What “at par” means
“At par” means face value: one USD-denominated stablecoin is worth $1, one euro-denominated stablecoin is worth €1, no more and no less.
Most stablecoins do not move at par today.
When you convert one stablecoin for another, there is typically a gap: 100 USDA buys you 99.50 USDB. That’s slippage, or par value breaking.
How is slippage different from a fee?
Slippage is a market-based loss of value. A fee is payment for a service. The two get conflated, but they’re not the same thing.
A wire transfer is a useful comparison. Sending a wire often comes with a fee. You send $100,000 by wire and pay a $20 fee, but you know your $100,000 will arrive (i.e., at par). In stablecoins, you send 100,000 USDA, and one day 99,900 USDB will arrive and the next day 99,990 USDB. This is market-based slippage.
Why money moving at par is important
For an asset to work as money, it needs broad acceptance. To achieve broad acceptance, the sender and the recipient must know that their money won’t lose value in transit.
Take a grocery store buying $100,000 of fruit from a farm. The farm needs to know it will receive the full $100,000. If it can’t count on that, it will ask to be paid in a form of money it can count on. The grocery store needs to know exactly how much money to send in order for exactly $100,000 to arrive.
They’ll both prefer a payment rail that can make a guarantee around money being moved at par. Stablecoins often do not satisfy that guarantee.
How stablecoin conversion works today
Today, moving between stablecoins is primarily done through trading.
Sell 1 USDA to buy 1 USDB. This requires liquidity. Someone has to be willing to take the other side of that trade, at whatever price the market sets at that moment. This means the actual price of conversion is subject to the whims of market demand. If more people want to sell USDA than buy it at any given moment, it trades slightly below $1. If a lot more people want to sell, it trades well below $1.
To convert 1 USDA to 1 USDB, this likely won’t be a huge issue. To convert 10,000,000 USDA to 10,000,000 USDB, it likely will. The slippage gets worse with size because of the liquidity constraints.
How TBMC moves different stablecoins at par
The TBMC clearinghouse removes this trading component. We’ve integrated directly with stablecoin issuers, so we can redeem USDA at par and mint USDB at par, converting between the two without ever introducing a trade.
All parts of the conversion happen at par.
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