Our digital currency, Constant, drives all of our financial services. It helps keep costs low, protects the value of your deposits, and frees your money so it can move across the world, instantly, and for free.
Constant is a stablecoin, a digital asset whose value matches another asset — in our case, the US Dollar. Stablecoins are common, but differ in many ways. Some are backed by other assets, such as the Won or Hong Kong Dollar, and their stability mechanisms vary.
This blog will introduce stablecoins, how they work, and how we ensure you can always buy or redeem Constant for 1 USD each.
Ready? Let’s dive in.
What is a “stability mechanism”?
A stability mechanism is a term for the way in which a stablecoin stays pegged to its target asset. Generally speaking, there are three different types, and I’ll give a brief overview of each.
A fiat-collateralized stablecoin maintains a reserve of its target currency that exactly matches its supply. Constant is fiat-collateralized. Every time you buy Constant, we deposit your money into the Constant Vault and create new coins. When you withdraw Constant, your money returns from the Vault and we destroy the coins. The result of both actions keeps the price of Constant locked to the USD.
A crypto-collateralized stablecoin is backed by cryptocurrencies. Unlike fiat-collateralization, this type of stablecoin must be over-collateralized to compensate for the volatility of cryptocurrencies. Some prefer this model as it’s decentralized: it doesn’t rely on currencies issued by a central bank.
Non-collateralized stablecoins use computer algorithms to control supply and special incentives called Seignorage shares to stay stable. When the value falls, people buy discounted shares in exchange for the stablecoin, reducing supply. When the value rises, those that bought shares can then sell them for profit, increasing supply. In theory, this keeps the value stable, but critics suggest it only works if the value increases, which is not guaranteed.
Why we chose USD
The US Dollar is the world’s reserve currency, and it’s also one of the most stable. But more than that, we feel that, currently, the simplest way to implement a stability mechanism is through a stable fiat. While this does tie Constant to a central bank — the US Federal Reserve — it means we can reliably maintain a 1:1 value ratio.
Although Constant is fiat-collateralized at the moment, we might explore other stability mechanisms in the future. We might include Euros or British Pounds, for example, or other digital assets like security tokens. We’re also exploring the creation of our own decentralized, algorithmic central bank — but that’s a topic for another time.
Protecting Constant’s value
Our stability mechanism is pretty simple. You deposit USD (or local equivalent), we create Constant. You withdraw USD, we destroy Constant. But we also need to protect Constant’s value from outside threats, like fraud and cyberattacks, that could undermine its 1:1 match with the US Dollar.
First, we use an accredited USD escrow service, called Prime Trust, to manage the Constant Vault. Prime Trust is a specialist trust company regulated under US law. They secure USD deposits as well as pay out withdrawals, so we never need touch or take custody of your funds.
Second, Prime Trust do all the necessary KYC (Know Your Customer), AML (Anti-Money Laundering), and taxation work on our behalf. With Prime Trust administering the Constant Vault, we have more time to build the safest, most efficient digital currency in the world.
Third, all Constant transactions are collectively approved by users on the blockchain, an immutable, distributed ledger that’s extremely difficult to hack. Since everyone connected to the network can see and access transactions, it’s virtually impossible to defraud.
Constant is the heart of the Constant System. We’ve therefore put a lot of work into making it the ideal stablecoin — a stable unit of account, a secure store of value, and an efficient medium of exchange. Why not try it out for yourself?
For free international transfers, stability in volatile economies, and a powerful hedge against volatile markets — get Constant today.
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