Tuesday, July 23, 2019 Stamford, CT USA — Stablecoins, like Facebook’s recently announced Libra, have the potential to surpass better-known cryptocurrencies and achieve mainstream use in financial markets and throughout the economy, according to a new report, Stablecoins: Crypto's Sensible Cousin, from Greenwich Associates.
“Stablecoins go far beyond social media and can be applicable anywhere and everywhere money changes hands,” says Richard Johnson, Principal for Greenwich Associates Market Structure and Technology and author of the new report.
The original goal of the most well-known cryptocurrency, Bitcoin, was to be a “peer-to-peer electronic cash system.” And from a technical standpoint, it is a success. The blockchain network today enables millions of users to send the cryptocurrency anywhere in the world in about 10 minutes, with low transaction fees—and thousands of businesses around the world accept bitcoin as payment for goods and services.
The problem is that very few people are actually using it for transactions or payments, mainly due to its volatility. Stablecoins, by contrast, are designed to be a more effective medium of exchange by having their value pegged to dollars, euros, gold, or other stable assets.
This structure, proponents argue, provides stablecoins the best of both worlds: a stable medium of exchange like fiat currency with rapid settlement across a decentralized peer-to-peer network like crypto. About half the financial services professionals participating in a recent Greenwich Associates study cite rapid settlement as the main advantage of stablecoins.
“These characteristics give stablecoins the potential to break out of the cryptocurrency community and achieve mainstream acceptance,” says Richard Johnson. In fact, less than a quarter of financial service professionals think stablecoins like Libra will remain a niche product.
More than a third predict that stablecoins will be adopted broadly and achieve mainstream use in financial services and throughout the economy. However, looking out over a longer horizon, another 35% believe that stablecoins ultimately will be replaced by central-bank-backed digital currencies (CBDC).