The changing face of money has also created confusion, however, with decentralisation coming with additional challenges. In this brave and uncertain world, stablecoins offer clarity, stability and a range of productivity and financial benefits.
“Governments are accelerating research into central bank digital currencies, which are essentially government-backed stablecoin projects.”
Stablecoins are a specific type of digital currency pegged to real-world assets or market-based formulae. As such, they're a great way to avoid extreme price volatility while enabling the benefits of transparency, privacy and efficiency.
Like cryptocurrencies, they support digital transactions, transparency and privacy. But like fiat currency, they allow businesses to transfer value instantly and cheaply without risk of excess volatility.
As businesses look to benefit and governments seek regulation, the future of money is changing before our eyes.
A short history
Private sector stablecoins first launched with Tether (USDT) back in 2014 at a 1:1 ratio with the US dollar. Other examples include Circle’s $US Coin (USDC) from 2018 which is backed by multiple fiat currencies and cryptocurrencies and is also pegged to $US.
ANZ recently created the first Australian stablecoin backed by a bank, called A$DC, which it delivered to the Victor Smorgon Group through Zerocap.
Around the world, national governments are accelerating research into central bank digital currencies (CBDCs) which are essentially government-backed stablecoin projects.
In the US, the Federal Reserve is actively exploring CBDC options, and the European Central Bank is progressing its 'digital euro' project. The world's first CBDC has already been rolled out in The Bahamas with the 'sand dollar' helping to inspire early research in Japan, China, Sweden and Nigeria.
More than $113 billion in stablecoins have been issued globally with these coins often used as a “safe haven” for investors during times of volatility.
With a lack of centralisation and oversight, untethered cryptocurrencies can be subject to wild price swings. This is deeply concerning for business entities and global governments and has led to a growing appetite for regulation.
US Securities and Exchange Commission Chair Gary Gensler recently suggested it was time to regulate cryptocurrency markets. The Chair of the Federal Reserve Jerome Powell has also issued a call for regulation.
Stablecoins are a product of this environment where the advantages of cryptocurrencies are easy to see and the risks impossible to ignore. They have been developed to solve known financial problems in a fast-paced and increasingly global economy.
These cryptocurrencies offer the benefits of a streamlined digital economy under the stable paradigm of central banking traditions.