Stablecoins are once again in focus as regulation continues to make its way through Congress and payments giant PayPal launched its token.
This signals increasing interest in this niche of the cryptospace and what the future may look like.
We reached out to experts who gave us their views and takes on what the reemergence of stablecoins in the crypto discussion may have on the global economy.
It may seem a small start, but it shows that the world is paying attention to the cryptospace and to stablecoins, in particular.
Here’s what they had to say.
Christopher Alexander, Chief Analytics Officer of Pioneer Development Group
“Stablecoins are the single most powerful tool for crypto adoption in the US. They allow people to gain crypto literacy without the perceived stigma or risk of crypto. The biggest hurdle we can expect in the future is the proliferation of different stable coins. The crypto curious are probably going to confused by that at first. However, it is a problem that can easily be overcome.”
Felix Shipkevich Special Professor of Law at Hofstra University
“As stablecoins gain more attention, there is greater concern about the potential ways these digital tokens could impact the future economy. I am of the opinion that stablecoins could become important tools that connect traditional finance with the digital economy. Stablecoins can make consumer transactions faster and cheaper while effectively providing settlement tools. Additionally, I believe that stablecoins might make it easier to do business across borders, thanks to their quick transactions and potential cost savings. Stablecoins could help consumers who do not have access to traditional banks by enabling them to send money globally and use financial services.
Of course, we need to be mindful about the growth and oversight of stablecoins. I am concerned about properly regulating stablecoin issuers. We need to know more about who controls money, how regulations are followed, and whether there might be risks to the whole financial system. To address these concerns, I support finding a balance between private innovation and public rules. While the exact roles of stablecoins in the economy are still uncertain, these discussions highlight their potential to bring big changes.”
Hamid Pishdadian, the CEO and Founder, SQE Holdings
“Stablecoins will eventually become a standard means of transaction. A true stablecoin has many potential values and uses, but it can be especially effective in the banking and travel spaces. It has more liquidity than gold does, but its stability also means you don’t need to worry about it sharply losing value. In a sense, it’s digital gold. Travel is a great example of a commercial use. A stablecoin that’s accepted worldwide means people wouldn’t need to convert money when traveling abroad and would be able to avoid the high fees associated with doing so.
There are a few reasons why these use-cases haven’t really happened yet. One is that crypto transaction fees are still relatively high. As they come down over time, and as coins become stable enough, they’ll become more integrated. Another issue is that it’s still not easy to exchange these coins back into fiat currency. Liquidity when you are trying to buy with a stablecoin is important, but it also needs to be there when you want to convert it back.”
Marcin Kaźmierczak, COO and Co-founder of RedStone Oracles and Warp Contracts
“Stablecoins have quickly become a fundamental layer of the digital assets ecosystem, offering stability and minimising price fluctuations. The most popular stablecoins, like USDT, USDC, and BUSD, are backed by fiat currencies and rely on centralised institutions holding reserves of these currencies. With PayPal launching their own dollar-backed stablecoin, based on Paxos technology, this week, we could very well be on the precipice of wider adoption, in promoting greater levels of financial inclusion, more efficient cross-border transactions, and increased transparency and security within the digital economy. From my perspective, the sole role of a well functioning stablecoin lies in its ability to maintain stability within a fluctuating market, as severe market downturns truly assess the efficacy of a particular model.
On the more technical side, Oracles are somewhat of an unsung hero when it comes to the viability of the CDP and algo stablecoin ecosystem. They play a pivotal role in supplying up-to-the-minute price information to uphold the soundness of collateral and upholding the credibility of these types of stablecoin. On top of that, Oracles price feed for stablecoins are used across DeFi to value collateral – on paper it should be always $1 but there are slight or larger depegs. At RedStone, we recently announced Oracle support for Aave’s Stablecoin GHO price feed, meaning that the GHO token’s price will be regularly updated and verified by a robust and cross-chain Oracle. This ensures accurate and reliable pricing information for users and platforms relying on GHO’s value, such as DeFi protocols, smart contracts, and decentralized applications. We also recently launched our Stablecoins Report: The Ultimate 2023 Market Overview, which provides a comprehensive analysis of the stablecoin market in 2023.”
