(Stablecoins’ Role in Developing a More Mature Crypto Market)
Ilya Volkov, CEO and Co-founder of YouHodler
Everyone working in the blockchain industry today owes a large debt of gratitude to Bitcoin. Bitcoin opened the gateway for affordable and fast payment networks to operate without the need for a middleman. Without Bitcoin, likely, the industry is not where it is today.
That being said, Bitcoin is not the future of blockchain-based virtual payments. It provided a nice foundation but in reality, the one to carry the torch to mass adoption is stablecoins.
Digital cash vs. digital gold
Many will look at Bitcoin’s price, and its market capitalization and disagree with the above statement. Without a doubt, bitcoin has become very successful if you look at its price appreciation. That cannot be denied.
One can also make a strong argument that Bitcoin is an excellent store of value akin to precious metals. However, “digital gold” is not what’s going to make inspire mass adoption of blockchain technology. “Digital cash” is.
That’s where stablecoins come in. Stablecoins are easily transferable just like cash. Anyone using the blockchain can send and receive stablecoins for any transaction. Furthermore, since stablecoins are cryptocurrencies pegged to underlying assets – like the U.S. dollar – stablecoin holders can redeem their coins for that underlying asset at any time.
The use case is undeniable – which is why hundreds of private institutions have issued stablecoins. At the time of writing, Tether (USDT) is the most popular stablecoin with a market cap of $80 million. Stablecoins have had such an impact that the largest companies in the world – followed by the largest governments – began to make their versions.
The evolution from stablecoins to CBDCs
Facebook attempted to launch its stablecoin (Diem) and surely other Big Tech companies will follow suit. Furthermore central banks around the world are speeding up government-backed stablecoin initiatives. These central bank-backed digital currencies (CBDC) are generally considered a safer option as they are backed by central banks and not private institutions such as Tether (USDT), Circle (USDC) and others.
In recent months, CBDCs have gained even more traction in the aftermath of regional bank collapses like Silicon Valley Bank. This suggests that not only are CBDCs safer than private stablecoins, but they are even safer than holding cash at a bank.
Those collapses showed – yet again – that banks can run out of money. It made depositors think “why should we hold cash at a private bank when we have the option of holding it at the central bank that controls all cash itself?” That’s the benefit of CBDCs.
Regulation: the key to mass adoption
With stablecoin benefits drawing attention from central banks, this also included interest from regulatory bodies. Regulation is what will make or break the mass adoption of digital currencies.
To this day, there are still significant money laundering and KYC risks involved with public networks like blockchains. In February of 2022, the U.S. Department of Justice made a record cryptocurrency seizure of $4.5 billion – arresting a New York couple for their involvement in money laundering from a cryptocurrency exchange.
Regulators are worried this will continue to happen – as they are worried about private stablecoin issuers getting too large before a regulatory framework is in place.
Hence, a variety of task forces have started publishing rules on how to combat these issues. It’s only a matter of time before these rules become an official, global framework. Despite the controversy surrounding more regulation, this will overall be helpful for the industry.
A properly built framework will protect the everyday person from the risks that public payment networks present while simultaneously offering the advantages of digital assets with cash-like abilities. If this is achieved, a future with instant and frictionless payments is possible.
It will open the door to new ways of commerce that were never before possible. Stablecoins and CBDCs will become the new foundation for Web3 financial architecture. While Bitcoin did a lot to get us here, there is a reason people are still buying coffee with cash. There is a reason governments are not scrambling to build their own version of Bitcoin.
Stablecoins are the future of this industry – but we still have a long way to go. A lot will depend on how the different regulators adjust to stablecoins and if they embrace or deny them. At the moment, a world with complete digital finance is in sight. Stablecoins are the most efficient path there. Now, let’s see which players decide to take that path of least resistance.
Ilya Volkov is the CEO and co-founder of YouHodler, a Swiss-based Web3 platform providing innovative fintech solutions that bridge fiat and crypto financial services. With over 17 years in the fintech industry, his expertise covers commercial finance, online trading, and Web3 financial services. Ilya is a Board member of Switzerland’s Crypto Valley Association and serves as an ambassador for Innovaud, an agency promoting innovation and investment in the canton of Vaud, Switzerland.