Stablecoins’ Use Cases Still Emerging As Changes, Regulations Loom 

There is continued debate over the role of stablecoins – and where they fit within digital commerce, in both commercial and retail settings. These cryptos have at least one advantage over more “traditional” offerings like bitcoin, Ethereum and others: They (at least ostensibly) do not have that same level of volatility.

When a crypto is “backed” by cash or some other unit of reserve, there’s something to which one can peg pricing — price is no longer determined simply by what one is willing to pay, which can be speculative or even fanciful. Bitcoin can see movement up and down by several percentage points in the course of a day, or even an hour.

At a high level, stablecoins – especially those issued with a backing of U.S.-based liquid assets like dollars or Treasuries – have the “characteristics” of being backed by governments, and also have the immutability (and anonymity) of the blockchain.

Although we’re seeing some shifts in how stablecoins are, in a sense, regulating themselves – Circle’s USDC is now going to be backed by dollars and short-term Treasuries rather than a combination of those holdings and short-term commercial paper – we’re a long way from fully formed frameworks and use cases.

See also: Circle’s New Reserve Details Show Reservations Over Stablecoin Reserves 

U.S. Securities and Exchange Commission Chairman Gary Gensler noted in a speech earlier this month that the stablecoin market thus far is worth about $113 billion – and within that market, the coins are largely used to buy other cryptos across a variety of platforms.

The Regulatory Picture

But, as Gensler said in the speech, “the use of stablecoins on these platforms may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money laundering, tax compliance, sanctions and the like. This affects our national security, too.”

It seems Gensler is less than sanguine about the current uses and attractions of stablecoins, and it’s no secret that regulations are looming in the form of frameworks (yet to be developed), which will seek to answer basic questions as to whether stablecoins are to be treated strictly as currencies or as securities.

Related news: US Treasury’s Janet Yellen Presses For Stablecoin Regulations 

In an interview with Karen Webster, Circle CEO Jeremy Allaire said that “there are key pieces of infrastructure that have to fall into place that kind of light this up around the world” in order for cryptos to reach their “broadband moment.”

Read more: The Crypto Economy Prepares For Its Broadband Moment 

For now, at least, stablecoins are finding their firmest footing in the commercial realm, as the backing of national currencies (and thus a fixed exchange rate) provides some stability in settling transactions – and as the digital nature of the interactions (and the blockchain) speeds up those transactions and makes them transparent.

Indeed, a significant number of multinational firms are embracing cryptos in general, and stablecoins in particular. PYMNTS research has shown that more than half of multinationals have used cryptos – and of that tally, a bit less than a third have used stablecoins.

Learn more: 58 Pct Of Multinational Firms Are Using Cryptocurrency 

A challenge may be in the wings to stablecoins, in the form of central bank digital currencies (CBDCs). Any number of global economies, the U.S. included, are mulling, developing or actively deploying CBDCs. The private markets, so far, have largely had first-mover advantage in introducing “stable” digital coins that can be used in transactions. And with a CBDC offering, it’s conceivable that traditional banking intermediaries might still have a role in transactions (especially commercial or cross-border transactions). It remains to be seen whether the decentralized nature of the stablecoins will “win out” over CBDCs, or if the full weight of regulators and central banks will edge stablecoins aside.