Stablecoins, yet Another Crypto fad?

Everyone knows crypto; moreover, everyone thinks they know crypto. The term crypto itself is a bit of an overused term, one that has come to represent all manner of innovations that are in reality only possible because of blockchains. Recently, another blockchain innovation, known as Stablecoins, has grabbed the spotlight - with some even going as far as to label it the 'whatsapp' moment for the crypto industry.

What are they?

If you are wondering why this one innovation has the seemingly disparate worlds of payments, high finance and AI all signing from the same hymn sheet then read on. Firstly, what is a stablecoin, simply it is a class of cryptocurrency that is pegged to a 'fiat' currency such as USD, RMB, EURO etc. This peg is maintained in most cases by the issuer of the particular stablecoin buying assets to the equivalent value of the digital currency they are issuing. So for every dollar in stablecoin they issue they buy a dollar's worth of US government debt in the form of treasury bills. There are variations on this but they are beyond the scope of this article for now. The consequence of this peg is that the stablecoin can be used as a currency unlike its more famous cousin bitcoin. This is because its intrinsic value does not fluctuate, one stablecoin dollar is worth one physical dollar and that will be true tomorrow, next week and next year.

Why should I care?

Anyone who interacts with money should care about this. We live in a digital world but our infrastructure for moving money around was designed and built for a different time. A time when centralised institutions couldn't possibly envision that their customers would have digitally connected glass screens in their pockets, screens that provide them with the ability to buy and sell at the tap of a button. 

The act of trading is in reality the movement of money and goods. The movement of goods was revolutionised by the likes of Amazon et al, but the movement of money, up until now, has remained largely stuck in the 20th century with some bandages applied. This matters, because those same centralised institutions are able to use their dominant position in the transmission of currency as a point of leverage to charge fees for moving money around. With limited competition and incumbency advantage those fees effectively act as a tax on anyone that wants to move money around which is basically everyone.

Stablecoins undermine these impediments in three important ways. 

• In order to own stablecoins, you just need a digital wallet; no need to define your identity to a corporate institution just to open an account. 
• Stablecoins are issued by centralised institutions but transmitted through a neutral, decentralised layer enabled by 'blockchains', effectively creating a market ‘payment networks’ that you can choose from. 
• Using the decentralised transmission layer incurs a bunch of advantages over older institutions transmission technology however the most obvious one being lower transaction fees.

It is these three points that have set tongues wagging. Digital wallets without the need for a real person allow AI agents to transact on behalf of their owner opening up 'agentic commerce'. The decentralised layer protects against the possibility of payments technology becoming another tool of coercive control on the geopolitical stage. Cheaper fees to move money means those in high finance or large institutions that move large amounts around can spend less doing business.

It is different this time…

The opportunity stablecoins represent is why Citigroup predicts that the issuance market for stablecoins could reach $1.9tn by 2030. Please note this is their base case, their bull case is $4tn. This will impact everyone regardless of whether their business is digitally native or not. There are already proven use cases of companies moving money across borders using stablecoins. Now international suppliers are invoicing in stablecoins it is only a matter of time before retailers are accepting payments using stablecoins.

Change management 

However, as with all transitions I do not predict that it will be a smooth one. Lessons will be learned along the way. For one, understanding how to manage the risk that comes with being responsible for your digital cash store in your own wallet requires a different approach to one in which your bank owns all the risk. In addition legislation is being drawn up internationally across various jurisdictions that will impact mainly issuers but also could place some requirements on a business that intends to use stablecoins.

As someone who has built my career through two major technological transitions. Having been responsible for strategy of how to manage the technical security risk as well as compliance risk for large tech companies during each, I feel uniquely placed to advise businesses large and small on how to take advantage of this one. This is why I have launched my own consultancy that specialises in all things digital product related in relation to 'crypto' and co-founded a payments data startup that is currently building in stealth to solve some of the challenges that I anticipate as the adoption of stablecoins scales.

If you think the future of money movement will impact you and your business and are interested in getting prepared technically or otherwise, reach out for a chat.