it eventually or deposit.
Luno said it chose USDC over other stablecoins like Tether because the former holds a number of advantages, especially in relation to safety. As mentioned earlier, USDC reserves are held on a 1:1 ratio with the US dollar. This means you can always redeem your USDC 100 percent for dollars.
Circle, Coinbase, and many other companies have provided safety for users with the creation of the CENTRE Consortium to define the policies around stablecoins. For instance, exchanges that handle stablecoins, need to send regularly audited reports that prove that they have as many USDC sitting on a bank account as issued tokens.
Odia says Luno will be looking to add new coins in the future. “However, any new additions will need to be considered against our criteria, security, utility, use case, and market traction.”
