Could stablecoin be an idea whose time has arrived? The industry remains niche in terms of overall value, but as more competitors test the ground to enter the field – including large central banks in some countries like Sweden – the conversation has rapidly developed into what could be suggested to be an inevitability.
Stablecoins – in this case, cryptocurrency tied directly to the US Dollar – could change the way consumers and businesses alike make payments, through finally touching the last of the major elements of the US payments system that has yet to undergo the digital revolution: the rails that actually handle the backend transfers.
“The question is this: how do you create a high-quality institutional stablecoin that regulators can get behind, that consumers can have a role in?” said Nick Cavet, Core Team Contributor for digital currency startup CoinFX, in a recent meeting of the Chicago Payments Forum. “That’s supposed to be the case with the Federal Reserve, right? The interesting thing from my perspective is that the Fed was never designed for the internet, and was never designed for the global market. How do we create a new paradigm for that?”
For CoinFX, the use case ideas are numerous but relatively straightforward — by and large, consumers’ payments needs haven’t fundamentally changed, but the speed and simplicity at which those needs can be met is an area long past due for innovation.
“Cryptocurrency exchange is probably the most simple,” Cavet said. “Anyone might want to use stablecoins for payroll, dealing with fiat instruments and cryptocurrencies. Having access to a stablecoin helps them with treasury management to reconcile into dollars.
“A very simple use case would just be, I’m a U.S.-based company with employees in Canada. I want to pay my employees in Canadian stablecoins.”
And the need to meet that demand is only growing – even in the staunchly traditional institutional sector. The signs that banks are going to need to innovate along digital lines and currency exchange lines become clearer and clearer by the day.
“Banks are seeing a lot of money flow out of their accounts into Coinbase, and saying, ‘What are we going to do to keep these assets in house?'” Cavet said. “Look, long term, banks are there to serve consumers and businesses, so if consumers and businesses drive demand for digital assets, institutions will have to adapt to that.”
Policymakers and regulators are scrambling on all fronts to bring digital assets into the fold. “I think the most interesting thing is the OCC charter letter, which essentially would permit banks to issue stablecoins and participate in node structure activities.”
And it’s innovation that banks would do well to heed, because the nature of their business is likely to change – as inexpensive, rapid payments become available globally for the price of access to a smartphone, bank branches are looking like they will go the way of shopping malls and Blockbuster Video stores . Cheaper, faster technology always wins.