Stablecoins - The Evolution of Currency

🌐 Stablecoins - Currency Evolved

Stablecoins, tokens usually worth $1, will have an enormous impact on our financial future.

While they don't seem to be much different than dollars we use now, they have the benefits of:

• Progammability

• Instant Settlement

• Transparency

• Self custody

On top of that, Tether, the issuer of USDT, is incredibly profitable. $4.5 Billion net profit in Q1 2024.

You have to think more fintech companies and banks will join in to issue their own stablecoins.

1. We can describe and learn a little more about stablecoins.

2. We'll talk about who is using them and why.

3. And then we'll go into the apparent and possible futures for stabelcoins, and what it means for you.
   

If you want to go even deeper to learn, check out our course on Stablecoins inside our community

Let's Dive In

So far, stablecoins have been the killer app for blockchain technology.

A crypto worth one dollar!

Something we know, but built on new technology.

In reality, stablecoins are just latest evolution of currency.

Why do we need them? The Crypto Perspective

When Bitcoin was created, part of the excitement was the ability to send money anywhere, anytime.

Next came Smart Contract networks like Ethereum, which gave us the ability to set rules for our transactions.

When my shipment arrives at your warehouse, I'll get paid immediately.

No more going through invoices sent back and forth. No more paying and waiting for wire transfers.

But the problem was crypto assets were, and still are, volatile in value.

For commerce to work, we need a medium of exchange we know. One that remains pretty stable.

Why would we use stablecoins over dollars?

I get it.

Most of us in the Western World can use credit cards, debit cards, Venmo, Zelle, etc.

A few benefits to programmable dollars:

Instant Settlement

For most financial transactions, the settlement - the money moving from my account to the vendor's account - take a few business days.

It might not seem like a big deal, but the difference in cash flows when we're talking billions in daily settlements is significant.

For the coffee shop to have access to their revenue the moment I buy my coffee is helpful.

Programmability

I talked above about Smart Contracts. When we try to create programs with dollars, like monthly subscriptions, we're really using APIs to connect bank accounts.

The ability to natively program the dollars to do what we want, when we want opens up new use cases (like streaming payments), and opportunities.

Custody

If I want to own stablecoins, I don't need a bank account, or any account.

I just need a digital wallet.

My dollars won't be part of a bank's balance sheet. I have full control over my dollars. I can send them to anyone, anytime.

Stability

So many people in the world prefer to hold dollars over their own currency.

Theirs might be devalued regularly as part of their government's economic plan.

Or they can't trust their banks or banking regulations.

We've already seen the data. More people in the developing world are using bitcoin to settle international transactions.

Citizens of Argentina, Venezuela, and Turkey have been holding and transacting in stablecoins for a few years. Their lives have included currency devaluation and government upheaval.

They’re all too happy to hold digital dollars in their wallets.

The Evolution

You might be thinking, "I'm fine with cards or Venmo. I don't need the blockchain dollar."

That sentiment is uttered for every move forward in money.

Someone didn't like the move from gold coins to bank notes.

Someone else wasn't happy with bank notes to checks.

Then there were credit cards.

Now we can pay by touching the supercomputer in our pocket.

Each move gave us more flexibility, and increased global commerce.

This one won't be any different.

The Stablecoin Options

Right now we have stables backed by fiat currency - Tether, USDC, PayPal USD

We also have stablecoins backed by onchain assets - DAI, FraxUSD

To better understand the different options, check out the course in our community

Why hasn't there been more adoption?

Until recently, if you wanted to pay in a stablecoin, the main option was to send USDC or USDT straight from your wallet to a vendor's wallet. The vendor had to have a wallet address, or a third-party app.

So most vendors haven’t had the capability to accept them as payment for goods and services.

Recently, however, PayPal and Stripe have given the ability for vendors to accept payment in stablecoins. The vendors don't have to add new software or apps.

Visa and Mastercard have even started settling transactions on public blockchains using stablecoins.

So, whether you think there's a need for them or not, the biggest payment processors in the world are moving to stablecoin settlement

Future of Stablecoins

We'll start to see more bank- and fintech-issued stablecoins.

We've already seen PayPal, a giant in payment processing, create their own. They get to hold US Treasuries, and earn risk-free return against the tokens issued.

Tether is one of the most profitable organizations on the planet.

New potential stablecoin legislation will have an effect on the growth of issuers.

I imagine banks would love to take in your dollars, and issue tokens against them.

We'll also see stables pegged to other currencies, like the Euro.

Banks and other issuers will also start accepting other assets - commodities, tokenized equities, even carbon credits - as collateral for stablecoin issuance.

How different is that from the days of the Medici? Bring us your gold, and we'll give you a bank note.

More ability to spend stablecoins, will lead to more people earning their income in stables. In a decade, it won't be uncommon for me to receive my salary straight to my digital wallet.

By the way, the digital wallet technology will get better as well. They’ll seem more like bank apps than crypto apps.

For that matter, the programmability will even make streaming salary more common. I'll literally get paid by the second.

And regardless of what the government says now, stablecoins pegged to a dollar are good for the dollar.

Issuers are the 16th largest holders of US Treasuries.

Stables are a great distribution system for the dollar. How else are we going to get citizens of Argentina, Turkey, and Venezuela to casually adopt the dollar?

Adoption of stablecoin usage will also impact the blockchain networks. Each transaction on Ethereum, or a layer2, requires ETH. Each transaction on Solana requires SOL.

Summary

The move to programmable dollars is inevitable.

When the legislators and regulators get out of the way, or at least give us some guidance, the floodgates will open.

Nothing you really need to do now, except have the open mind you’re already showing. We always more toward more control and transparency.

If you want to get a digital wallet, and start playing with stablecoins, hop on in. Send some. Check out some metrics. Jump into DeFi.

And be prepared for the change to programmable money.

Have a great week

Adam