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What Are Stablecoins in New Zealand?
- Last updated: December 21st, 2023
Nic Turnbull
Blockchain technology, which powers various volatile cryptocurrencies, also serves as the foundation for the development of Stablecoins. These digital currencies provide a reliable and consistent value, distinguishing them from their highly fluctuating counterparts.
In this guide, Cryptocurrency NZ will delve into the history and features of Stablecoins – and help gauge which is the best stablecoin to use in New Zealand.
The safest, fastest, and easiest way to buy Stablecoins like NZDD, Tether USDT, DAI and USDC in New Zealand is through a Kiwi crypto retailer like Easy Crypto NZ or Binance NZ.
What are Stablecoins in NZ?
Stablecoins represent a specific class of cryptocurrencies designed to ensure price stability, employing various mechanisms such as pegging their value to other assets like currencies, commodities, or cryptocurrencies, or algorithm-based supply.
Within the cryptocurrency sphere, New Zealand users require a secure and steady digital asset to facilitate more efficient transactions and investments. Simultaneously, individuals participating in the New Zealand fiat currency system seek a currency that safeguards their wealth against inflation and financial exclusion.
Why Are Stablecoins so Important?
Bitcoin, being the most well-known cryptocurrency, has faced significant price volatility, which can be concerning for routine transactions and everyday use. For instance, its value soared from just under $5,000 in March 2020 to over $63,000 in April 2021, only to experience a subsequent decline of nearly 50% in the following months.
To address this issue, stablecoins have emerged in the crypto market. These cryptocurrencies, with a focus on stability, aim to maintain a steady value using various methods. Stablecoins are particularly relevant to the New Zealand crypto landscape, where individuals are keen to explore digital currencies while ensuring stability.
Stablecoins, as the name suggests, seek to tackle this challenge by offering methods to maintain a consistent value for the cryptocurrency they represent.
Disclaimer: Cryptocurrency NZ has no affiliation with any stablecoins or services showcased in our guide. All recommendations are based on our own research, experiences and preferences. You are ultimately responsible for the safekeeping and use of any stablecoins.
What Kind of Stablecoins are in NZ?
Presently, Stablecoins command a collective market capitalization of $100 billion, signifying their significant presence. Their utilization spans across various purposes, including cryptocurrency trading, earning interest through Decentralized Finance (DeFi) applications, and safeguarding wealth from the volatility of local currencies.
Crypto-Collateralized Stabelcoins
With the rising popularity and adoption of cryptocurrencies, the number of individuals holding crypto assets has surged significantly. This growing trend has led to an increased interest in utilizing cryptocurrencies as collateral to generate Stablecoins.
The process of collateralizing and issuing Stablecoins with crypto assets is relatively straightforward. Kiwis can deposit their crypto into a stablecoin vault, such as MakerDAO, and then generate Stablecoins, such as DAI, against the value of their collateral.
As the loan is repaid and the collateral is withdrawn, the corresponding amount of Stablecoins, such as DAI, is removed from circulation. Individuals can tap into the value of their assets while retaining ownership and potential long-term appreciation.
Fiat-Collateralized Stablecoins
Currently, dollar-pegged stablecoins dominate the stable digital currency landscape, enjoying immense popularity. These stablecoins maintain a 1:1 value ratio with the US dollar, as they are backed by actual dollar reserves
Tether (USDT) emerged as the initial digital dollar stablecoin to achieve widespread acceptance and has now become ubiquitous across various cryptocurrency exchanges.
Traders extensively utilize Tether and other widely recognized digital dollars like USDC. These Stablecoins offer the convenience of swiftly transferring funds between crypto wallets, ensuring funds are readily available for seizing market buying opportunities, or easily converting them back to NZD dollars when desired.
Algorithmic Stablecoins
Algorithmic Stablecoins differentiate themselves from reserve-backed models like Tether and Maker. Instead of relying on reserves of collateralizing assets, algorithmic stablecoin protocols actively participate in the open market by buying and selling their token.
