What core steps are usually involved in creating a stablecoin?
Traditionally, acquiring licenses and building technology to issue a regulated stablecoin was a multi-year endeavour. We built Brale to reduce the cost of issuance so that it’s now possible in less than a day. Creating a stablecoin involves branding (tickers, logo, etc.), choosing the blockchains to deploy on, and the backing currency. Once the stablecoin is created, companies can integrate the stablecoin into their application or workflow.
What sort of things need to be considered before deciding whether a stablecoin should be either collateralised or non-collateralised?
Today the industry has aligned around fully collateralised stablecoins with high quality, transparent reserves. Collateralised stablecoins offer higher security and confidence due to their backing and auditability. Stablecoin reserves might be managed by a regulated partner, such as Brale, or self-managed through a company’s existing treasury structure.
What key issues are likely to impact on the choice of blockchain platform used and technologies required to build a stablecoin?
There are many blockchains today that we see companies leverage for stablecoin applications. The largest factors tend to be transaction costs, speed, and security. For example, Base, Solana, and Stellar all offer near-instant settlement at minimal cost, usually less than $0.01 per transaction. Additionally, considerations around network stability, scalability, and developer ecosystem support are crucial for ensuring the long-term success of the stablecoin.
What processes and procedures can be put in place to ensure that a stablecoins liquidity can be maintained?
Most issuance models have converged around treasury reserves of short-duration government debt, which are highly liquid, with cash reserves available to meet immediate redemptions. Regular audits and transparent reporting also play a crucial role in maintaining investor confidence and ensuring the stablecoin’s liquidity remains robust.
Why are smart contracts so important in stablecoin development and what might influence the protocols that are used in their construction to ensure a tokens reliability and authenticity on a decentralized platform?
Smart contracts are crucial in stablecoin development as they automate and enforce the rules governing the stablecoin, ensuring compliant and transparent operations. Key considerations when selecting smart contract construction include security, auditability, and compatibility with existing decentralized finance (DeFi) ecosystems. Smart contract standards on many blockchains, including Ethereum and Solana, have undergone extensive security audits and are well-proven for stablecoin applications.
What’s involved in the testing of stablecoins before launching them on the mainnet?
Conducting testnet deployments allows issuers to simulate real-world conditions and gather feedback from potential users before mainnet launch, including end-to-end testing of the issuance and redemption processes. Testnet is also helpful when interfacing with third-party custodians, exchanges, and other ecosystem participants.
Stablecoin design and issuance can be a complex business. What advice would you give to firms who are considering the relative merits of undertaking the process in-house or outsourcing it to a specialist?
Stablecoins are growing quickly and most companies will utilize them within the next 3 years, if they aren’t already. We typically hear the decision to use existing stablecoins, in-house development, or working with an issuance partner is driven by time to market, investment costs, and revenue potential. In most cases, we’ve found that working with an issuance partner such as Brale allows firms to get to market 100X faster, while still retaining the opportunity to move issuance in-house in the future.