The emergence of blockchain technology has appealed to several industry sectors due to its underlying features of transparency, decentralization, and security. Interestingly, the financial services sector is arguably the most potent use case of this technology as digital currencies or digital assets circulating over a blockchain network opens up several avenues for peer-to-peer payment systems. At the same time, this application is relevant for any other sector that requires financial and data transactions. For example, industries like shipping, maritime, logistics, supply chain, banking, etc. are all extremely relevant to the usage of digital assets in monetary form. Having said that, on a global scale, the adoption of this concept has been fairly sluggish due to several apprehensions among the potential adopters. Stablecoins might well serve as the answer to those apprehensions and serve as a bridge to drive the mainstream adoption of digital assets and digital currencies.
What are Stable Coins?
Stablecoins are a unique class of digital currencies that are pegged to the value of fiat currencies. These are generally backed by reserve assets. Stablecoins attempt to enhance price stability in the digital currency space as their values are tethered to fiat currencies which are considered to be much more stable in terms of price and value. All in all, stablecoins offer the best of both worlds – the promptness and security of digital currencies and the stability of fiat currencies. One of the first and largest stablecoins in terms of market cap was built on the Stellar USDC.
The Role of Stable Coins in the Mainstream Adoption of Digital Assets
The primary drawback of the legacy banking system involves three major issues
- Low Transaction speed when it comes to cross-border payments
- High Transaction fee for international payments
- Involvement of several middlemen, thus increasing the chances of financial mishaps
The concepts of digital assets and digital currencies solve this issue at the ground level as they are built on the foundations of decentralization. However, the major hindrance in the mass adoption of these concepts is the lack of stability in terms of the price and value of these assets.
Stablecoins poses the perfect answer to this scepticism by presenting a solution that addresses both ends of the sword. They inherit the features of digital assets that circulate over a blockchain network in terms of security, speed, transparency. At the same time, they maintain the stability of prices and value in a similar manner as a fiat currency would probably do, since stablecoins are pegged to the value of fiat currencies (or any other digital currency that is perceived to be stable in nature)
In this context, here is how stablecoins have the potential to address the scepticism about the mainstream adoption of digital assets and present a much more viable payments solution.
If drafted into the mainstream financial system, stablecoins will immediately do away with the following: Merchant fees, Overdraft fees, Money transfer wait time, Wire transfer fees, and monthly account maintenance fees.
Legacy banking systems charge a fee from all the stakeholders involved in a payments procedure since they do not have the incentive to waver the fee. This is because of the fact that banks spend a considerable amount of money in maintaining and operating a system like SWIFT which is globally used for cross-border payments. If stablecoins are introduced into the system, this cost will be drastically reduced as the banks’ only investment would be to set up a blockchain network (private or public depending on the requirement) that is smart contract enabled.
Ending Note
Stablecoins would serve both parties with equal robustness. Banks would stand a chance to lower their fixed costs and offer more lucrative services to their customer. At the same time, the public would be able to enjoy the benefits of digital assets without compromising on their need for price stability.
At Payment Porte, we are in the final stages of developing a platform that would encourage the usage of digital assets in real-life use cases like cross-border payments and more. In fact, we are also developing the proprietary Vessel ($VESL) stable coin, which has already been minted on the Steller Blockchain. The coin will be backed by a 100% reserve status and will be pegged to 1/28th of 1 gram of Physical Gold reserves. Stay tuned as we roll out more details about our project soon.