STABLECOINS – THE CRYPTO-FIAT HYBRID
Jerome Prigent Managing Director BCB Europe journey to becoming part of the mainstream international payments infrastructure, the financial benefits it can provide businesses make that journey almost unstoppable. ◆ through corporate treasury operations, billions transferred daily between companies, divisions and subsidiaries in different markets the benefits to the corporate market are huge. Whatever the challenges facing stablecoin in its partnership deals) also highlights one of the rare features of the digital assets market – the often-blurred lines between partnership and rivalry in the industry. It’s a theme that Tonkin believes is one of the distinguishing features of the market and one that is vital to recognise if all digital assets businesses are to thrive. “I have thought about this a lot,” says Tonkin. “Most of us are competitors in some way and there are some companies that we regard as pure rivals. But in many areas, and stablecoins in one of those, there is something more important going on. Take Circle, it could probably try to build its own network, but its doesn’t want to do that. It is very happy to help form the ecosystem. “I think there is a, perhaps unconscious, sense of partnership across crypto. We compete, but many, if not most of us see that the biggest potential is in growing the pie and not just trying to eat each other’s lunch,” says Tonkin. With billions of USD (and other currencies) managed Stablecoins provide a unique solution for efficient international payments because they combine the blockchain technology of cryptocurrency but offer greater stability in value. Rather than having an entirely free-floating value determined by investors or speculators, stablecoins are pegged to a specific currency, for example the USD or EUR. Reputable stablecoins maintain this close correlation with a fiat currency because they are backed by cash or near-cash assets such as government bonds. Ensuring that a stablecoin has the assets to support its fiat peg is one of the key tenets of its regulation in Europe. So, while the value of stablecoins can deviate slightly from the currency to which they are pegged, they are not subject to the same volatility seen with pure cryptocurrency. It is this peg to a fiat currency, combined with the payments and transfer efficiency possible with a digital currency, that creates the unique use-value of stablecoins. Transferring money across borders to overseas divisions or to pay suppliers can be a laborious and slow process. Traditional payments can take days or even weeks to complete. Banks’ protocols, regulation and creaking payments systems technology creates delays and costs. A typical international payment via SWIFT takes anything between two and five days, with the time taken varying depending on factors outside of any business’ control. For example, in any given SWIFT payment at least two banks are involved (and sometimes more), each with its own processes and priorities and each may also deduct a fee for their role in the transfer. Payments can also be delayed or made more complex by the domestic payment networks of individual countries. In contrast, stablecoins can be transferred instantly, at lower costs and more transparently than traditional bank-based payments networks. Payments and transfers by stablecoin can cut through the multiple systems and third parties involved i n traditional methods, offering a unified payments system available to any business making cross-border payments.
Most of us are competitors in some way and there are some companies that we regard as pure rivals. But in many areas, and stablecoins in one of those, there is something more important going on. Take Circle, it could probably try to build its own network, but its doesn’t want to do that. It is very happy to help form the ecosystem. Oliver Tonkin Meanwhile in the UK, Chancellor of the Exchequer Rachel Reeves has launched a consultation on domestic regulation of stablecoin with proposals that are less rigorous than Europe and yet not quite so freewheeling as those expected in the US. The challenge created by this uneven regulatory playing field was recently highlighted by BCB Group’s Deputy Chief Executive Tim Renew. Speaking on a stablecoin panel at the Money 20/20 conference in Asia, Renew contrasted stablecoin regulation with that for tradfi banking. “There is still a lack of standardisation from a regulatory perspective, globally. In banking, we see more coordinated policymaking—like the Basel Agreement. We need more of that with crypto,” Renew said. But despite these obstacles, the potential of stablecoins is too great to be derailed. The emergence of bank-backed and bank-issued stablecoins is seen by many as a further transformational development, creating fiat-pegged coins backed by established financial institutions. The lower cost and faster transactions that stablecoins can deliver are already proving a huge attraction to large organisations with significant treasury operations for whom payment delays and the transfer costs of traditional payment networks can amount to significant sums of money. The partnership between multiple companies in the Circle Payments Network (and many of BCB’s other
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