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Since liquidity is arguably the most important element of any exchange, it makes sense that all exchanges desire it. And when volatility is the enemy of liquidity, stablecoins start to gain traction. Yet serious businesses, traders, and consumers at large simply arenât convinced by stablecoins with shady pasts or questionable audits.
They (understandably) want stablecoins that are transparent, trustworthy, and wonât spontaneously combust from one day to the next bringing the markets with them.
Enter the LXBPeg (or âcrypto poundâ), the first stablecoin backed by UK Pound Sterling. Launched by the London Blockchain Exchange (LBX), LBXPeg will be held on a 1:1 basis in a fully auditable UK Bank account, licensed by the British Financial Conduct Authority.
The Problem with Stablecoins So Far
As weâve seen from Tether, there are plenty of problems with stablecoins so far, lack of transparency and what LBX calls âopaque practices.â Tetherâs infamous lack of willingness to undergo a full audit is, frankly, troublesome considering there is some $2.8 billion worth of Tether in circulation.
So while there are plenty of stablecoins around (albeit the majority backed by the US dollar), trust isnât exactly high. They donât serve the needs of businesses, traders, or consumers, who need a product that is legally compliant and stable.
LBX, therefore, aims to increase liquidity by allowing traders to transfer the digital asset equivalent of GBP quickly and easily through a decentralized network. The transfer of money is trustless, yet traceable and subject to full KYC/AML. Moreover, LBX is part of the âFaster Payments Service,â a clearing system devised by local banks to replace the outdated âBACSâ.
The Technology
LBX is using the Ethereum blockchain to develop and distribute the stablecoin because of its transparency and trustlessness. However, LBXPeg isnât a standard ERC-20 token, but an ERC-621 token. While built on the ERC-20 standard, the ERC-621 allows for greater flexibility in total supply to match the quantity of GBP held in the segregated UK bank account.
LBXPeg, according to the company, will also âbe issued on other blockchains where compliance controls can be maintained,â although, these have yet to be named. The UK-based LBX plans to test out the initiate with the UK pound and then roll it out to other currencies including the Euro and the US dollar, to increase its range and stability.
The Outlook
LBX has been trading for less than a year, which is not necessarily a problem (just look at Binance). However, reviews for the LBX exchange are mixed. Moreover, one may question the wisdom of launching a stablecoin and pegging it to a fiat currency thatâs not exactly going through its best moment right now.
While the GBP isnât comparable to Venezuelaâs Bolivar or the Argentinan Peso, with the train wreck of Brexit upon us, the currencyâs future is anything but stable. In fact, it looks set to dip in value to at least parity or below parity with the Euro. Thatâs not to say that the LBXPeg wonât encourage liquidity within the UK, though, but its usefulness further afield is questionable in the short term.
It would be nice to think that this new stablecoin could achieve the lofty goals of its issuer. But until LBXPeg goes through its paces, traders should not hold their breath.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.