The Future Of The Stablecoin Market
What is happening with stablecoins?
This is something that is of concern to many. It seems that with the implosion of UST, many are leery. Of course, it doesn't help that the typical FUDsters, politicians, bureaucrats, and bankers are all speaking out. Their stance obviously is not one of optimism.
There are reasons to be optimistic. Also, there is a good chance that the stablecoin industry does not unfold how people are envisioning.
In this article we will uncover some of the highlights along with our best guess as to what will happen.
CBDCs Not The Answer
Many feel that Central Bank Digital Currencies (CBDCs) are going to be the answer. Governments all over the world seem intent on implementing them. There is one exception and it does carry a bit of weight.
The United States Federal Reserve held a conference on the role of the USD and a panel discussed the idea of a CBDC for the USD. It was not very optimistic.
Panelists during the Federal Reserve’s recent conference on the US dollar on Tuesday appears to be less than impressed with the underlying technology of a CBDC, claiming that there is no urgent need to move ahead with the digital currency.
In a speech given in August 2021, Fed Governor Waller highlighted a few points that revealed what the Fed was thinking. It obviously has not changed.
His view is that stablecoins could play a role in the monetary and banking system:
If one or more stablecoin arrangements can develop a significant user base, they could become a major challenger to banks for processing payments. Importantly, payments using such stablecoins might be "free" in the sense that there would be no fee required to initiate or receive a payment.16 Accordingly, one can easily imagine that competition from stablecoins could pressure banks to reduce their markup for payment services.
This was stated when pondering the belief that CBDCs would achieve innovation in payments, insinuating the private sector is not already doing that.
The entire speech is worthy of a read yet here is his overall conclusion:
After exploring many possible problems that a CBDC could solve, I am left with the conclusion that a CBDC remains a solution in search of a problem.
Almost a year later, a panel put together by the Fed, the most powerful of central banks representing the global reserve currency, has not changed its stance.
There is no urgency to get out a CBDC because they are not the answer.
Expand The Reach Of The USD
Many mistakenly believe the USD is going to collapse. This is a common sentiment within crptocurrency, one that is repeatedly being proven wrong. As stated on a number of occasions, if anything is going to take out the USD, it best top it in these areas:
- infrastructure
- depth
- liquidity
- sophistication
Thus far, nothing even comes close.
In fact, what we are likely to see with stablecoins is only going to reinforce the standing. When we look at tokens such as USDC, we see it is only expanding the reach of the USD. For all the talk of going the opposite direction, cryptocurrency will actually enhance the scope of the USD.
Obviously not all transactions take place in the USD. There are many currencies throughout the world, all taking a piece of the global pie. However, the USD is the overwhelming leader in these areas:
- Collateralization
- Derivatives
- Payment System (What Governor Waller was referring to)
- Funding/Investment
Essentially, we are looking at hundreds of trillions of dollars at play here. Just the USD portion of global debt is estimated to be at $150 trillion.
Large numbers like these do not just disappear.
That said, we are going to have many stablecoins in the future. The idea of one dominating is not likely going forward.
Dozens Of Stablecoins
Over the next few years, we are going to see a lot of experimentation with stablecoins. The innovation is just getting started. Aave just announced they are bringing out their own USD-backed stablecoin called the GHO.
This is how a lot is going to unfold.
If we look at the raw numbers, we are going to need tens of trillions in stablecoins to adequately facilitate the volume of economic activity that is going to take place, especially with the digital world exploding.
For this reason, simple math shows we are not going to have just one or two dominant stablecoins. Instead, we are likely to see dozens created, with around 10 being major players. By this we could see those having 1 trillion units or more in circulation.
Also, we are going to see many, if not most, have the USD as the unit of account, even if it is not directly tied to it. This is what will merge into the hundreds of trillions globally in USD denominated assets.
In the digital realm, if we are trying to cross a river, no need to build just one major bridge. We have the capability to easily construct dozens of bridges to handle the traffic.
Where Does HBD Fit In?
Over the last year, a lot of attention was paid to the Hive Backed Dollar (HBD). What is its future?
The reality is that all stablecoins will travel the same path if successful. Ultimately, it all comes down to utility. That means building the infrastructure, providing depth and liquidity, and establishing sophistication around it.
At the same time, it will have to enhance it standing as a payment system, vehicle for investment, derivatives tied to it, and the collateralization for lending that is created.
Those that can capture the network effect, i.e. users, will see their reach expand. This, naturally, needs to be coupled with development and innovation. If HBD can see additional layers added, the utility will skyrocket.
This is the general trend the stablecoin market can take. We might not know the exact players but we can see some broad designed being established.
What are your thoughts? How do you see this playing out? Let us know in the comment section below.
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