Stablecoins are financial commitments that are issued on a blockchain and have a fixed value. A majority of the time, they are completely collateralized by either short-term government bonds stored at a custodian or by fiat currency deposits at a bank.
Stablecoins are exclusively issued by nonbank entities, but the Swiss financial regulator, FINMA, does permit Swiss banks to issue stablecoins denominated in Swiss francs. Stablecoins are digital currencies that do not pay interest and are intended to trade at parity with fiat currencies in most cases. The fact that they are issued on a blockchain allows them to settle in minutes, with irreversibility, and — most importantly — they are “programmable,” which means that users may create their own software program to interface with them.
The amount of U.S. dollar stablecoins reached about $22.1 billion by mid-2021. One report from CoinMarketCap.com reported yearly crypto trading volume at $16 trillion, which is significant when you consider that total U.S. B2B payment volume was estimated at just $25 trillion (Mastercard 2018). These are astonishing figures which indicate a strong growth prospect.
In this article we will talk about the major forecasts for stablecoins that will fuel their growth and bring in new users, traders, banks and governments towards stablecoins.
Brief intro of Stablecoins:
According to the definition provided by the Bitcoin Foundation, a stablecoin is a cryptocurrency that has its value tied to an underlying asset, such as a government-issued money such as the United States dollar, a precious metal such as gold or even another cryptocurrency.
Issuers have tried with a number of different methods throughout the years to maintain the price of stablecoins in sync with the value of the underlying assets. Cryptocurrencies tied 1:1 to the United States dollar and backed by reserve assets with a dollar value equal to or greater than that of the tokens in circulation. Such stablecoins have a value that is almost identical to the value of the dollar down to a few decimal places. Other cryptocurrencies may be supported by tangible items as well. As an illustration, consider the case of a cryptocurrency that represents one troy ounce of gold, which is represented by a London Good Delivery bar.
Since now we have a clear idea on what stablecoins on lets proceed with the forecasts that may fuel stablecoins growth in the near future.
Stablecoins will become important for monetary policymaking:
The introduction of stablecoins will increase the effectiveness of monetary policy even more. Natural velocity refers to the pace at which stability is maintained in financial systems, and thus makes stablecoins very liquid since they do not need the use of leverage. Traditionally, monetary policy has utilized liquidity levers to encourage the creation of money, such as leverage and collateral reuse. However, this has changed recently. A stablecoin, on the other hand, does not need leverage in order to maintain liquidity. When there is no debt, the technology generates its own liquid assets. This property of stablecoins make them very attractive for policy makes where there is massive effort globally to regulate the crypto sector.
The market cap of Stablecoins will exceed exponentially
According to the experts, the introduction of new DeFi applications would result in an approximately 50 percent rise in the market capitalization of stablecoins. The entry of major businesses and financial institutions into the stablecoin sector will be the driving force behind this expansion. According to certain predictions, the market capitalization of stablecoins will reach $1 trillion by 2025.
Stablecoins will play an even bigger role in cross-border transactions
Stablecoins are becoming more popular in certain industries. Businesses in Latin America and Southeast Asia, for example, are already using stablecoins for settlements instead of the traditional banking system, demonstrating their viability.
Sending and receiving stablecoins is comparable to sending and receiving messages on WhatsApp or emailing a buddy in that it is easy. Stablecoins will lower in-country cross-border remittance and transaction expenses, which are now approximately 7% of the total transaction costs. Using stablecoins for cross-border business transactions is expected to grow substantially in the near future, according to forecasts. Furthermore, stablecoins will be used to enable various types of payments, including peer-to-peer payments, online checkouts, and online invoicing.
China will lead in the adoption of stablecoins
The overwhelming majority of stablecoins are being produced by private groups, as opposed to government-sponsored initiatives. Despite the fact that certain private businesses have made significant advances in the area, like as Facebook’s release of its currency Libra (now called Diem), which prompted central banks to prioritize the development of their own stablecoin initiatives sooner rather than later.