A famous example is Terra’s USD. They utilizes a distinctive mechanism that encourages arbitrage activities involving USD and Terra’s LUNA token. In cases where USD exceeds the $1 peg, the stabilization mechanism of the protocol initiates a swap where $1 worth of LUNA is exchanged for $1 of USD. TerraUSD has collapsed and is now worth $0
Important!
Algorithmic Stablecoins are volatile; value pegs can fluctuate, leading to potential investment risks. TerraUSD's collapse serves as a famous example.
What is the Best Stablecoin in NZ?
With the ever-growing cryptocurrency market in New Zealand, new Stablecoins are emerging regularly. For individuals seeking secure, reliable, and popular Stablecoins, here is an overview of some of the top choices that Cryptocurrency NZ recommend.
Interested in buying Stablecoins? Check out our How to Buy Cryptocurrency in NZ Guide.
New Zealand Digital Dollar (NZDD)
Type of Stablecoin: Fiat Collateralized
Governance Model: Centralized
Cryptocurrency NZ, embraces NZDD, the New Zealand Digital Dollar, for its profound advantages rooted in local strength. Backed 1-to-1 by the New Zealand Dollar, NZDD epitomizes stability, ensuring a reliable digital asset. The security and trust inherent in New Zealand Digital Dollar, coupled with its seamless integration into the local economy, make it the preferred choice.
Pros of NZDD:
✔️ Local Stability: NZDD is pegged 1-to-1 with the New Zealand Dollar, offering stability and security rooted in the strength of the local economy.
✔️ Financial Independence: Choosing NZDD aligns with the ethos of promoting financial independence, as it mitigates the volatility often associated with foreign-backed stablecoins.
✔️ Security and Trust: The 1-to-1 backing of NZDD by the New Zealand Dollar enhances security, fostering transparency and building trust within the cryptocurrency community.
✔️ Seamless Integration: NZDD seamlessly integrates into the local economy, facilitating everyday transactions, investments, and international transfers within the New Zealand financial landscape.
Cons of NZDD:
❌ Centralization: While the involvement of regulated institutions adds a layer of trust, it also introduces centralization concerns. NZDD’s issuance and management are controlled by these entities, potentially making it subject to regulatory actions or changes in their policies.
❌ Limited Currency Options: As a stablecoin pegged to the New Zealand Dollar, NZDD may have limited flexibility compared to more diversified stablecoins that are pegged to a basket of currencies.
❌ Exchange Liquidity: The liquidity of NZDD on exchanges may be subject to the availability of trading pairs, potentially limiting trading options for users.
NZDD, the New Zealand Digital Dollar, emerges as a beacon of stability in the dynamic realm of cryptocurrencies. With a steadfast 1-to-1 peg to the New Zealand Dollar, NZDD ensures a secure and reliable digital asset firmly rooted in the strength of the local economy. This stablecoin not only promotes financial independence by mitigating volatility but also seamlessly integrates into daily transactions, investments, and international transfers within the NZ financial landscape.
Maker DAO (DAI)
Type of Stablecoin: Fiat Collateralized
Governance Model: Decentralized
Cryptocurrency NZ has chosen DAI as a leading stablecoin in NZ due to its distinct qualities of decentralization and its innovative Decentralized Autonomous Organization (DAO) approach. DAI’s decentralized nature aligns with our commitment to transparency and security in the cryptocurrency space.
Pros Maker DAO (DAI):
✔️ Decentralization: DAI is created and governed by a decentralized autonomous organization (DAO) called MakerDAO. This decentralization means that there is no single central authority controlling DAI, enhancing transparency and reducing the risk of manipulation.
✔️ Stability: DAI aims to maintain a stable value, often pegged to the US dollar. This stability makes it a reliable medium of exchange and a store of value in the volatile world of cryptocurrencies.
✔️ Collateralization: DAI is backed by collateral in the form of Ethereum (ETH) or other assets, providing security to the ecosystem. This collateralization mechanism helps to ensure the stability of DAI and allows users to monitor the system’s health.
