The cryptocurrency world is realizing how important price stability is when it comes to medium of exchange. This affects both finance and commerce.
It is also one of the major flaws in the Bitcoin narrative. Actually, this applies to all value capture tokens. The idea that BTC, ETH, or even HIVE is a medium of exchange goes against what is sought. Here is where it is crucial to leave ideologies aside.
Merchants, i.e. business people, require price stability. If the exchange value is bouncing around like crazy, that is counter to what merchants seek. Bitcoin can drop 5% in an hour. It can also go the other direction. Of course, this excites traders but is fatal for businesses.
Imagine running a business where the price of BTC drops. You make a sale just before lunch. After returning, you realize 5% of your sale, in your native currency, is gone. This is a major problem, especially if you operate on slim markets. A profit might have turned into a loss.
Merchants are not into currency speculation. This is why those who do business internationally tend to hedge using FOREX derivatives.
Stablecoins are crypto's answer. Many opt for the asset backed approach although some algorithmic stablecoins are starting to emerge.
As the news flows out, we can see what is taking place.
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PYUSD And USDC Making Moves
PYUSD is the stablecoin that was introduced by online payment provide PayPal. This was big news when it hit for the simple fact that it showed the direction of where things could be heading. Since that time, Sony also announced its testing of a stablecoin for its own platform.
PayPal's initiative just received a bump as it is being integrated into another payment application.
Triple-A, a Singapore-based payments firm, has made a strategic move by announcing its decision to integrate PayPal’s stablecoin into its array of payment options tailored for merchants. This decision showcases Triple-A’s proactive stance in embracing emerging financial technologies. Notably, Triple-A holds the distinction of being the first licensed crypto payments company in Singapore, a testament to its commitment to innovation and regulatory compliance.
Here is how the tentacles start to expand.
We are dealing with nothing more than a series of transactions. It is a numbers game. The key is to shift volume, over time, away from the existing system.
As stated in the past, we are dealing with the hybrid model. Nothing epitomizes this more than USDC.
Jeremy Allaire recently spoke about the future of stablecoins and how they are starting to take hold. Circle is a company that is part of the existing financial system. In my opinion, this is nothing more than an extension of the banks.
Allaire is going to operate within the framework of the banks. While they are building infrastructure, it is to be a conduit to them.
Circle is “working with dozens of banks and advancing the technology of the protocols.” Circle currently exists on 16 different blockchain networks and protocols, Allaire stated, stressing the technological strides being made. These efforts are significantly enhancing USDC’s adaptability and reach as a stable digital currency.
It is also expanding into other markets:
Highlighting Circle’s global initiatives, Allaire shared details about Circle’s plans to set up local banking infrastructures in key financial centers, including Singapore, Hong Kong, and the European Union.
This shows how far off from crypto this is. With a blockchain, anything that is built on it is automatically in all markets. Blockchain knows no geographic boundaries. As soon as one connects to the network, whatever is there is available.
Hive Backed Dollar (HBD)
We have discussed the Hive Backed Dollar (HBD) extensively over the last few years. Where does this fit in all this?
Since it is an algorithmic stablecoin, we can presume it will be regulated off of centralized exchanges (CEX). This means the pathway are decentralized exchanges (DEX).
Another lesson we have to take away, and this is true for other stablescoins, it all comes down to integration. The deal with Triple-A and PYUSD is a prime example. A stablecoin is worthless unless it is integrated into applications that utilize it.
As stated in the past, this goes beyond payments. It also have to include:
- collateralization
- funding and investing
- derivatives
To achieve this, building is required. Whereas an entity like PayPal can have other similar business integrate its token, this will not happen with HBD. Basically, it is up to the community to start incorporating it into all that is built.
It is how an ecosystem forms. The coin is available for everyone to use. This includes developers. Utility is what ultimately adds value to a currency. Again, we have to look at transactions. Whether it is financial or commercial, this is what separates away from the existing system.
By the way, it is also what will eventually move us on from the hybrid situation that is being constructed.
What we are looking at is not necessary integrating HBD into what is built. Instead, it is a process of building around that coin.
For years I argued against the idea of using value capture tokens as a medium of exchange. This is flawed on a few different levels.
To start, there is the volatility issue. This only gets worse the further away from Bitcoin we move. For some 20% is a move that can happen in an instant.
Another issue is the fact that these are two different assets. A development team should be sending the message the token will be more valuable in the future. If that is the case, why are they also telling people to get rid of it, i.e. use it for payments?
Here again is the problem with Bitcoin HODLing. Michael Saylor even changed his narrative surrounding it and now focuses upon the digital gold aspect.
With stablecoins, we are going to need trillions. The entire market is roughly $150 billion. We are not going to make a dent in a $100 trillion economy with that number. Stablecoins have to get much larger.
This is the epicenter for growth. By expanding the number, the amount of funding and investing into economically productive initiatives can take place.
With HBD, we also exit the existing banking system. There is nothing about HBD that touches banks, including the creation of them. Since there is no asset-backing in the traditional sense, dollars are not dropped into the commercial banks.
Stablecoins are a hotbed for future economic activity. With HBD, we simply have to build around it, incorporating it into all we do.