Bitpay announced that it is now offering merchants to settle their cryptocurrency payment using two stablecoins: Gemini Dollars (GUSD) and USD Coin (USDC).
The U.S.-based crypto payment processor announced the news in a blog post published Monday, October 15.
Bitpay crypto payment settlement explained
Since its launch in 2011, Bitpay has grown into the leading provider of blockchain-based payments technology. The company provides its services to over 20,000 businesses, helping them accept payments in Bitcoin (BTC) and Bitcoin Cash (BCH). So, how does it work?
When a merchant receives a payment in Bitcoin (BTC) for goods or services, they have the freedom of choosing whether to keep the payment in cryptocurrency or to convert all (or a part) of the payment into a supported local currency.
This feature is to help merchants circumvent the currency risks associated with Bitcoin’s volatility, as illustrated below.
The problem – only 38 countries supported
Although, the ability to convert a cryptocurrency payment is limited to the 38 countries supported by Bitpay, which doesn’t include massive economies like China and India among many other Asian countries.
Merchants in these countries cannot convert their crypto payments into local currencies, therefore, they remain exposed to the price volatility of Bitcoin. As such, many refuse to absorb the currency risk and the responsibility of converting their cryptocurrencies into local currency themselves.
The solution – stablecoin settlement
To solve this problem, BitPay has integrated settlement in two stablecoins GUSD and USDC, which are pegged to the U.S dollar on a one-to-one basis.
Merchants in countries that do not have their local currencies supported by Bitpay, such as China, Japan, and India, can now instantly convert their Bitcoin into GUSD or USDC, thus, completely eliminating the risk of the price of cryptocurrency going down.
Stablecoins make this possible as they “exist on borderless blockchains.” BitPay has said that it will issue settlements for GUSD and USDC within 24 hours, once a merchant hits the sufficient settlement balances of 20 GUSD or 20 USDC.
The new problem – cashing out stablecoins in non-supported countries
Although Bitpay’s solution and integration of the new and regulated stablecoins is commendable, merchants will still need cash flow to continue financing their operations.
Stablecoins can be redeemed on a one-to-one basis by the issuer but only with a USD bank account. The solution does help eliminate the currency risk but it does not help merchants get paid, at least for now.
Should businesses around the world begin accepting stablecoins as a form of payment, Bitpay merchants would be able to pay their suppliers and business partners. Until then, merchants are stuck with a non-local currency that is, for the moment, particular to accept for the average person.
As stablecoins for other currencies come to market, cross pairs between stablecoins will come to market and eventually resolve these complications. Alternatively, Bitpay will begin servicing these currently unserved geographies.
Controversial stablecoin market leader Tether (USDT) not supported by Bitpay
The most popular and widely used stablecoin has been Tether (USDT). Issued by Tether LLC, USDT has had a fair share of controversy, including allegations that an equal amount of US dollars does not back the amount of tether in circulation.
The coin’s price tanked significantly on Monday, October 15, slumping to the lowest value since April 2017 but the value recovered close to $1 rapidly.
Why the USDT price plunged so dramatically is anyone’s guess, but there are suggestions the market is slowly losing trust in the coin. Of great concern is the continued lack of transparency about Tether’s resolute claim that every USDT coin is backed USD at 1:1.
Although the coin has since recovered and is currently trading at $0.98 according to XBT.net, question marks remain about its future.
Bitcoin is trading close to a $300 premium on Bitfinex, a cryptocurrency exchange with close ties to Tether Limited. The high premium adds to speculation that traders are out to dump USDT in favor of BTC as panic mounts around USDT.
The Gemini Dollar and USD Coin are both Ethereum (ETH)-based stablecoins whose value is pegged to that of the U.S dollar at the ratio of 1:1. This means that one Gemini Dollar or one USD Coin is equal to and redeemable at anytime for one American dollar.
Bitpay’s announcement coincided with the listing of four stablecoins on two of the world’s leading cryptocurrency exchanges.
On Monday, October 15, one of the world’s largest cryptocurrency exchange OKEx announced support for four stablecoins in TrustToken’s TrueUSD (TUSD), Gemini Dollar (GUSD), Circle’s USD Coin (USDC), and Paxos Standard Token (PAX).
On Tuesday, October 16, the fifth largest crypto exchange Huobi also announced the listing of the four coins. OKEx already accepts deposits and withdrawals are available.