STABLE COINS: Mitigating Capital Risks in Crypto

Cryptographic assets (crypto assets)

– has a market capitalization of just under US$130B and is the fastest-growing segment of the fintech landscape in terms of projects, institutional adoption, and investment.

By virtue of their programmable nature, crypto assets are efficient and scalable vehicles for storing and capturing value and are thus subsuming traditional finance.

Within the crypto ecosystem, the subset of crypto assets known as stablecoins currently has a US$3B market capitalization — which has grown roughly 50% since March 2018.

Until recently, the market was predominantly represented by the Tether stablecoin, a pioneer of cross-border payments, and backed by USD.

 

Its dominance has been challenged, however, by new market entrants such as DAI, TrueUSD, and USDCoin, which has resulted in a notable decline in Tether’s market share from circa 90% in September 2018 to around 65% in February 2019.

In broad terms, stablecoins facilitate currency conversion and seamless value exchange across the wider economy, addressing the requirements of international finance participants without the need for fiat currency holdings or accounts.

 

The variety of applications that stablecoins are used for ranges from risk mitigation to arbitrage on exchanges across the digital space, and from reducing the cost of remittance to facilitating currency conversion in the physical world.

Their usefulness has already been proven to crypto investors, funds, broker-dealers, and other financial service providers, and with traditional conglomerates such as JP Morgan, IBM, and Facebook moving into this space, the adoption of stablecoins is set to proliferate into adjacent vertical markets including international trade, online media, and retail/wholesale.

 

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