Mel Mattison, FinTech & Financial Services Author and Expert
“Stablecoin benefits can generally be broken down into two broad categories: practical and ideological. On the practical side, they offer potentially significant cost-reduction as well as timeliness, ease of use, and potential interest-bearing benefits. On the ideological side, they appeal to those who want to break from the traditional banking system and who put a high value on privacy and control.
More specifically, the primary cost reduction aspect of stablecoins lies in the hidden tax that all of us pay whenever we use traditional payment mechanisms like credit cards. Retailers all pay a fee, normally around 2 or 2.5%, on the backend to companies like Visa and Mastercard. These fees, while not paid directly by the consumer, are nonetheless factored into pricing decisions. Were they to disappear or become negligible with the use of token networks such as Polygon, this savings would eventually be passed through to the consumer. While it may not sound like much, a 2% reduction in prices almost across the board would be meaningful to consumers over the course of their lifetime.
Also on the practical side, stablecoins offer almost immediate payment or settlement, available 24/7. Unlike costly wires which are only available at certain times or ACH transactions that settle in days, stablecoin transfers can be handled immediately. Imagine getting your paycheck the moment the money leaves your employer’s bank account instead of three days later. The benefit is clear, especially in today’s interest rate environment where some stablecoins can offer as much as 5% interest. This automatic investment of one’s money in short-term debt, specifically T bills issued by the US Treasury, allows consumers a clear advantage over checking accounts which often offer just a fraction of the going market interest rate.
Lastly, with the use of personal e-wallets, transactions can occur outside of the traditional banking world and, if desired, with relative anonymity. For those inclined to view what they spend their money on as a private matter, stablecoins offer real value. What’s more, with the use of specialized coins like Glo Dollar (USDGLO), users can automatically divert interest derived from the T Bills backing the stablecoin into charitable donations.”
Dave Birnbaum, Vice President, Director of Product at Coinbits
“Stablecoins will play an important role in financial innovation for the next 5 to 10 years. This period is unique in that cryptocurrency infrastructure will have matured such that global financial networks will be able to utilize cryptocurrency tokens, but world reserve currencies like the US dollar, euro, and Japanese yen will not yet have been replaced with their CBDC equivalents. Stablecoins allow financial institutions to take advantage of the efficiency and speed provided by cryptocurrencies while the underlying assets to which they are pegged continue to exist in parallel.
Central banks and governments see this as a transitional step on the way to fully digital sovereign currency. Once CBDCs are ready, central banks will simply stop issuing the assets that back stablecoins, and stablecoins will no longer have a purpose.”
Bernhard Blaha, Co-Founder of the Austrian Digital Asset Association and CEO of The People’s SCE,CEO eCredits
“The rise of stablecoins is driving the growth toward an increasingly globalized economy that will more heavily rely on digital assets and bring greater financial inclusion and opportunities to people around the world.
As major players like PayPal continue to issue stablecoins of their own, governments will need to respond with adequate regulation and guidelines to ensure they meet appropriate safety standards. Greater regulatory clarity will encourage greater adoption because projects will know how they can issue stablecoins in a compliant manner, without facing repercussions. Furthermore, as was the case when large institutional players like BlackRock demonstrated support for the crypto industry, the participation of big names like PayPal infuses confidence and interest in the market. This, in turn, will cause our global economy come to rely more heavily on digital assets and open up financial inclusion to all.
In other words, while it is important to remain true to the ethos of crypto and remove the barriers to entry to financial services, the participation of these big players will help propel adoption, especially as they continue to introduce these to their customers. They should, however, follow in the footsteps of existing stablecoin providers like Circle, who have made transparency a priority, providing reassurance and establishing trust.
Additionally, with a greater reliance on digital assets, specifically stablecoins, globally, we’ll see much greater financial inclusion on a scale we’ve never seen before. Because stablecoins enable transparent, quick and low-cost transactions, they will unlock new markets for merchants and businesses around the world. Businesses in Asia will be able to more easily and effectively tap into markets in Latin America, for instance. Supported by an increase in regulation, stablecoins will bring more seamless, cost-effective and secure payments to the global economy.
