Plans are underway for a cryptocurrency 'stable coin' pegged to the Aussie dollar

• Two crypto players – a blockchain company and a crypto exchange – plan to issue Australia’s first ‘stable coin’.

• Stable coins are cryptocurrencies pegged to fiat currencies – in this case the Australian dollar.

• A key requirement of stable coins is that they have fiat currency reserves to redeem funds on demand.

• Emparta has been talking to regulators and the partners plan to launch the coin in 2019.

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Two players in the domestic crypto scene are partnering up to try and launch Australia's first stable coin -- a cryptocurrency backed by the Aussie dollar.

The project is a joint initiative between Emparta, a blockchain employment platform, and domestic crypto exchange Bit Trade.

Advocates of stable coins say they offer the positive aspects of cryptocurrency -- such as improved transaction speed -- without the underlying volatility.

The lack of volatility is because stable coins are pegged to traditional fiat currencies, so they don't experience the wild price swings often seen in crypto markets.

The most well known -- and controversial -- stable coin was launched by crypto platform Tether.

Tether's USDT coin is supposedly pegged to the US dollar, but many are sceptical that Tether actually holds the US dollars required to back its currency.

Emparta's chief operating officer, James Hill, told Business Insider that the local stable coin project differs from Tether because it will be fully redeemable on demand.

As an employment-based blockchain platform, Emparta plans to use the stable coin to help facilitate payments by employers.

"An employer will pay wages in traditional fiat into a nominated treasury account, which receives the money and mints the stable coin. When the person receiving the payment wants to redeem the funds, the coin is 'burnt' and money is sent back in Australian dollars," Hill said.

Hill said the new platform may allow employees to receive the funds in a split format -- say, 90% stable coin and 10% Bitcoin -- and they could then remit the Bitcoin component to family members overseas.

Emparta is working on a prototype which is "around five weeks away" from completion, Hill said. The stable coin isn't scheduled for launch until 2019.

Clearly, a viable stable coin project would need approval from regulators. And Hill said he's been in talks with tax authorities and the corporate regulator, ASIC.

"In discussions with the ATO, I have to say they’ve been pretty good. They’ve been receptive and see some advantages to what we’re proposing," Hill said.

He said talks with ASIC were focused on meeting obligations with prospective banking partners, who will provide the custody solution for an AUD-backed cryptocurrency.

Earlier this month, the US-based Gemini Exchange -- run by the Winklevoss twins -- announced plans for a stable coin backed by US dollar cash reserves held by State Street, the global banking giant.

So is one of the big four Aussie banks about to partner up and dip their toes into the crypto waters?

"We haven't signed a deal with any of them yet, but I will say there's a lot of smaller banks outside of the big four who have expressed interest in this space," Hill said.

The custody solution will be a key part of the use case, because the concept of a stable coin doesn't work unless it has enough liquid fiat currency to back it up.

"Our stable coin is designed for cash-based redemption and has a treasury collaterialised with fiat currency," Emparta CEO Adam Sarris said.

Emparta is managing the bulk of the project but has brought the Bit Trade exchange on board as a partner.

The parties said they have already received interest from other domestic exchanges who are keen to offer the coin.

"Market volatility in the digital currency space makes a stablecoin a very attractive refuge for investors seeking stable returns, and marks a new way to access digital currencies in Australia", Bit Trade managing director Jonathon Miller said.