Among all countries, China is the driving force behind this initiative, and the country intends to create its own version of the digital Yuan that would behave in a manner similar to stablecoins. These initiatives will result in widespread adoption of stablecoin variations, and other private companies will attempt to grab a piece of the Chinese market as a result of these efforts.
New products and services will be developed for stablecoins
Currently stablecoins are solving many payment and finance related problems. Among new products and services stablecoins also have the potential to improve existing systems.
Improving payment systems and services
Existing payment systems and services have the potential to be substantially improved by the use of stablecoins. Because of their speed and cheap infrastructure costs, they have the potential to elevate the payment systems and services sector to a new level of sophistication. More than that, stablecoins have the ability to provide services billions of previously unbanked people and bring them into the financial system.
Improving Financial integrity (AML/KYC)
Since stablecoins are digital assets complying with International laws and standards is much simpler compared to cash based currencies. Moreover there is also increasing effort from large corporates to regulate the crypto sector and stablecoins are the most closest to complying to regulations and improving the overall crypto landscape by introducing Anti money laundering and Know your Customer techniques for coin ownership.
Improving Safety, efficiency and integrity of payment systems
Safety is a major driver for any financial systems mass adoption. Stablecoins have the potential to introduce new safety protocols and standards. Moreover stablecoins can improve the integrity of payment systems by making them more robust and less prone to attacks.
Improving Data protection
When it comes to the financial industry, the security of consumer data is very critical. The data security provided by stablecoins is unrivaled, particularly when compared to conventional banking systems. Stablecoins are becoming more popular due to the data security features they provide.
Improving Tax compliance
Because stablecoins are digital assets, they allow for more efficient tax compliance. Tax compliance can be guaranteed in every country and under any legislation, which makes it an excellent option for the formal reception of cryptocurrency assets.
Enhancing Consumer/investor protection
The threat of inflation is a significant source of concern for investors who are looking to maximise their profits while minimising their losses. Because stablecoins offer a significant buffer against inflation, they are excellent candidates for adoption in the trading and stocks sectors, among other places.
New applications will be discovered for stablecoins
It is expected that stablecoins will continue to find new applications in the financial sector, despite the fact that they currently have a wide range of applications. Among other things, the usage and preference of non-fungible tokens (NFTs) in the non-fungible tokens (NFT) marketplaces, for example, is changing the dynamics of the arts industry and is directly responsible for its growth. When used as in-game currency in developing sectors such as bitcoin gaming, stablecoins are becoming more popular, which is helping to boost their sales and trade volume on the virtual networks.
Besides that, stablecoins are becoming more popular in Metaverse applications, and cryptocurrency professionals are investing their money into stablecoins in order to safeguard their assets.
New trading options will be based for stablecoins
To create new crypto-based financial products, stablecoins are being utilised as a funding source. Stablecoins are supported by options, derivatives, and futures contracts. The development of additional financial products and services for stablecoins in the future will attract a whole new group of investors.
New types of stablecoins will come into existence
In the world of stablecoins, there are many different kinds, which are differentiated primarily by the asset that acts as their supporter. Currently the major types of stablecoins include:
- Stablecoins that are backed by commodities
- Stablecoins that are backed by fiat currency
- Stablecoins backed by cryptocurrencies
In order to keep up with the growing popularity of stablecoins, new advancements in stablecoin technology will be developed, as well as new stablecoin forms being brought into the market. The algorithm-based stablecoins, which guarantee their stability via the use of mathematical algorithms, are an excellent example.
It is impossible to count the number of variables that are leading to the rise of stablecoins. From new and improved solutions for the financial and banking industries to quicker and less expensive payments for payment collection, there is something for everyone here. The pace of innovation in the stablecoins industry is at an unimaginable level. There are many future possibilities for stablecoins, and the predictions we have given in this article will all lead to stablecoins being the cryptocurrency of choice for investors across the globe in the future.