We know that we’re living in exciting times when we witness the emergence of the next generation of financial tools. Over the last century, we have seen more changes to monetary systems than during the previous millennium, with the technology-fueled progress accelerating drastically towards the end of the 20th century.
The emergence of a cryptocurrency over the last decade has not only introduced investors to new ways of making money but has also given them a unique opportunity to make the “quantum leap” into the future of global finance. Although the adoption of underlying blockchain technology comes in various fields, the financial industry is a classic that will never die: gold is still believed to be the ultimate storage value and fiat currency or cash are still the main payment means for day-to-day life. While we are going deeper into possible mainstream use cases and more opportunities arise, we need to remember that era of neo banking, cryptocurrency is not an alien disruption force, but rather the transitional step from balance sheet risk towards network risk. Stablecoins, as the latest link of this digital asset evolution, have emerged to provide a true E-currency 2.0 advent.
While 2017 was the year of Bitcoin and altcoin flight to the moon, which ended up in lucrative gains for the crypto community, 2020 will definitely be more about cryptocurrency use cases. The latest ECB statement regarding CBDC advent and the projects developed by private companies clearly indicates that the interest in stablecoin solutions has risen greatly during the last year and not only in the private sector.
To avoid the fear of an imminent shift to the new digital money era one should realize that the actual most available supply already exists in digital-only format. Physical money is already scarce and is slowly becoming outdated. Societies in some of the world’s top countries are slowly but steadily becoming “cashless”: speaking about Europe and the world’s second currency – Euro – the revelation can be surprising:
Due to ECB data, euro volumes in digital format already reach 13 trillion by the end of November 2019 – and only 1.2 trillion out of this amount is physical cash!
If only less than 10 percent of the world’s second-largest currency in circulation is cash, why are we afraid of the transition to the fully digital money era? What is the difference between the blockchain-based money from already existing digital currencies?
Blockchain can be used to quantify trust and build a layer upon which the next generation of global banking in the digital age can be built. Nowadays with DLT in place, it’s possible to measure the trust not with the balance sheet but with emerging and maturing technology, thus shifting the balance sheet risk to network risk.
Blockchain technology can be used for building the financial system of tomorrow – the development of the digital asset to point 2.0 is more important than ever. The traditional E-money directive proves to be outdated during two decades of its existence, and the newly born market operates in a self-regulated environment. The next generation of E-money acceptance must and will be accelerated. At this time, no country has legalized such activities.
Many people see the emerging opportunity – therefore, the list of stable projects announced since 2017 is getting closer to the 300 projects.
“Stablecoins, which have many of the features of earlier cryptocurrencies but seek to stabilize the price of the ‘coin’ by linking its value to that of a pool of assets, have the potential to contribute to the development of more efficient global payment arrangements,” the Bank for International Settlements (BIS) said in one of the latest statements.
Compared to more traditional crypto, stablecoins volatility is almost zero since the price is directly dependent on the value of the underlying asset. This creates new opportunities in the development of the applications within the cryptocurrency industry and digital assets at large. Moreover, stablecoins can be used as a settlement instrument without counterparty credit risk, since it is 100 percent reserved and it is necessary to prepare for the transition to the real sector. This product will be able to cut many corners in traditional markets such as remittance, corporate settlement, acquiring etc.
This kind of digital currency is not fractionally reserved, blockchain assets are audited on demand, and the risk level is significantly lower. That’s the main difference to other derivatives that created crises over the last couple of centuries: Tulip mania, Mexican debt crisis, GFC 2008, Madoff investment scandal etc. The list of speculative bubbles where an absence of transparency and on-demand audit created significant economic damage can go on – such as Enron or Worldcom scandals.
The absence of a legal foundation to build a cryptocurrency global powerhouse is one of the major problems for massive crypto adoption nowadays. For example, both Libra and Telegram crypto projects currently face severe regulatory resistance, which delays ecosystems launch and may result even in worse outcomes.
Last year, the crypto industry had witnessed an enormous interest in stablecoins which offer all the advantages of cryptocurrencies with the stability offered by fiat currencies. Many countries have announced their plans for a regulated state-issued cryptocurrency, wishing to move to digital payments and curb cash find cryptocurrencies to be the best way forward. Moreover, global corporations have joined the race investigating if issuing their own cryptocurrencies would be the right move at the moment. Multinational corporations such as J. P. Morgan Chase, Walmart, Amazon, are looking to issue their own digital assets. This will mean fewer counterparties in payments chain and cryptocurrencies will no longer be questioned for their intrinsic values.
The future of such ventures is full of surprises and digital assets regulation is the very ground upon which efficient use cases can be built. STASIS foundation has started the European crypto legalization movement which is now spreading to countries like France, Germany, Spain, Italy, and many more: in December 2019, the AMF of France had published new ICO guidelines. Germany had also presented a new law that allows banks to hold cryptocurrency assets in 2020. The world has just become a bit closer to crypto acceptance.
Euro is a solution that is already digital-ready. Fiat-backed stablecoins might just be the efficient solution to shortcut payments flow in low competitive markets, like acquiring in tourist-heavy destinations, where merchants are being charged high single-digit percentage fee to process foreign credit cards.
Moreover, it can be used to fix the gap between the classical financial industry and steadily maturing digital assets. And along with hundreds of announced and failed projects, EURS is one of a few game-changers that has been crafted by constantly checking regulations. Initially launched from Malta almost two years ago, it’s the biggest ex-USD stablecoin nowadays, where users experience the majority of the benefits like legality, transparency of the reserves and more.
The fact is, more and more countries join the Maltese jumpstart initiated by the STASIS team, which has created a huge movement to compete for startups and companies in this broad industry.
But, will the traditional EURO be replaced by its fiat-backed analog anytime soon? While the governmental interest is still growing, the concerns still remain. Global crypto adoption may incentivize the interest in stablecoins and infrastructure development, so we can say it’s only a matter of time before we see the widespread interest in crypto euros.
While the American Central Bank defends its monopoly on the dollar, Europe has a real chance to promote its currency on the world stage through the blockchain version of euro by squeezing the dollar in payments, since its share in reserves is already falling.
The latest vital sign of new hope is news about the center for blockchain expertise for global regulators creation and this is a good sign since a large number of participants in the financial system will have to climb their learning curve in this technology, but regulators will have an international knowledge base to start with.