Stablecoins offer great value for those who want to indulge in the decentralised world without worrying about elevated volatility rates and price fluctuations.
Unlike Bitcoin, Ethereum and thousands of other classic cryptocurrencies, stablecoins use complex pegging mechanisms to maintain a 1:1 fixation to an underlying asset. This model entails little trade value but comes with various utilities and advantages for you if you want to create your own stablecoin.
Let’s explore more details on this digital currency and how to create a stablecoin on Ethereum, Solana or any other blockchain.
Key Takeaways
- Stablecoins are cryptocurrencies that keep a fixed value because they are tied to fiat money, cryptocurrencies and other assets.
- Stablecoins offer access to the decentralised economy without volatility changes and unexpected price fluctuations.
- Creating a stablecoin requires advanced technical skills and substantial financial investment.
- Stablecoin issuers make money from accumulating commission fees and investing collateral funds in short-term instruments.
Understanding Stablecoins
Stablecoins are cryptocurrencies that do not fluctuate in value. They utilise financial backings, including cash reserves and non-cash securities, to sustain the currency’s value. Most stablecoins are designed to equal 1 USD, such as Tether, TrueUSD and USDC, while each EURC equals 1 EURO.
Stablecoin issuers take different approaches to making stablecoins. They use collateralised assets, including fiat money, cryptocurrencies, and commodities, to keep the token’s value. Non-collateralised mechanics include algorithmic stablecoins, which use smart contracts and blockchain oracles, which maintain the value by burning and minting tokens according to market price and demand and supply forces.
Can You Create Your Own Stablecoin?
Anyone can create a stablecoin. However, a deep understanding of how it works, choosing the suitable pegging mechanism, determining the profitability model, and adhering to applicable laws are required.
A stablecoin developer can seek financial gain from charging fees the more people use the token. Therefore, a robust technical environment and development must be ensured.
How are Stablecoins Created?
Creating a stablecoin requires a sophisticated financial investment, as the regulations on the stablecoin pegging system are becoming stricter.
Stablecoin creators must include a combination of USD/EUR cash reserves, governmental bonds, corporate notes, and precious commodities to support stablecoin development and preserve its value.
TerraUSD (UST) was an algorithmic stablecoin that crashed after it lost its peg with LUNA and quickly collapsed because it did not have cash backing.
Benefits of Stablecoins
Over the last few months, stablecoins have grown tremendously. Tether became the third-largest cryptocurrency after accumulating over $110 in market cap, overtaking BNB coin. Here’s what stablecoins provide.
Decentralisation
Stablecoins provide characteristics and features similar to those of cryptocurrencies, including decentralised control, low fees, and facilitated accessibility.
You can create your own stablecoin and use it for your business transactions or offer integrations with DeFi applications, crypto games and decentralised exchanges.
You can accept stablecoins to sell products and services without dealing with volatile cryptos or a centrally controlled fiat currency.
Value Preservations
Stablecoins use different mechanisms to maintain their fixation with the underlying asset. This includes having liquid reserves equal to the available tokens in circulation so that users will receive their money instantly when they withdraw cash and give away their stablecoins.
Globality
Similar to cryptocurrencies, stablecoins are globally accessible, and companies can use them to pay their employees, vendors, partners and other service providers around the world much faster.
The development of stablecoins allows businesses to conduct global operations and reach new markets more effortlessly and efficiently.
Security
Businesses can store capital in stablecoins rather than cryptocurrencies to avoid value changes. This promotes transparency and security compared to fiat currencies, which central banks and financial institutions can easily track and control.
Moreover, business partners can conduct anonymous transactions without being monitored and taxed by banks.
Profitable Stablecoin Business Models
Creating your stablecoin comes with multiple challenges. The first thing you need to consider is planning your revenue model. Since stable currencies provide little to no trade value because of their stability, here’s how you can earn from launching your stablecoin.
Collateral Investments
The first way to make money as a stablecoin creator is to seek short-term investments. You can invest your stablecoin’s collateral, including cash reserves, in a stable asset or bond.
However, this can be risky because lowering your cash flow can make you less liquid and expose you to risks if many users decide to return the stablecoin and withdraw cash. Therefore, you can use the money the coin holders deposit to purchase your fiat-backed stablecoin and invest in short-term bonds and money markets.
Fee Accumulation
You can charge various fees for operating with your stablecoin. These include setting withdrawal and deposit commissions as well as transaction fees for individual users.
Additionally, you can impose account service fees for corporate clients, such as brokers and exchange platforms that want to acquire your stablecoin and offer it to users.
Loan Returns
Once your financials grow steadily, you can offer loans to operators and exchange firms and receive loan returns as income. This approach must be strategically planned because issuing loans to risky startups and organisations can drain your funds and damage your finances.
How to Build a Stablecoin: Step-by-step
You can create your own stablecoin if you have advanced programming skills. Alternatively, you can hire a software development team. However, you must understand how stablecoin business models work and allocate substantial financial resources. Here’s how you can start.
Step 1: Determine Your Objectives
The first step is planning your stablecoin involves determining your target price, pegging mechanism and use cases. Fiat-backed stablecoins are the most common, and they require maintaining cash reserves. However, you can mix it with crypto assets and short-term securities, including T-bills and corporate notes.
Launching an algorithmic stablecoin is more challenging, and you need an experienced team that knows how to create a non-collateralised stablecoin because any technical flaws can lead to catastrophic results.
Determine your revenue model, whether you will earn from charging fees to operators and wholesalers who want to acquire your stablecoin or from investing in short-term instruments using your capital.
Familiarise yourself with the applicable laws. Stablecoins regulations are becoming more stringent, especially with the introduction of MiCA frameworks in the European Union.
Step 2: Choose The Blockchain
Choose the blockchain where you want to launch your own stablecoin. Many factors will affect your decision, such as interoperability, execution speed, community support, and security.
Ethereum is the most common network for stablecoin development because it extensively uses smart contracts, while other protocols, like Polygon and Avalanche, provide faster processing speed and better interoperability.
Step 3: Develop Smart Contracts
Smart contracts are self-executing programmes that streamline your ecosystem. They can mint/burn tokens, control demand and supply factors, or buy and sell cryptocurrencies to maintain the balance of your stablecoin.
It is crucial to develop and audit the smart contract structure correctly because incorrectly written codes can cause significant damage.
Step 4: Build The Technical Infrastructure
Create the complete technical infrastructure of your stablecoin, including wallet integration, API structure, and interoperability with other blockchain-based systems. You can build integration modes with crypto games, dApps and other DeFi applications to promote the use of your coin.
Step 5: Market Your Coin
Start deploying your marketing strategy to promote your stablecoin. This may include offering airdrops, bonus systems, and other rewards to early users. You can cooperate with exchanges and brokerage firms, offering them rebates and exclusive prices for promoting your coin.
Step 6: Launch Your Stablecoin
Conduct final test phases and pre-launch audits before launching your stablecoin. Ensure your system remains intact while the overall market starts conducting operations using your coin or buying and selling your stablecoin.
Conclusion
Stablecoins offer a wide range of utilities that combine the benefits of decentralised currencies with the stability of centralised money. Creating your own stablecoins is a smart way to enter the space without worrying about the increasingly volatile cryptocurrency market.
You can choose one of the four mechanisms to peg your stablecoin to a specific value and select the business model that suits your style and financial goals.