Already, stablecoins have become a staple of the cryptocommunity, offering the benefits of cryptocurrencies without most of their disadvantages. This is shown by the fact, that the largest stablecurrency alone, USDT, makes up 2% of the entire market capitalization of cryptocurrencies. Microtransactions, cross-border transactions and generally moving around the landscape of web3 services without much financial exposure become substantially easier thanks to stablecurrencies.
These benefits, however, come at a price: The issuers of stablecurrencies are largely unregulated and not supervised by any competent authority. This is shown by the examples of Tether Holdings, who has been proven to not have had the 1:1 backing required for a stablecoin to be stable at all times, but also by more transparent players like Circle, who had substantial exposure during the bankruptcy of an American bank, where losses where only avoided due to the US government covering for the banks’ lack of funds.
Of course, stablecoins will continue to face challenges. Despite advances such as MiCA, there is still a general lack of regulation and guardrails to guide their safe issuance and usage. This is why we’re also seeing major banks explore deposit tokens as an alternative to stablecoins because they are considered more reliable and already have regulations in place to support them. While deposit tokens will be incredibly powerful in bringing hedge funds and institutional investors into the crypto market, they have several drawbacks when compared to stablecoins, such as the need for a bank account and hurdles in everyday usage. Once adequate regulation has been implemented around stablecoins, we’ll see interest migrate back to these as they will be the true driver of greater adoption and the global financial revolution.”
James Koutoulas, President and Co-Founder of the Commodity Customer Coalition
Ramani Ramachandran, CEO and Co-Founder of Router Protocol
“Stablecoins have already started becoming extremely popular in South America and Asia – places where inflation is a major concern and where people are searching for alternative currencies to transact in regularly. Stablecoins bring the benefits of cryptocurrency without the volatile price swings, making them perfect for this use case.
I believe stablecoins will continue to be a major aspect of the blockchain space. We’ve already seen plenty of interest from institutional investors during the last bull market. As stablecoins get more popular, they will play an increasingly important role in the economy.
It would be no surprise if more residents of underperforming economies experiencing exceedingly high inflation rates began relying on stablecoins as a means of everyday transactions. Alongside Bitcoin, merchants and businesses will probably accept stablecoins for fast and cheap transactions.
On a broader scale, we could see stablecoins becoming a major proponent of global economies. Not just in everyday transactions, but playing a similar role as major banks and investment funds. As more people use them, more assets will have to be purchased to back the assets. This could mean Circle, the USDC issuer, ends up owning lots of real estate, treasury bonds, treasury bills, or other traditional assets.
It will be extremely interesting to see how stablecoins shape economies around the world, from both a typical consumer and government perspective.”
Josip Rupena, Mortgage and Financial Expert, Founder and CEO at Milo
“One of the hottest and most recent topics in this area has been PayPal’s stablecoin launch. While this is more niche compared to your overarching topic, I wanted to provide you with commentary from mortgage and financial expert Josip Rupena, who is the founder and CEO of Milo – a financial technology company that offers home loans to global and crypto consumers.”
What is the significance of the launch for the crypto/stablecoin space globally?
“PayPal’s stablecoin launch marks a transformative moment in the global financial landscape. It’s not just about a new product; it’s a ringing endorsement of the integration between the evolving digital currency domain and the established financial systems. As one of the most recognized names in the fintech sector, PayPal’s entrance adds considerable weight to the legitimacy and potential of digital currencies. At Milo, we’ve navigated this convergence from the outset. We’ve always perceived a future where cryptocurrencies and traditional finance mechanisms don’t just coexist but interlace to create innovative solutions for a global clientele. The significance of PayPal’s move is twofold: it offers a robust use-case for other major players to consider crypto integrations and also establishes a strong foundation of trust for consumers who might be on the fence about crypto’s viability in mainstream transactions.”