Cons Of Maker DAO (DAI):
❌ Complexity: Creating and managing DAI involves understanding the MakerDAO system, which can be complex for newcomers to cryptocurrency. Users need to be aware of factors like collateralization ratios and liquidation risks.
❌ Volatility in Collateral: Since DAI is collateralized by assets like Ethereum (ETH), its stability depends on the stability of these collateral assets. If the collateral experiences significant price fluctuations, it can impact the value and stability of DAI
❌ Liquidation Risks: If the value of the collateral falls below a certain threshold, DAI may be subject to liquidation. Users who have locked up ETH as collateral may risk losing their assets if they cannot maintain the required collateralization ratio.
DAI is a decentralized stablecoin that operates on the Ethereum blockchain and is governed by the Maker DAO protocol. Unlike many traditional stablecoins, DAI does not rely on a centralized entity or external assets for its value stability. Instead, it employs a unique mechanism to maintain its price close to that of the US dollar.
To create DAI, individuals can deposit Ethereum (ETH) into Maker’s reserve vault. This process involves locking up ETH as collateral, which then allows users to mint DAI tokens in return. The collateralized ETH provides security to the DAI ecosystem and helps maintain its stability.
One of DAI’s primary objectives is to keep its value as close to one US dollar as possible. This pegging to the US dollar makes DAI an attractive option for those seeking a stable digital currency in the volatile cryptocurrency market. Users can utilize DAI for various purposes, including digital payments, trading, and participation in decentralized finance (DeFi) protocols, where price stability is essential.
USD Coin (USDC)
Type of Stablecoin: Fiat Collateralized
Governance Model: Centralized
At Cryptocurrency NZ, we have selected USDC as a stablecoin of choice primarily due to its extensive adoption and its role as a dominant trading pair across various cryptocurrency platforms. This widespread acceptance of USDC in the crypto space enhances liquidity and convenience for New Zealand users. However, it’s important to note that while we recognize the advantages of USDC, Cryptocurrency NZ’s preference leans towards more decentralized stablecoins like DAI.
Pros of USDC:
✔️ Stability: USDC is designed to maintain a 1:1 peg with the US dollar, providing users with a stable digital asset that can serve as a reliable store of value and medium of exchange.
✔️ Regulated: USDC is issued and managed by regulated financial institutions, offering users a level of transparency and oversight that can instill trust, especially among institutional investors.
✔️ Widespread Adoption: USDC is widely accepted across a multitude of cryptocurrency exchanges, platforms, and applications, making it readily available for various use cases, including trading, payments, and DeFi protocols.
✔️ Liquidity: The broad adoption of USDC ensures high liquidity, allowing users to easily convert it to other cryptocurrencies or fiat currencies when needed.
✔️ Audited Reserves: USDC issuers regularly undergo audits to verify the 1:1 reserve ratio with US dollars, providing users with confidence in the stability of the stablecoin.
Cons of USDC:
❌ Centralization: While the involvement of regulated institutions adds a layer of trust, it also introduces centralization concerns. USDC’s issuance and management are controlled by these entities, potentially making it subject to regulatory actions or changes in their policies.
❌ Counterparty Risk: Users of USDC are exposed to counterparty risk, relying on the financial institutions that back the stablecoin to maintain the proper reserves. Any mismanagement or insolvency of these institutions could impact the value of USDC.
❌ Regulatory Risks: The regulatory environment for stablecoins like USDC is evolving, and changes in regulations could impact its availability or use in certain jurisdictions.
❌ Lack of Complete Transparency: While USDC issuers provide regular attestations of reserves, some users may still seek even greater transparency regarding reserve holdings and issuance practices.
USDC, short for USD Coin, is a stablecoin developed by Circle, a prominent payments company with support from Goldman Sachs. This digital currency was meticulously designed with the primary aim of catering to the institutional sector within the cryptocurrency space. USDC seeks to provide a high-quality, dependable, and regulated digital currency infrastructure, distinguishing itself with a 1:1 dollar reserve ratio.
