Stablecoins, specifically those which meet the prudential standards and are backed by a fiat currency or Central Bank Digital Currencies (CBDC), can offer a useful method of progression to the adoption of digital assets
Banks around the world (JP Morgan was the first one) are issuing their own digital currency known as commercial stable coins. The value of these coins is tied to the price of traditional fiat currencies.
Stablecoins are the bridge between fiat and the digital assets ecosystem. We are seeing a huge demand for stablecoins. Many credit card providers know that credit card use will reduce over time. Banks which want to be part of this new industry will bring the benefits of cross-border payments and remittances, as they are fully regulated and can implement this new form of money in a more secure way.
This technology waits for no one. Neobanks and fintechs are more agile and nimble to implement these innovative solutions. You just have to study what the DeFi protocols are achieving and learn from them and understand that the future of finance is here in the innovation brought about by the decentralised finance (DeFi protocols).
Customers who hold stablecoins will be able to earn higher interest (yield) by lending their digital assets to one of the DeFi protocols.
More cryptocurrency exchanges either centralised or decentralised will start tokenising securities as soon as regulatory clarity is achieved. There will also be new exchanges issuing native security tokens with all the benefits of peer to peer without intermediaries.
Cryptocurrency exchanges have the technology, the user experience that attracts retail investors and therefore they can achieve levels of liquidity that have not been possible by siloed legacy stock exchanges. These exchanges operate in the internet of value so it attracts investors from all over the world.
Central securities depositories (CSDs) rely on the volumes on the stock exchanges to survive. As there are so many options available on the Internet of Value to access capital without silos or walled gardens, I am not surprised to see that the number of listed companies in many stock exchanges is reducing at a rapid rate.
Five years ago, when I left the CSD, Strate (Pty) Ltd which I was in charge of, there were more than 600 listed companies on the Johannesburg Stock Exchange. Now there are fewer than 350 listed companies and year on year we are seeing more delistings than companies applying for listings.
It is interesting that it is easier and cheaper to raise capital via private equity and venture capital funds than via traditional stock exchanges.
Stablecoins will coexist with CBDC and central banks will have to ensure that all citizens are educated and trained to interact with a wallet once CBDCs are implemented.
THE FUTURE
Legacy and traditional financial market infrastructures won’t disappear in the same way that registrars (transfer agents) still exist even after we implemented the dematerialisation of share certificates. However, the legacy volumes will reduce in preference to distributed tokenised solutions with all the benefits it brings to issuers and investors. The creation of DAOs, which are decentralised autonomous organisations with no shareholders, management or boards of directors, will change the concept of the limited liability companies. The growth of the DeFi protocols created using a DAO legal infrastructure in open-source blockchains is what, I believe, legacy financial market infrastructures should be looking at and learning from them to innovate.
Author
Monica Singer CA(SA)
Blockchain Evangelist for Consensys