Stablecoins will become the norm. The process is starting to accelerate although limited by infrastructure. That is a situation that many entities are looking to resolve.
With countries starting to regulate cryptocurrency, stablecoins are coming under scrutiny. This means KYC, accounts, and a host of other traditional features that governments require.
All of this is expensive and a major pain in the hind end. It is something that is looking to be resolved.
The tendency is for people involved with crypto to look at things from the surface level. "What can I buy with ABC crypto" is one of the most common questions. It should be evident now that when traditional finance gets involved, the numbers absolutely explode.
To achieve this requires infrastructure. Here is where we could see a change coming. Stablecoins could end up being the mechanism that usurps the present FOREX market.
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Stablecoins Taking Over FOREX
Currency swap is one of the largest markets in the world. The daily volume is stunning. According to reports, this is even larger than the Repo market, which funds most of global trade.
According to Grok:
As of the most recent comprehensive data from the Bank for International Settlements (BIS) Triennial Central Bank Survey, the average daily trading volume in the global FOREX market reached $7.5 trillion in April 2022. This figure reflects trading across various instruments, including spot transactions, FX swaps, and outright forwards, with FX swaps accounting for the largest share at 51%. The volume represents a 14% increase from the $6.6 trillion recorded in the 2019 survey, driven largely by heightened volatility and increased inter-dealer trading.
This is something that is backed up by Best Borkers.
Notice how we are dealing with trillions, not billions. The amount of currency swapped daily makes the activity of the crypto market seem like a rounding error. This could be changed by stablecoins.
Instead of focusing upon the "retail" level, the key is to bring in institutions. In other words, have USD stablecoins as the swap mechanism for those in local currencies.
The idea is to use non U.S. dollar-pegged stablecoins not as consumer-facing assets (the reason they make up less than 5% of the $235 billion stablecoin market, according to Martinez), but as invisible rails to move dollars in and out of emerging markets. “Nobody wants a Mexican peso or Brazilian real, people want dollars in and out,” Martinez says. “But if you use [local stablecoins] behind the scenes to power the system, that’s when you start to have a real use case for them.”
It is the goal of Nonco, a Miami based company that spun out of the exchange OSL.
Fernando Martinez talks like a man who’s already seen the future. In it, SWIFT, the messaging networks thousands of banks around the world use to give instructions for transferring funds between accounts, is obsolete. He insists that the global foreign exchange market should run on stablecoins, cryptocurrencies typically pegged to fiat currencies like the U.S. dollar.
If accomplished, this is big news. We are looking at a revamping of the global monetary system, with stablecoins basically replacing the need for the SWIFT network. Of course, this opens up another can of worms, something that I am not sure financial institutions really care about.
Forget Money - Its the Monetary System
The focus is always on money. It is what people discuss.
However, in my years of looking at this, money is secondary. That has changed over the last 2,000 years, adapting to the needs of business. It also shifted due to technology.
What has not changed is the basis of the monetary system which has held the same since the Roman times. That said, we did see how the components are achieved.
A monetary system is the combination of accounting and communications with the ability to settle. This is true regardless of what is being used for money. It is also why blockchains qualify as monetary systems, contrary to what many people say.
FOREX is how the different monetary systems around the world interact. It is the in and out (on/off ramp) into economies. Institutions are continually shifting value (tied to trade) around the world, entering and exiting the nations involved. This is all handled by the networks established.
However, the international financial system was developed (evolved) over many decades. The result is a hodgepodge of networks, all meant to facilitate transactions based upon the technology available at the time.
A prime example of this is SWIFT. This is not a monetary system but, rather, a messenger service that notifies banks of incoming transactions. It is obviously better than someone calling up the bank but we can see how it is rather archaic. Notice how this is absent with blockchain. Ethereum does not have a supplemental messenger system in place to alert wallet holders when something is coming in.
Under the scenario that Nonco is setting up, it is keeping the same language that the existing financial system utiliizes, the US dollar, and enhancing it. It seems the goal is to use blockchain networks as the transfer system with a layer on top to gatekeep access, to move value around the world.
As we can guess, if this comes into being, we will see an explosion in the numbers.