USDC’s commitment to maintaining a 1:1 peg with the US dollar instills confidence among users seeking stability in the often-volatile world of cryptocurrencies. Each USDC token is backed by an equivalent amount of US dollars held in reserve, ensuring that the value remains consistent and reliable.
Tether (USDT)
Type of Stablecoin: Fiat Collateralized
Governance Model: Centralized
Cryptocurrency NZ has chosen Tether (USDT) is a preferred stablecoin for several reasons, including its track record of consistently maintaining a 1:1 peg with the US dollar and its history as a dominant trading pair in the cryptocurrency realm.
Pros of Tether USDT:
✔️ Stability: Tether is designed to maintain a 1:1 peg with the US dollar, providing users with a stable digital asset in the often-volatile world of cryptocurrencies. This stability is particularly valuable for risk-averse investors and traders.
✔️ Liquidity: USDT is widely adopted and available on numerous cryptocurrency exchanges, making it a highly liquid asset. Users can easily trade in and out of USDT, providing flexibility and accessibility.
✔️ Fiat On-Ramp: Tether serves as a bridge between traditional fiat currencies and the cryptocurrency market. Users can easily convert their fiat holdings into USDT and vice versa, facilitating seamless entry and exit from the crypto space.
✔️ Trading Pairs: USDT is a dominant trading pair across various cryptocurrency platforms. It is often used as a base currency for trading other cryptocurrencies, providing a stable reference point for pricing.
Cons of Tether USDT:
❌ Regulatory Scrutiny: Tether has faced regulatory scrutiny and legal challenges, including concerns about the adequacy of its reserves and transparency. Regulatory actions against Tether could impact its use and stability.
❌ Centralization: Tether Limited, the company behind USDT, controls the issuance and management of the stablecoin. This centralized control contrasts with the decentralized ethos of many other cryptocurrencies.
❌ Counterparty Risk: Users of Tether are exposed to counterparty risk, as they must trust that Tether Limited maintains sufficient reserves to back the issued USDT. Any mismanagement or insolvency of Tether Limited could affect the stability of USDT.
❌ Market Volatility: While USDT is designed to be stable, it is not entirely immune to market fluctuations. In rare cases, USDT’s value may deviate slightly from the 1:1 peg, potentially causing concerns among users.
Tether, denoted by its symbol USDT, has traversed a tumultuous and contentious path throughout its existence within the cryptocurrency landscape. Despite its controversial history, it has managed to establish itself as the most extensively adopted stablecoin in the industry. USDT holds a pervasive presence as a dominant trading pair on numerous cryptocurrency platforms and exchanges.
Originally designed to offer stability by being pegged to the value of the US dollar, Tether has faced scrutiny and criticism regarding its reserves and transparency. Nevertheless, its ability to maintain a 1:1 peg with the US dollar has made it a preferred choice for traders and investors seeking a reliable bridge between the crypto and fiat worlds.
Advantages of Stablecoins
✔️ Safe Haven: Stablecoins offer a safe haven for users in the volatile crypto market. Unlike highly volatile cryptocurrencies like Bitcoin or Ethereum Stablecoins maintain a stable value, typically pegged to a fiat currency such as the US dollar or even NZD Dollar.
✔️ Borderless Payments: One of the key advantages of stablecoins is their ability to facilitate borderless payments. Traditional cross-border transactions often involve high fees, delays, and the need for intermediaries such as banks. Stablecoins, on the other hand, operate on blockchain networks, enabling fast, secure, and cost-effective transactions.
✔️ DeFi and Digital Ownership: Stablecoins play a crucial role in decentralized finance (DeFi) ecosystems. Users can leverage tokens to access a wide range of DeFi protocols, including lending and borrowing platforms, decentralized exchanges, and yield farming.
