We have seen incredible exponential growth in the global economy within the past decade (2010–2020), much of which has been underpinned by the development and advancement of technologies and tools that didn’t exist before.
We can now say with certainty that we all live in a globally connected digital economy — a statement which would have had you laughed out of the room not even 20 years ago.
For the most part individuals, organizations, and governments have been willing or convinced to adopt and embrace new technological advancements. Broadband networks (3G → 4G → 5G), exploring beyond Web 2.0 and creating Web 3.0, cloud computing, etc. have been successful because all three groups had some form of incentive to use them.
This leads us to the introduction of blockchain protocols and applications — what they have promised, led us to believe, and delivered during their inception within this past decade.
We can define three groups when discussing blockchain technology — ironically it aligns well with the three groups (individuals, organizations, and governments) listed above.
- The evangelist. (“HODL”, “Onwards and Upwards!”). These individuals (and many times, groups) are early adopters of blockchain protocols and cryptocurrencies. They are very enthusiastic about blockchain, as they should be, and as a result, are the voices that the general populous hears from about the promises of what blockchain will deliver.
- The curious and experimenters. These organizations (and individual contributors) are the ones who have shown us what blockchain can do. This group, through their experimentation and development, form our collective understanding as to what we can currently do with blockchain and what we believe is possible.
The critics. Governments and Central Banks (legacy corporations as well to an extent) have largely been the biggest bodies of people with “power” critical of and worse, against blockchain technologies.
This is mostly the result of incentives not being in place for them to join Groups 1 & 2.
Adopting blockchain technologies pragmatically puts them in the position of ceding control over monetary policy and the rules/ability to govern the inflow and outflow of capital.
It is my personal opinion that blockchain protocols and applications have delivered on much of their “promises” thus far. Still, there is a lot of work left to be done to deliver on what is truly possible and driving alignment across stakeholders at all levels to achieve these promises.
What we will be discussing going forward is the idea and usage of Stablecoins, and how it will be the anchor of the new-age global economy.
What is Stablecoin?
Stablecoins are price-stable cryptocurrencies. This means the price for Stablecoins in the open market is pegged to another stable asset such as the US dollar (fiat), commodities like gold or silver, or other cryptocurrencies like Ether (i.e. MakerDAO). Examples of popular Stablecoins include Tether, TrueUSD, DAI and many more.
As a medium of exchange, it’s valuable to its users since the store of value is consistent and predictable. Cryptocurrencies such as Bitcoin, Ethereum, ZCash, and Ripple, for example, have not become the defacto medium of exchange as it was believed to be (instead, primarily being used for speculative investment purposes) due to their volatile price nature.
What functions do Stablecoins serve in the global economy?
The capital markets are extremely bullish on Stablecoins and their ability to bring efficiency, transparency, and consistency to settlements and trading both domestically and internationally.
1 in 3 adults worldwide does not have a bank account, most of whom live on a few dollars per day and do not meet minimum account balance requirements.
The ability to provide near-instantaneous settlement and trade confirmation through a stable medium of exchange that is highly liquid is the embodiment of true globalization.
We believe that the widespread adoption of Stablecoins will be the key piece for truly accepting new-age digital ecosystems and fuel the real-world usage of blockchain applications.
We would argue that the majority of utility tokens (read: ICO) don’t benefit the ecosystem/protocol they’ve been created to support better than an interoperable Stablecoin alternative would.
There is progress being made on this front. To date over 200 Stablecoins are being used across many different blockchains and protocols.
Why are Stablecoins important going forward, and delivering on the blockchain “promise”?
When we first started to learn about blockchain technologies and the ability to safely conduct peer-to-peer transactions without a third-party intermediary, we were most excited by the idea of cryptocurrencies boosting financial inclusion by reducing the global poor’s dependence on physical cash.
1 in 3 adults worldwide does not have a bank account, most of whom live on a few dollars per day and do not meet minimum account balance requirements. This problem is compounded by the limited reach of physical banking infrastructure around the world.
In times of conflict, Stablecoins allow anyone, anywhere to convert the value they hold in their local currency into a stable digital asset pegged to a more reliable fiat currency or commodity and flee corrupt, bankrupt and potentially dangerous regimes.
Adoption of Stablecoins and the applications being built around them (DeFi → Decentralized Finance), is our biggest hope yet to help bank the unbanked.
Sure, digital banking (the status quo) has evolved to the point where most people don’t need to interact with a physical bank anymore in developed societies through “open-banking” infrastructure.
But we would be remiss if we didn’t think about the other 50%. Stablecoins and newly launched high-profile projects such as Libra — being developed by Facebook — are evidence that we are finally thinking about simple singular global currencies and financial infrastructure that can empower billions of people worldwide.
When it comes to global payments and remittances, we have for a long time been prisoners to legacy payment infrastructure and intermediaries. However, we are now in a position where international remittances using Stablecoins and their distributed ledgers could eliminate the need for costly intermediaries, allowing for lower fees and immediate settlement (versus weeks and months).
In nations like Africa and Asia where yearly remittances values exceed hundreds of billions of dollars, the impact is massive. In times of conflict, Stablecoins allow anyone, anywhere to convert the value they hold in their local currency into a stable digital asset pegged to a more reliable fiat currency or commodity and flee corrupt, bankrupt and potentially dangerous regimes.
The thought of “programmable money” evolving complex corporate supply chains is powerful and likely necessary to thrive in the growing global economy.
Exciting times ahead
We are only scratching the surface on what is possible through Stablecoins, and the innovative financial services and abilities they can equip us with. It will be interesting to see how regulation, oversight, and involvement from large governing bodies evolve in 2020 and beyond.
Conversations are actively being had by the European Central Bank (ECB), AMF, IMF, G7, global consortium working groups and many others including the likes of Bill and Melinda Gates foundations regarding Stablecoins as a potential fiat-currency replacement. Onwards and Upwards?