Updated: Mar 30
Stablecoins have become far more than just a hedge against market volatility; recent data displaying transactional dominance over the Ethereum economy suggests that they are beginning to form the very backbone of the digital economy. With more innovations on the horizon, Decentralized Finance (DeFi) and stablecoin-payment platforms are primed to establish a new financial standard for the world.
Tether (USDT) is the most recognizable stablecoin on the market, and despite numerous controversies, it still reigns supreme in the markets. Pegged 1:1 against the U.S. dollar, USDT has spent much of its life being the people’s choice stablecoin. Over time however, other market players sought to capitalize on this product, creating new models that support the value of their coin, or creating new ways in which they can be utilized outside of trading, and that’s where DeFi comes in. For example, MakerDAO is a firm on the frontlines of stablecoin promotion and innovation with their leading decentralized model that is analogous to mortgages or loans, bolstered by the DAI stablecoin. Here, users can leverage their Ether (ETH) to create a Collateralised Debt Position (CDP) and accrue DAI, which can then be sold for ETH and reinvested should the user choose to do so. They can also lend, send, and borrow through the MakerDAO Oasis platform. There are many other DeFi protocols such as dYdX and Compound that also offer similar interest-yielding products. Interestingly, DeFi appears to be the new hedge against market volatility, as reports indicate that DeFi protocols are being increasingly leveraged during market downturns.
Stablecoin Payments and Regulation Pains
South Korean stablecoin project, Terra, has witnessed nothing but staggering growth over the course of December 2019.
Reportedly amongst other successes, the project's payment platform landed a significant partnership with CU, the nation’s foremost retail chain which boasts more than 13,000 outlets, indicating both public and institutional demand for stablecoin payment systems, hopefully foreshadowing the direction of South Korea’s digital economy.
The recent explosion of adoption could also be attributed to the news that Terra is expanding its blockchain payment network into Singapore, capturing a far broader audience.
In the western world, similar strides are being made albeit in a cautiously staggered fashion. Facebook’s stablecoin project ‘Libra’ has had regulators biting back against the concept as they are of the impression that it could undermine sovereign currencies, not to mention the potential ramifications of a privately owned and centralised global currency. Though somewhat extreme, this sentiment may have some footing due to the absolute global reach of Facebook, which isn’t to say that it wouldn’t be a benefit to the broader global community.
There is some progress being made in France, as recently the First Deputy Governor spoke openly on the opportunities and risks presented by stablecoins and their respective payment systems.
U.S. Fed Governor Lael Brainard also spoke on the matter, noting the influence that BigTech and FinTech startups are having on digital payments and the economy overall.
Acknowledging the blossoming of peer-to-peer payment systems and “new business models that bundle payments with other activities in novel ways.”, she concludes that these disruptors offer great benefits to the consumers all the while promoting financial inclusion to domestic and global audiences.
Stablecoins will likely have to prove their worth over and over again in order to edge toward mainstream adoption. Though to their benefit, a good stretch of the road ahead has already been paved by Bitcoin, Ethereum, and other major cryptos that have gone through years of scandals, technological overhauls,
innovations, and regulatory hindrances, which should allow for a smoother journey toward their final destination.
Stablecoins aren’t immune to controversies or scrutiny, and if anything, they have far more to prove in order for governments and industries to take them seriously.
Over the past few years, we have seen regulators shift toward positive sentiments for major cryptocurrencies, with a major example of this being the continued adoption of Ripple (XRP) into traditional financial systems and legacy banks.
Though with all the discussion, innovation and adoption already taking place, 2020 could finally be the year that stablecoins turn the tables completely, becoming the world’s go-to cryptos forevermore.