As we count down the remaining days of 2019, we wanted to lead off our final letter of the year with a deeper look at one of its biggest fintech trends: stablecoins.
So, what’s the Big Idea with stablecoins?
A “stablecoin” is a cryptocurrency that’s pegged to some underlying asset, whether it’s a sovereign currency like the U.S. Dollar, a commodity like gold, or even another cryptocurrency. Like other cryptocurrencies, stablecoins have the benefits that come with being a blockchain-based medium of exchange—such as costless transactions, short settlement times, and non-necessity of trusted intermediaries—without the volatility of exchange-traded tokens.
In other words, stablecoins provide users with a fast, efficient, online medium of exchange that is pegged to a “real-world” value despite existing apart from traditional financial markets.
- What it is: A digital token pegged to a stable, underlying asset. It allows for fast, blockchain-based exchange without the financial risks posed by high volatility.
- What it’s not: Bitcoin, Ethereum, or (heaven help you) DogeCoin.
Why should we care?
For now, stablecoins probably aren’t a meaningful part of your life. For now. But throughout 2019, we’ve seen signs from important, private and public global institutions that stablecoins may soon be coming to a transaction near you.
The best example of the growing private interest in stablecoins is the Facebook-initiated Libra project, which aims to establish a new cryptocurrency pegged to a basket of underlying global currencies and would be used to facilitate millions of dollars worth of payments on the Facebook platform. Although Libra’s future is murky thanks to significant regulatory pushback and the loss of several key partners, Libra doesn’t appear to be backing down on its plans to go live in 2020.
But Libra is not alone. Other firms have their own stablecoin projects, including Circle (which is pivoting its entire business to focus on its USD token in 2020) and Tether (itself no stranger to controversy), all trying to capitalize on a nascent market that could be highly valuable and lucrative at scale. Moreover, governments such as China, the UK, the European Union, and even the US have begun taking an interest in stablecoins, both from a regulatory perspective and potentially to issue their own in the hopes of losing out to private firms.
What to look out for?
Stablecoins have attracted more attention from news sources than any other single topic in fintech this year, and they seem poised to continue attracting attention well into 2020. We’re expecting to see plenty more regulatory scrutiny, though perhaps tempered by central banks’ own forays into digital currency and innovative approaches to compliance. Meanwhile, the interest from private parties should continue to grow as the market gets frothier and entrepreneurs spot opportunities to ride the wave jump-started by Libra. In any case, we suggest reading more about stablecoins, which may well be greasing the payments rails of the not-so-distant future.
Dear readers, we have a quick request: As we enter 2020, we plan to regularly roll out deeper dives on key topics, a more consistent approach to the intermittent “Big Idea” features we have run in the past. If you have any ideas for us, or anything you’d like to know more about, please drop us a note at firstname.lastname@example.org! – Team TFU