What is Celo Dollar?

Beginner

3 mins read April 07, 2023

Stablecoins are an innovation that has emerged in response to the constant volatility of cryptocurrencies. This volatility is what makes digital assets like bitcoin and ether risky to use. For example, if you decide to accept payment in bitcoin for your goods, you have no way of telling whether the prices of the currency would soar or take a nosedive. Stablecoins solve this problem by reducing the issue of volatility with crypto as their value is pegged to assets like fiat money.

Celo dollar is one of such stablecoins developed by Celo.

Celo is a global payments infrastructure that develops financial tools anyone with a mobile phone can use. And that is why the Celo dollar is not just a regular stablecoin. As cryptocurrency and blockchain are still emerging technologies, many still find it challenging to understand and adopt. Celo wants to ease this for the public by building a mobile-first blockchain platform; this will serve as a new financial system that is accessible to everyone with a smartphone.

Celo Dollar is a stablecoin created by Celo that has been pegged to follow the US Dollar. This stablecoin is making financial solutions like making transfers and accepting payments faster, cheaper and easy to access.

How Celo works

Mobile-first: Knowing how complex it still is for a lot of people to use blockchain and cryptocurrencies owing to data issues, Celo has come up with a way to bypass this challenge by allowing anyone to gain access to its network even with the most minimal data requirement. It achieves this through what is called an “ultra-light client.”

Phone numbers as wallet addresses: Ordinarily, when you want to send a digital asset like bitcoin to a friend, you’ll need to get their wallet address which is a long string of alphanumeric characters. While this is considered secure, there are sometimes issues with remembering or copying the address when you want to send crypto to someone else. And often, people make mistake when copying the address that they end up losing their crypto.

Celo wants to eliminate this challenge by using a technique called “address-based encryption”. This technique is a basic verification process that allows users to connect their phone numbers to their wallet address thereby making it possible to send, receive and even request money by making use of phone numbers -- as seamless as mobile money.

Identification: Thanks to this address-based technique, Celo can easily identify users through their mobile numbers. By using these phone numbers as a means of identification, users can grow their data and reputation in the system without the usual complexities of banks and other financial institutions. By doing this, they will be able to establish financial and credit histories from their transactions and tell if they will be qualified for potential financial services like P2P loans and insurance.

Celo Dollars

To achieve its goal as a “mobile-first platform for fast, secure and stable digital payments”, Celo created a stablecoin to solve the high volatility issue associated with cryptocurrencies. This stablecoin is called Celo Dollars (cUSD) and it tracks the value of the US dollar, as a fiat-backed stablecoin. But it is also supported by a reserve of Celo’s native asset CELO and other cryptocurrencies such as bitcoin and ether.

Stability of Celo Dollar

To maintain stability which is a core focus of a stablecoin, Celo has built its Protocol in such a way that it guides its reserves to align with the supply of Celo Dollars so that it matches market demand and maintains its peg to the US Dollar. When the value of 1 cUSD goes below a dollar, Celo sells CELO from the reserves and uses that to purchase more cUSD in the open market thereby reducing the supply and maintaining the peg to a dollar. When the value of cUSD goes over a dollar, the company mints new cUSD and sells them for CELO, thus maintaining the peg.

With the need for faster, stable and contactless means of payment, Celo has built a platform that allows business owners to accept Celo Dollars as a form of payment, be it online or in person. Celo’s mobile-first feature allows for the possibility of obtaining loans, sending and receiving P2P payments via a basic feature phone as is already being done by companies like Kotani Pay and GiveDirectly. Celo has also drastically reduced transaction fees allowing users to conveniently send and receive money locally and internationally via their mobile phone for as little as $0.01.

In conclusion...

Celo is an open-source platform that is making access to financial services easier for everyone with a mobile phone. The company is backed by a group of technologists, NGOs and organisations dedicated to creating a better financial system. You can buy cUSD on exchanges like Bittrex and Coinlist Pro.

Disclaimer: This article is meant to provide general guidance and understanding of cryptocurrency and the Blockchain network. It’s not an exhaustive list and should not be taken as financial advice. Yellow Card Academy is not responsible for your investment decisions.

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