What is the USDK stablecoin?

Malta-based OKEx has become the latest cryptocurrency exchange to launch its own stablecoin, offering investors another way of navigating the volatile crypto market.

OKEx claims the US dollar-pegged stablecoin, called USDK, will help to overcome some of the challenges associated with third-party auditing in the crypto market, thereby boosting transparency among the public.

Before we take a look at how it works, here’s a reminder of what stablecoins are.

What are stablecoins?

Stablecoins are a type of cryptocurrency that are designed to be immune from market volatility, making them a more useable form of payment than traditional crypto. The value of stablecoins is pegged to other assets that are deemed stable, such as fiat currency or commodities like gold. There are also stablecoins that are governed by internal protocols that try to stabilise the coin every time there is a market fluctuation.

Stablecoins offer the transparency, security, and privacy of a digital asset combined with the stability of a traditional currency.

What is the USDK stablecoin?

USDK is an ERC-20 stablecoin co-launched by OKEx’s strategic partner OKLink, a blockchain technology company, and Prime Trust, a US-licensed trust company. OKLink is the technology service provider behind the USDK smart contract, while Prime Trust is providing anti-money laundering and KYC (know your customer) services.

The USDK stablecoin is listed on OKEx’s fiat-to-token trading platform against six fiat currencies (CNY, VND, GBP, RUB, EUR, and TRY), as well as its spot trading platform with 11 trading pairs.

Every USDK is backed by 1 USD from the Prime Trust Special Account. There is a guaranteed 1:1 conversion rate between USDK and USD, meaning its monetary value is 100% reserved. An audit firm is providing monthly reports in an attempt to maximise transparency to the public.

Andy Cheung, Head of Operations of OKEx, claimed that with the support of the new stablecoin, the exchange has moved a step forward in its goal of fostering a new blockchain-driven economy that encourages financial inclusion.

“We understand the pains in terms of third-party auditing,” he said. “But with this new launch of a compliant stablecoin, we hope to provide our users a secure and reliable trading experience guaranteed by high transparency and regular audit.”

What are the benefits of USDK?

One of the biggest draws for investors is likely to be the expertise behind the USDK stablecoin. The fact that it has been developed in partnership with Prime Trust should help to boost the coin’s legitimacy. US-based Prime Trust is one of the trust companies in charge of the escrow accounts that hold the collateral for TrueUSD, another stablecoin. It also enables fiat trading on Singapore-based crypto exchange Huobi.

Another factor boosting the coin’s appeal is that OKEx itself is currently the world’s second-largest crypto exchange by adjusted daily trade volumes. OKEx is in the process of developing its own decentralised exchange with its own blockchain, which will be called OKChain. OKChain’s testnet is due to launch later this month.

On top of this, there is a guaranteed 1:1 exchange rate between USDK and USD, the smart contract of USDK has passed an audit by Certik and SlowMist, and it has a strong user base, which helps to increase liquidity in the stablecoin market. Monthly audit reports should appeal to investors demanding the highest levels of transparency.

Increasing competition

OKEx is one of a growing number of exchanges that have decided to launch their own stablecoins. Tether is the market leader, accounting for 98.7% of stablecoin trading volume, according to a report by Bloomberg. Around 60 stablecoins have tried to take on Tether but have failed to gain much traction

At the beginning of June, Malta-based Binance told Bloomberg it would start issuing stablecoins in a matter of weeks. Binance GBP will be denominated in and 100% backed by the British pound. Swiss stock exchange SIX is also developing a stablecoin, which will be pegged to the Swiss Franc.

The crypto market clearly recognises the appeal of stablecoins, and with Facebook choosing a stablecoin as its path into the crypto space, there will no doubt be further launches on the horizon.