A Strategic Partnership

MakerDAO and Wyre, two key players in the cryptocurrency space, have announced a collaboration enabling the availability of direct trading pairs between fiat currency and the DAI stablecoin. This collaboration is an essential step for cryptocurrency adoption, as it could pave the way for users to conduct their businesses by combining the ease and speed of cryptocurrencies with the stability of fiat currencies. This works by making use of volatility reducing cryptoeconomic primitives to achieve stability.

Wyre, a veteran blockchain company, has provided remittance services for several years. The service allows users to make fast and affordable international money transfer services by using cryptocurrencies as an underlying method of transport. This works great and is several times cheaper and quicker than bank transfers but exposes the service to the volatility of cryptocurrencies. We have already mentioned volatility as a barrier to cryptocurrency adoption in a previous article. It is just not feasible for the average business to assume the risks associated with the unpredictable cryptocurrency price fluctuations that tend to hit the markets.

Stablecoins

Cryptocurrencies pegged to fiat currencies, such as the US Dollar or any other real-world asset have long been seen as the holy grail of cryptoeconomic research. Pegging a currency to real-world assets is extremely challenging as markets react to demand and supply, rumors, and psychological aspects that are hard to predict. Some companies solve this by off-chain fiat reserves backing up the currency supply. However, this approach is centralized in nature, as it depends on trusted third parties to audit the reserve.

MakerDAO’s DAI stablecoin is unique in this space, as it is an entirely on-chain solution. Cryptographic assets are locked into smart contracts on the Ethereum blockchain to act as a backup for the DAI coin. While initially Ether has been used as the backup vault, the company is actively researching and promoting the diversification of assets, to spread the risk. The system provides transparency and does not require trust in any outside editors.

MakeDAO has so far been successful in maintaining a relatively soft peg to the US dollar. The DAI currency has seen successful adoption on some exchanges.

With the newly announced collaboration, Wyre provides an API for companies to access DAI stablecoin services. Organizations can programmatically access Dai trading pairs against significant fiat currencies (USD, EUR, AUD, GBP, CAD, HKD, CNY) as well as substantial cryptocurrencies (BTC and ETH). The service will be available in more than 30 countries and includes KYC and AML onboarding compliance.