How could a GBP-pegged stablecoin threaten UK banks?

A new GBP stablecoin is about to enter the crypto market. The GBP-pegged cryptocurrency is called LBXPeg and will be launched by the London Block Exchange.

Other similar stablecoins are TrueGBP by TrustToken and eToro‘s GBP stablecoin GBPX. Binance is also looking to launch a GBP-pegged stablecoin. So, what do all these stablecoins mean and how could they threaten UK banks?

A GBP stablecoin acts a lot like fiat

Stablecoins are different from other cryptocurrencies because they’re linked (pegged) to real-world assets. Sometimes the assets that back digital coins are gold or oil. However, other times, digital coins are pegged to fiat currencies. This allows stablecoins to keep their value consistent, making them less volatile than cryptocurrencies like Bitcoin or Ether.

Just like other digital assets, stablecoins run on blockchains in decentralised systems. They have all the benefits of a regular cryptocurrency – they’re transparent, secure, and private. Moreover, they’re globally accessible and can’t be controlled by local jurisdictions. So, even if a stablecoin is pegged to the GBP, it’s not linked to a central bank or government.

Instead, a GBP stablecoin is reliant on its cryptography, although developers and investors undergo external audits to make sure the asset complies with the rules and respects international financial laws.

Stablecoins aim to counter the volatility of cryptocurrencies as they’re more similar to fiat than Bitcoin or Ether. So, paying with a GBP stablecoin is easier and more reliable than spending regular cryptocurrencies.

Merchants are also more likely to accept a payment knowing that the price of the crypto-asset won’t collapse the next day. At the same time, crypto owners can make purchases without worrying about spending valuable funds just hours before a price boom.

LBXPeg could ease trade inside the Commonwealth

The creators of LBXPeg have announced that reserves of UK pounds back their “crypto pound”. The GBP-pegged stablecoin will be tied to the GBP on a 1:1 basis. This means that the value of one digital coin is equal to the value of one GBP.

LBXPeg was developed to run on Ethereum’s ERC-621 standard. The company ensures traders and investors that the supply of digital coins will match the GBP holdings in its bank account.

The new GBP stablecoin could be used primarily for trading on the London stock market. However, the digital asset could also be useful for facilitating Commonwealth exchanges and launching security tokens with dividends in crypto pounds.

So what makes a GBP stablecoin more appealing than traditional money? For starters, developers promise full transparency, both for the auditing processes and management. Moreover, digital currency enables seamless, fast, and cheap transfers globally.

At the moment, UK banks don’t have the infrastructure or technology to provide similar services. Traders pay significant costs for transferring GBP on a global scale and often experience lengthy wait times and friction.

Other GBP-pegged stablecoins on the market

The crypto ecosystem seems to be in love with stablecoins at the moment, with many organisations launching fiat-pegged digital assets. The “crypto pound” soon to be launched by the London Block Exchange isn’t the first stablecoin tied to the British currency. More exchanges that have launched pegged digital coins have similar products in their current offering.

TrueGBP

Just like LBXPeg, TrueGBP by TrustToken mirrors the British pound at a ratio of 1:1. The purpose of this GBP stablecoin is to provide easy access to one of the most traded currencies globally.

TrustToken had already issued the TrueUSD stablecoin before developing the GBP-pegged coin. The company is also planning several other stablecoins linked to more fiat currencies.

eToro Pound Sterling

The eToro Pound Sterling (GBPX) is one of the eight branded stablecoins launched by this exchange. Its purpose is to provide traders with stability on the platform. Users can protect themselves from the volatility of cryptocurrencies without having to exchange them to fiat.

eToro’s other stablecoins are linked to the euro, USD, Japanese yen, Australian dollar, Canadian dollar, New Zealand dollar, and the Swiss franc.

Binance to launch a GBP stablecoin

Binance has announced that the company is working on a new GBP stablecoin as well. The digital coin is still in the testing phase, but it will soon be available on Binance Chain.

With this stablecoin, Binance is looking to diversify its offering of stablecoins to give users more freedom of choice for secure fund storage.

Closing thoughts

A GBP stablecoin combines many of the advantages of crypto with the stability of the traditional British currency. This could substantially threaten UK banks and substitute traditional trade.

The UK pound is one of the best-performing currencies of 2019, despite the disastrous Brexit fiasco. Its performance gives traders more reasons to trust GBP stablecoins and it’s highly likely that we’ll see more GBP-pegged coins on the market soon.