Would a US dollar-pegged Cryptocurrency work?

It was recently announced that a cryptocurrency start-up company ‘Circle’, who are backed by Reuters and Goldman Sachs, have raised around $110 million in investment in order to establish a new cryptocurrency which is pegged to the price of the US dollar.

The main purpose that this coin aims to achieve is reduce the volatility of the price such as seen through the massive fluctuation in price of leading cryptocurrencies such as Bitcoin and Ethereum. Combined with the fact that many businesses are becoming increasingly aware of blockchain technology as transactions become faster and cheaper, and it is clear why a more stable coin would be a better alternative for some.

“It is difficult to use something like bitcoin if the volatility is so high,”

Circle Chief Executive Officer Jeremy Allaire said at a media event.

Could it work?

Less volatility is certainly something that would appeal to many businesses and individuals. Furthermore, Circle pledges to provide greater “financial and operational” transparency which they believe would set them apart from other fiat-backed cryptocurrencies. There is certainly room for this within the market and definitely shows potential of being successful.

What could go wrong?

For starters, there are already a number of instances where cryptocurrencies that are pegged to a certain price point, such as USDT (Tether) have had fluctuations which have extended boundaries such as reaching $1.10 or falling as low as $0.90, despite the promise of being constantly around the $1 flat mark. Circle also wants to ensure anti-money laundering. However, this is extremely difficult within the cryptocurrency market. The fact that the currency will be pegged to the US dollar makes it even easier for someone to money launder as the value amount is exactly the same as a cryptocurrency, as it is fiat.

All in all, the project looks promising and can certainly succeed with the backing of someone of the magnitude such as Goldman Sachs. However, it does face some difficult challenges if it seeks to become a leading coin / token within the cryptocurrency market.

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