In an age where monetary regulations are still lacking in many parts of the world, stablecoins have been proposed to provide a value that does not fluctuate and offer greater regulation than other payment types.
With this in mind, FinTech Magazine speaks with Bernhard Blaha, CEO of The People’s SCE and Co-Founder of the Austrian Digital Asset Association, about how digital currencies will work to open up new markets for businesses worldwide. He also explains how the currencies stand to overtake current dominant payment solutions.
What are the merits of stablecoins?
Stablecoins, which currently have a market cap of US$123.8bn, enable seamless, transparent, cost-effective cross-border payments and are generally less volatile than cryptocurrencies. This is especially the case for those that are pegged to fiat currencies, such as Tether and USDC, both of which are backed by the US dollar and which respectively occupy the positions of top two stablecoins by market cap.
Furthermore, stablecoins offer enhanced security for senders and recipients of payments because they do not require both parties to share sensitive financial information. Powered by blockchain, stablecoins protect private information while also providing transparency around the progress and nature of each transaction.
Thanks to blockchain tech, stablecoins remove financial intermediaries from transactions between two parties, meaning they have the advantage of offering lower fees. This, of course, has numerous benefits for merchants and businesses, particularly smaller and local ones, as they are often burdened by high transaction costs incurred by dominant payment platforms and financial institutions.
The removal of intermediaries is also what speeds up the payment process, so that businesses can more quickly receive access to funds, rather than needing to wait a few hours or even days for the funds to enter their accounts. Once more, especially when cash is tight, this can have major implications for companies of any size.
Another powerful use case for stablecoins is that they can unlock access to micropayments, which is a traditionally expensive practice given fees tend to exceed the value of the payments themselves. Micropayments have the potential to reshape retail and commerce by giving consumers greater agency over their private information and access to services and products in ways that were not otherwise available (e.g. by enabling them to pay only for what they use, rather than an entire subscription for a given service).
Do you see any downsides to stablecoins?
Despite their promise, stablecoins do not come without drawbacks. Firstly, while they are relatively more stable than cryptocurrencies at large, they are not entirely risk-free. Stablecoins are still volatile, especially those that are pegged to cryptocurrencies.
Furthermore, the lack of regulatory clarity surrounding stablecoins and their issuance will continue to pose challenges to their safe adoption. Many countries around the world are actively working to introduce legislation that will provide guardrails to issuers; however, there is still much to be done before we can safely and confidently adopt them into global payment systems. It's worth noting that the EU is making significant progress in terms of crypto regulation, but the global regulatory landscape remains fragmented.
Achieving interoperability and compliance with multiple regulatory frameworks is crucial for stablecoins to thrive on a global scale, ensuring their reliability as a form of digital currency in international payment systems.
How are stablecoins apt to reshape financial markets and drive financial inclusion?
Stablecoins are poised to connect economies globally thanks to their ability to power more efficient cross-border payment solutions. In driving the growth of economies locally as well as their expansion on a global scale, stablecoins are also apt to bring about greater financial inclusion, as they open up local and smaller businesses to new markets and opportunities.
Because they enable more cost-effective and faster transactions between two parties, stablecoins can ease a lot of the pressure placed upon businesses, particularly smaller ones, by dominant payment providers. Rather than suffering from high transaction fees and the need to wait several days to access funds, sellers and service providers can receive payments directly from their customers almost instantaneously and at a much lower cost.
For businesses that need access to cash at all times, this is revolutionary.
Additionally, stablecoins open up businesses of all scales to new markets and opportunities that were previously only available to larger companies. This means stablecoins provide greater financial inclusion to SMEs both locally and globally.
What do you think of major payment providers like PayPal and Visa entering the stablecoin arena? Are they taking the right approach?
There are both pros and cons to dominant providers entering the space. On the plus side, players like Paypal and Visa are established in the traditional finance world and tend to be highly trusted by consumers. The involvement of trusted players in the digital asset space encourages consumers and investors to dive in as well, driving greater adoption.
When major players get involved, governments also face the pressure of coming up with adequate regulatory measures to guide them and ensure the protection of their many customers. Given regulation is currently lacking in most parts of the world, pushes such as these are important in driving the introduction of strong legislation to bring stablecoins to global markets as safely as possible.
On the other hand, part of the ethos of crypto, and subsequently of stablecoins, is to bypass large institutional players and break free of monopolistic payment systems, which providers like Visa and PayPal represent. In considering their approach, I think much of the success they will have will depend on the importance they place on transparency and to what extent they ensure transparency measures are implemented.
According to new research published by a Bloomberg Intelligence analyst, stablecoins surpassed Mastercard and PayPal in transaction volumes last year. What does this indicate about the potential of stablecoins in the payments sector?
The finding that stablecoins surpassed Mastercard and PayPal in transaction volumes last year coupled with the fact that it was not repeated this year reveals confidence in the industry is still heavily dependent on the headlines that dominate it and the performance of crypto markets themselves.
While stablecoins should not be equated with cryptocurrencies more broadly, regular consumers and traditional investors tend to bucket all digital assets together and consider them as one, impacting their involvement in the space.
Overall, however, last year’s trend does indicate that stablecoins do hold a lot of promise and that global markets are beginning to understand and embrace that potential—even if this support remains shaky for the time being. That being said, adoption rates of stablecoins surpassed that of Ethereum these past couple of years, suggesting a growing awareness of their real-world utility.
Over time, as regulation is introduced and as the general population becomes more educated on digital assets and stablecoins, we will see trends such as these arise again. Stablecoins will surely cement their place in the payments sector in the years to come and bring about greater financial inclusion to companies around the world.
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