What impact could this have on stablecoin adoption?
“Stablecoins, with their inherent stability derived from pegging to traditional assets, have long been seen as the bridge between volatile cryptocurrencies and the fiat currency world. PayPal’s initiation into this space is poised to drastically accelerate stablecoin adoption among everyday users. With its extensive user base and global presence, PayPal has the potential to make stablecoin transactions as commonplace as using debit or credit cards. For businesses like Milo, this broadening acceptance is a reinforcing signal. We’ve not only adopted but innovated in this space, with our crypto mortgages making waves in the real estate sector. Further, our much-anticipated crypto loan product is aligned with this industry trajectory, aiming to provide a seamless experience for crypto investors. As more giants like PayPal embrace stablecoins, the entire crypto ecosystem stands to benefit, expanding the horizons of what’s possible and accessible for both businesses and consumers.”
Nikita Buzov, CEO & Founder of Solace
“Stablecoins are delivering the innovation that the old fiat infrastructure couldn’t – cheap and fast transfers available 24/7 anywhere in the world. We’ve already been seeing this adoption growing over the last years in many countries, especially for international transfers or in countries with limited banking access. A great example would be how popular and widespread the use of USDT on Tron is. I have personally used that to get local currencies when traveling abroad, it just happened to be the most convenient way in some countries for a foreigner.
Although on- and off-ramps present certain user experience challenges, the benefits gained frequently outweigh these disadvantages. Consequently, individuals in non-Western regions have embraced stablecoins for such transfers. While I don’t specifically endorse USDT or Tron, given the array of robust competitors with comparable functionalities, the initial momentum and user interest in this technology suggests the continued expansion of the stablecoin landscape.
While on- and off-ramps still pose some UX complexities, the value users get often exceeds any hurdles, and so people outside of the Western world have adopted the use of stablecoins for these types of transfers. I don’t necessarily endorse USDT nor Tron, as there are numerous other strong competitors offering similar use cases, but the early traction and user demand for the technology can indicate where the stablecoins space will continue to grow.
We also see many central banks working on their version of stablecoins and CBDCs, so, moving forward, I expect this technology getting further integrated into our daily lives. A major frontier in the coming years is unlocking payments. Because at the moment it’s still very challenging to buy something at a store and solutions are half-baked compared to cards like Visa and Mastercard. Another move was just recently announced by PayPal. With the introduction of PYUSD stablecoin. The backend infrastructure of dollar transfers will get much more accessible for PayPal’s user base, which counts hundreds of millions globally.
Ultimately, as more governments, corporations, and decentralized networks will introduce their versions of stablecoins and improve the user experience, the global landscape of currencies will see a major transition to more accessible and digitally native forms of payments and value transfer. Therefore, I expect that stablecoin payments for daily purchases will become more common in the coming years.”
John Patrick Mullin, Co-Founder at SOMA.finance
Do you think more crypto companies would turn towards PYUSD over other non-regulated stablecoins and even market leaders like USDT and USDC?
“Personally, I think that the launch of PYUSD will be a successful one, considering that PayPal has a well-sized user base of over 450 million users. This is significantly larger than any of the other market leader stablecoins such as USDT or USDC, so if they’re able to convert a lot of their existing user base into using PYUSD, that will obviously have a big effect on general stablecoin adoption in the industry.
That being said, I don’t necessarily think that the launch of PYUSD will bring about the death of USDC. USDC adoption is still high, with it being used throughout the crypto industry both in the United States and now seeing increasing use abroad. It seems that they’re trying to push a more international strategy, similar to what USDT has done in the past. USDT is very much an international stablecoin and is used widely outside of the US. What I can see happening is that PYUSD will be used primarily in the US, with other stablecoins continuing to be used in international markets outside of the US.”
Do you think PayPal’s decision to enter the stablecoin market might prompt other payment processors like Visa and Mastercard towards more niche crypto payment solutions?
“I do believe that this will have an impact – it’s good that PayPal was able to make the first step.
