Tether’s USDT and Circle Internet Group Inc.’s USDC are the world’s two most popular stablecoins: privately issued, 1:1 digital clones of the official U.S. currency. These tokens, which change hands pseudonymously on the blockchain, emerged just over a decade ago as a bridge between high-risk cryptocurrencies such as Bitcoin and Ether and conventional bank deposits. But now that most major markets have passed regulations like the Genius Act in the US, the next goal for issuers is to bring these virtual representations of fiat money into the mainstream.To some extent, this is already happening in Latin America, where stable dollar currencies bring stability to savers fleeing currency volatility and inflation. However, if their combined market value is to rise from $315 billion to Citigroup Inc.’s baseline forecast. of $1.6 trillion by 2030, it is consumers who must contribute. They should be able to save money or time by allowing these blockchain tokens to become part of an already long menu of near-instant, 24×7 digital payment options. EBANX works with two companies that are considered global success stories: Pix in Brazil and Unified Payments Interface, or UPI, in India. What additional value can stablecoins provide for everyday purchases? Internet trading is an obvious application. Both e-commerce and the blockchain are intrinsically global. That’s why payment service companies like EBANX allow merchants to accept tokens like USDT and USDC as easily as dollars or euros. However, Del Valle isn’t expecting an overnight miracle.
McKinsey & Co. estimates that stablecoins represent less than 1% of global daily money transfer volume, although the consultancy also notes that at current growth rates they could surpass traditional payments in less than a decade. For that bold prediction to come true, smart contracts, or the software programs that automate the actions required in a blockchain transaction, will have to play a major role. They can help save costs by reducing manual intervention in anti-money laundering controls and sanctions. The algorithms can also direct money to a very specific goal. Take the case of a Chinese tourist who wants to pay in yuan from her Alipay+ wallet, but the Singapore store only accepts money coming into GrabPay, a popular wallet in Southeast Asia. XSGD, a virtual representation of the Singapore dollar, is programmed to allow this cross-border transaction to proceed immediately. The Monetary Authority of Singapore has already said that XSGD – and its cousin, XUSD – are substantively compliant with the upcoming stablecoin regulations. StraitsX, which issues the tokens, is now a major payment institution in the Asian financial hub. When the local startup decided to experiment with stablecoins as a side project in 2019, most regulators didn’t know enough about these newfangled tools, or what role they could play. With 9 billion XSGD having been traded on the blockchain since then, customers have clearly discovered the utility of the coins for themselves.Yet it is still early. For applications to expand, the regulatory dust must first settle. In the US that means finding the right balance between competing interests. Crypto exchanges are eager to acquire new stablecoin customers by offering them generous rewards, while smaller US banks fear losing their deposits. Outside the US, the stakes are even higher. China’s Ant Group Co. is seeking to trademark “Antcoin” in Hong Kong as Beijing, which bans onshore cryptocurrency trading, weighs the risks to monetary sovereignty of dollar stablecoins.
Singaporean issuers, meanwhile, are hoping that a license from the city’s monetary authority would be enough to access customers in other regulated markets. “We have one set of tokens, backed by one pool of assets,” StraitsX co-founder and Chief Legal Officer Samson Leo told this week’s fintech conference in Hong Kong. “If every jurisdiction requires us to split up the reserves and keep them in their banking system, the pool will break up – and customer protection will diminish.” Issuing a separate coin for each jurisdiction would also cause confusion, he said, because customers cannot trade the global tokens, but only the localized tokens.
Once these wrinkles are ironed out, their job is for the payment companies. Starting with cross-border transactions, they should help customers identify situations where using stablecoins could benefit them. It won’t happen hastily. Leo compares the current state of the market to when some companies started using email, while most others still communicated via fax machines. Printing an email and then faxing it to another user delayed realizing efficiency gains.
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Over time, however, superior technology won out and delivered the promised benefits. Expect something similar to happen with money too.
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