The Cardano ecosystem could have its first fully fiat-backed, regulatory-compliant stablecoin before the end of Q1 2023. According to Emurgo, the official commercial arm of the Cardano blockchain, the stablecoin will be called USDA and shall be pegged on a 1:1 ratio with the US dollar.
“The introduction of a fully fiat-backed, regulatory-compliant stablecoin is the next step in realizing the future for our community,” Vineeth Bhuvanagiri, Emurgo’s Fintech Managing Director, said.
Stablecoins are a special class of tokens backed by an asset that offers price stability to unpegged cryptocurrencies such as Bitcoin. USDA is part of Emurgo’s broader plan to expand Cardano’s use cases, including lending and borrowing services, crypto-based card payments and bridges between traditional markets and decentralized applications (dApps).
Following the launch of USDA, “users will be able to tokenize their USD into USDA via credit/debit cards, wire transfer or conversion of ADA,” the report said. Emurgo also plans to enable the conversion of other stablecoins such as USDC and USDT into USDA after the launch “with long-term plans to enable conversion and swaps of cryptocurrencies such as bitcoin, ether and other cryptocurrencies.” Recently Emurgo partnered with an undisclosed US-based regulated financial services firm as the banking partner to issue USDA and ensure that the stablecoin was regulatory compliant.
Whereas the Cardano team has been working on an algorithmic stablecoin dubbed “Djed” in collaboration with the COTI network, plans to build a stablecoin backed by the US dollar have always been in the books. Last month, Emurgo wrote a blog explaining why the Cardano blockchain may need a stablecoin backed by dollars.
According to the firm, despite the more than 3.9 million ADA wallets signalling Cardano’s global reach, the price volatility of ADA restricts users from taking full advantage of the permissionless and global nature of Cardano, such as not being able to use crypto assets as a store of value or medium of exchange.
Therefore, building dollar-reserve-backed stablecoin will help build Cardano investor confidence and enable stable financial offerings for ADA holders. Furthermore, a dollar-backed stablecoin will help reduce the uncertainty around algorithmic stablecoins, especially after the TerraUSD collapse in May.
Meanwhile, apart from USDA helping bolster Cardano’s decentralized finance (DeFi) ecosystem, which currently locks 54.52M as per data from DefiLlama, it could also help boost ADA’s price to the much coveted $1 price mark as it’s currently down just over 89% from its all-time high.
