Jamie Dimon, CEO JP Morgan Chase

JP Morgan's New Stable Coin

By ZM Peterson • Feb 14, 2019

While I originally intended to post something about UAVs or Kelly's Criterion, JP Morgan's announcement of a new stable coin to facilitate payments and money transfers has caught the crypto world by storm.

This is especially surprising for some considering Jamie Dimon's comments regarding Bitcoin and cryptocurrencies in general. His remarks that Bitcoin is "a scam" seem to contradict JP Morgan's rollout of their own stable coin. So what is the difference between JP Morgan's new coin and other cryptocurrencies? And how does this compare to Tether, TrueUSD, and Ripple?

A comparison between JP Morgan's coin, Tether, and TrueUSD is relevant here. All three of these coins are backed 1 to 1 to the US dollar, meaning one coin can be exchanged for one dollar. Tether and TrueUSD can both be viewed as IOUs on a single US dollar. Unfortunately for Tether, there are plenty of allegations that Tether Limited holds far less fiat in reserves than the number of Tether currently in circulation. If there were ever a run on Tether, anyone late to the liquidation party will suddenly find that they cannot redeem their Tether for real dollars.

Enter TrueUSD, created by TrustToken. TrueUSD improved the situation somewhat because TrustToken partnered with legally registered banks and fiduciary institutions that hold an equivalent amount of dollars in escrow. This broadly understood legal framework ensures that TrueUSD holders can redeem their tokens for real dollars in the event of a run on TrueUSD. One could argue that the mere act of placing real dollars in escrow prevents a run in the first place.

So where does JP Morgan's coin fit into the picture? They bring their brand name to bear with this coin, providing greater confidence and helping drive wider adoption of stable coins. There is little difference in TrueUSD and JP Morgan's coin in that both are backed by the good faith of banking institutions.

It will be interesting to see what happens to Ripple, the ultra-fast cryptocurrency that intended to replace the SWIFT system for international banking transfers. Ripple is not pegged to any fiat currency and essentially acts as a bridge currency for FOREX transactions. This means that Ripple is subject to the same speculation as Bitcoin or any other crypto. It experiences the same exchange rate fluctuations as any other cryptocurrency, which are primarily due to mismatch between supply and demand.

Ripple's vulnerability to massive fluctuations in market value means that it is less desirable for use as a bridge currency without near instant conversion back to fiat. A method for value transfer is not useful if its value is subject to massive changes at any given minute. Will this announcement from JP Morgan mark the end of Ripple and Tether? Only time will tell…

 

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