That being said, it will be interesting to see if there’s any sort of CBDC (central bank digital currency) adoption in the United States and how that would impact private companies going forward. This is obviously a hot topic in the upcoming election cycle, but we’ll need to see if there is any real impact on private markets or if it’s just going to be more of an institutionally-focused CBDC.
Depending on that Visa and Mastercard might decide to launch their own stablecoins after observing reception to PYUSD as a case study to test the waters. Depending on how that goes they might decide that having their own stablecoin might not make sense.”
What are your thoughts on some early code vulnerabilities and centralization concerns around the stablecoin with some suggesting Paypal can wipe out customer balance in just two commands?
“I think this is an interesting discussion point – it could be viewed as a bit of FUD (fear, uncertainty, doubt). Other stablecoins, including, USDT and USDC, have security measures in place like blacklisting and pausing functions, so it’s not necessarily a unique function that PYUSD would make use of. In fact, most stablecoins that are fiat-backed have this function in place as well, so it isn’t really a big concern.
If you’re backing a stablecoin to fiat currencies you need to have some ability to reconcile and make sure that your stablecoin issuances match the fiat balances backing it. That means that you’re going to have some degree of centralization involved – they’re not necessarily fully decentralized stablecoins and that’s not really the use case. There will be other decentralized stablecoins, although they haven’t fared well in the past. Each stablecoin has their own specific niche and use case, so it depends on how PayPal will make use of PYUSD in future.”
Pavel Matveev, CEO and Co-Founder at Wirex
“At Wirex, we’ve always firmly believed in the potential of the digital economy. We think it can outdo the traditional economy, despite many doubting that cryptocurrencies can be really unstable and are up to that task.
Still, stablecoins seem like the smartest choice for the future of payments. They were designed to handle the issue of volatility head-on. Stablecoins offer you such benefits as fast transactions and low fees – but without price swings.
The perks of using cryptocurrency, especially stablecoins, are hard to ignore. To keep up in the fintech industry, businesses need to get on board with using crypto.
Look at what happened when PayPal introduced its own stablecoin – that really shook things up. Having a well-known name behind a token gives it an advantage, and stablecoins have their own benefits over other cryptocurrencies.
For people who worry about the ups and downs of cryptocurrencies, stablecoins are a great choice and are seen as the future of the global economy.”
Sebastien Davies, Vice President, Research at Aquanow
“We’re witnessing a powerful shift in stablecoins. The technology is moving from being predominantly offshore or decentralized in nature towards being offered by institutions that are critical pieces of the financial tapestry. This shift unlocks programmable money functionality, which was previously limited to the crypto world. Instantaneous and inexpensive capital transfers will soon have an impact on mainstream markets. Increased participation from major technology platforms and financial institutions helps validate digital assets, while also providing new revenue streams and enhancing global liquidity.
Branded, platform-based stablecoins have the potential to increase consumer engagement and spending activity. For example, the technology enables economically viable micropayments, which could be incorporated across popular social channels as a means of rewarding content creators. Increased velocity of money tends to be associated with a healthy and growing economy. What’s potentially most interesting is that the internet is generally borderless, so the rise in consumer activity can be exported to developing countries easily.
As we transition towards an environment where stablecoins have clearer regulation, their continued development can be carried out under policymaker oversight. This is likely to slow the pace of innovation, but it might also help reduce the dramatic market fluctuations that are typical in crypto. Traditional financial institutions are experts in navigating regulations, so their eventual adoption of the technology could help guide stablecoin advancement while reducing systemic risks. However, the current financial order is prone to periods of systemic volatility as well, so regulations will have to be implemented thoughtfully given the potential for increased financial integration across borderless platforms.
Because crypto is global in nature, there is a risk that different policies across countries could create inefficiencies. At a time when geopolitical tensions are high, a coordinated approach to stablecoin oversight seems unlikely. However, it will be important to develop some framework for managing the risk of greater political influence in the global capital markets. Widespread stablecoin adoption would increase financial inclusion and permit easier money flows across borders, but this might not be desired by all governments. A potential outcome would be reduced international cooperation and higher wealth inequality.”