Stronghold, a financial institution building an asset-agnostic global payment and trade ecosystem, has announced the first and only venture-backed USD Anchor on the Stellar Network, an open-source protocol for value exchange. The ‘Stronghold USD’ token is asset-backed (at one-to-one U.S. dollars per coin) with reserves held by a state-chartered trust company. Stronghold, which recently raised seed funding from Freestyle Capital, will use Stellar’s blockchain protocol to issue and transact Stronghold USD while providing access to liquidity through its institutional exchange services and the custodial relationship with its partnered trust company.
Stronghold also announced a new collaboration with IBM to explore uses for Stronghold USD within blockchain business networks on the IBM Blockchain Platform. The aim is to experiment with ways for financial institutions and other organizations to achieve faster, safer and more efficient transaction processing and money transfer throughout the world’s economy.
The effective use of an asset-backed token (with reserves held at a regulated, state-chartered trust company), like Stronghold USD, can act as a new liquidity tool for real-time foreign exchange and international settlement, as well as enable banks to issue credit into transactional networks and trade ecosystems. The unique attributes of such tokens harness the promise of cryptocurrencies, while also limiting price volatility, adhering to the rigors and integrity of sound monetary policy, and providing support for industries that have regulatory compliance requirements.
“The process for seamlessly managing and trading assets of any form from digital to traditional currencies needs to evolve as financial institutions are seeking ways to break into new asset classes like cryptocurrencies. Asset-backed tokens can provide seamless access to all currencies, improving the global movement of money. We’re honored to work with IBM to explore new ways to use Stronghold USD within.”
The Stronghold USD token is another example, similar to digital tokens or digital coins, of the new financial instruments being developed to transform the way in which money moves. They are designed to represent ownership of real-world assets and can be electronically exchanged directly between counterparties, resulting in immediate ownership transfer of the underlying assets themselves — a process called settlement. The value of stable tokens is pegged to liquid or stable asset classes. In the case of Stronghold USD, the asset is U.S. dollar reserves held in custody by a state-chartered trust company.
“The digitization of real-world assets using blockchain can dramatically transform many forms of financial transactions conducted around the world. New types of fiat-backed instruments, like Stronghold’s USD token, have the potential to improve the backbone of international banking operations and payments, giving banks an easier way to integrate with public blockchain networks without significant changes to their core banking and compliance infrastructure.”
The intent of issuing a token, like Stronghold USD, is to strengthen confidence in the practical application of stable coins for routine transactions by addressing the challenges associated with previous attempts at fiat-backed coins, where limited transparency into the underlying reserves guaranteeing the coin’s value prevented broad adoption.
Since federally-insured cash deposits back Stronghold USD, it is not subject to the price volatility of a pure cryptocurrency like Bitcoin or Ether. Stronghold USD still provides the benefits of secure, immediate exchangeability, anywhere, anytime, with low transaction costs and fewer intermediaries than traditional bank transfers. This makes Stronghold USD practical for everyday transactions, large value payments and international wire transfers. Stronghold USD are pre-approved tokens that are solely designed as a B2B solution for financial institutions, multinational corporations, and asset managers. At this time, the tokens are not available for retail customers but may be available in the coming months. Using Stellar’s hyper-advanced blockchain protocol, Stronghold’s platform can support digital assets and efficiently scale-up to multiple fiat currencies.
IBM’s exploration of Stronghold USD builds upon its advances in both public and private blockchain networks designed to enable clients and developers to engage in token-powered networks. IBM is working with banks and non-bank financial institutions to apply blockchain to modernize the multi-trillion-dollar industry of cross-border payments and correspondent banking. As part of those efforts, IBM is exploring ways to integrate tokens, like Stronghold USD, as settlement instruments within the networks it is developing and delivering to its clients on the IBM Blockchain Platform, particularly those requiring real-time international payments.