As we approach the 15th anniversary of the first Bitcoin being mined, change has been the only constant in the world of crypto.
Stablecoins have represented one of the most influential developments, mitigating the volatility that has always been part and parcel of the crypto landscape and opening up the world of crypto to a wider audience with more diverse risk appetites.
That, however, could be just the beginning as groundbreaking developments in AI combine with the benefits of stablecoins to further mitigate risks, manage uncertainties and facilitate smoother transactions.
What are AI-powered Stablecoins?
Before we answer that question, it is worth reminding ourselves of what stablecoins are. These are tokens that are pegged in value to a more stable asset, such as USD or gold.
They have proved popular with people who are eager to take advantage of the speed, convenience and security of crypto transactions without exposure to the usual volatility.
Payment processors like UniPayment and others provide the option for USDT transactions with Tether and these make crypto transactions viable for risk-averse purchasers who prefer not to use Bitcoin or Ethereum.
AI-based stablecoins take the principle to a new dimension. Instead of using a fiat currency or a precious metal for a price peg, they use artificial intelligence to maintain their price stability.
They use algorithms to automatically adjust supply and demand to maintain price stability. This is achieved in one of two ways.
Either the algorithm automatically buys or sells the stablecoin on the open market, or it adjusts the interest rates on loans that are backed by the stablecoin. These adjustments can be made constantly and at lightning speed.
Benefits of AI-powered stablecoins
AI can be a powerful force for stablecoin development and better decision making I the following ways:
- Managing risk – AI can monitor market conditions and economic indicators in more detail and with better accuracy than a human analyst. This helps to identify and mitigate any risks in the market and ensure price stability.
- Smart contract management – AI can execute the smart contracts that underpin stablecoin transactions. This eliminates the risk of human error and ensures transactions are executed correctly.
- Algorithmic stabilization – algorithms automatically adjust the issuance or redemption of stablecoins to manage how many are in circulation and thereby avoid price fluctuations and ensure the value of the stablecoin remains stable.
- Best possible security and fraud detection – AI solutions monitor transactions and are able to identify unusual activity, unauthorized transactions and other potential security threats.
- Better information – AI has the power to perform data analytics on an unprecedented scale. This allows better insights to be made faster, all of which contributes to maintaining price stability.
Using AI to address key challenges in stablecoin development
The integration of AI with stablecoin development brings exciting possibilities and addresses some of the fundamental challenges in the crypto and stablecoin space.
The most obvious is price stability. Maintaining a stable value is the whole point of stablecoins and AI can monitor market conditions and use algorithmic adjustments in a way that has not previously been possible.
It can also monitor market activities to prevent fraud or market manipulation, aspects that have dogged the market over recent years and have given potential investors pause, especially those with a low risk threshold.
AI can optimize the efficiency of stablecoin operations, and therefore make them more scalable. This could be a critical consideration if stablecoin usage grows in the way that some commentators are predicting over the coming year.
On a related note, AI-based stablecoins should deliver a better user experience, providing real-time support through via chatbots and offering tailored and personalized recommendations.
AI integration certainly has the potential to provide significant benefits. However, both AI and crypto are developing at lightning speed, so it is important to ensure that use cases are aligned with project goals and to keep a sharp focus.