Problems with Stablecoins
❌ Centralization: Stablecoins such as USDT and USDC, which are backed by the US dollar, are administered, audited, and issued by centralized reserve bank entities. However, any scrutiny or controversy surrounding the parent company, as observed in the case of Tether, poses a risk to the entire crypto ecosystem due to interdependence.
❌ Security Concerns: Collateralized Stablecoins rely on custodians to securely hold the underlying collateral assets. This concentration of risk introduces vulnerabilities, making algorithmic Stablecoins comparatively advantageous. Nevertheless, algorithmic Stablecoins may face the challenge of being under-collateralized.
❌ Lack of Transparency: Since most Stablecoins are operated by centralized entities, a significant portion of their activities, including their backing, occurs off-chain. This opacity complicates the process of determining whether a stablecoin is fully backed, and obtaining clear answers can be challenging, leaving uncertainties in the minds of users.
Cryptocurrency NZ Final Verdict
Cryptocurrency NZ firmly upholds the crypto ideology that champions constant innovation as the key to overcoming challenges rather than relying solely on existing frameworks. We believe in the nature of the crypto space, where adaptability and evolution are at its core. In line with this ethos, we acknowledge that many of the prevailing stablecoins in the market are centralized and deeply entrenched.
However, a notable shift is underway as the cryptocurrency community increasingly gravitates toward decentralized alternatives. While it’s true that some centralized stablecoins offer a user-friendly experience, it’s essential to be aware of potential limitations. Case in point, certain centralized stablecoins, like Tether (USDT), possess the authority to freeze your USDT under certain circumstances. Such instances underscore the importance of considering alternative options. Hence, our preference for a more decentralized stablecoin like DAI, which embodies principles of decentralization, transparency, and community governance.
Nevertheless, it’s paramount for kiwis to recognize that all stablecoins, whether centralized or decentralized, come with inherent risks.
Commonly Asked Questions
Stablecoins are digital currencies designed to maintain a stable value, often pegged to a specific asset like the NZD. They work by using various mechanisms to ensure their value remains constant, offering a reliable medium of exchange and store of value within the New Zealand cryptocurrency ecosystem.
Crypto wallets are digital vaults where you store your Bitcoin, Ethereum and other digital assets – acting as your NZ crypto bank account.
There are 5 main types of cryptocurrency wallet, such as Hardware wallets like the Trezor and Ledger or software wallets like Exodus.
Which you can learn about in our Best Bitcoin, Ethereum & Crypto Wallets in New Zealand Guide. 👉
New Zealand anti-money laundering laws (AML) require all Kiwis to verify their identities before they can buy and sell cryptocurrency through regulated NZ crypto trading platforms, such as Easy Crypto, BitPrime and beyond.
Alternatives to using regulated services to acquire crypto include crypto mining, buying P2P, airdrops, Bitcoin ATMs, and decentralized exchanges. You can also receive crypto by accepting it as payment for the goods and services you sell, or doing work in exchange for stablecoins.
To verify an account with an NZ exchange, you need to:
– Be 18 years or above.
– Have a valid NZ passport or drivers license.
– Have an NZ bank account under your own name.
– Have $40 to meet minimum order requirements.
To convert stablecoins back to New Zealand Dollars (NZD), you can use crypto exchanges that support stablecoin-to-NZD trading pairs. You would initiate a withdrawal to your linked bank account to receive the NZD equivalent. Ensure the exchange you choose complies with local regulations.
New Zealand residents have access to a variety of stablecoin options, including widely recognized ones like Tether (USDT), USD Coin (USDC), and DAI. It’s essential to research and choose stablecoins that align with your specific needs and preferences, considering factors like stability, transparency, and decentralization.
You can purchase stablecoins in New Zealand through various cryptocurrency exchanges that support NZD transactions. Once acquired, you can store them in a compatible cryptocurrency wallet. Stablecoins can be used for a range of purposes, including online transactions, trading on cryptocurrency exchanges, and participation in decentralized finance (DeFi) protocols.