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Even with the recent Securities and Exchange Commission (SEC) crackdown on cryptoassets – including stablecoins – the most logical and sensible path for mass crypto adoption remains via stablecoins.
2023 has gotten off to an intense start for the cryptoasset sector, with multiple enforcement actions sending shockwaves through the marketplace, and leading some to speculate about the future of cryptoassets in the United States. Compounding this are rumors and speculation that Binance, the largest crypto exchange in the world but the subject of multiple U.S. investigations, will exit the U.S. market, has only added to the swirling debate and controversy in the cryptoasset space.
Something that should be noted is that despite the U.S. led crackdown to protect investors and better ensure healthy capital markets, investors have been redirecting funds to stablecoins such as USDTUSDT, a stablecoin that is, by all accounts, the best example of questionable accounting, reporting, and disclosures. On the other hand it is worth noting that J.P. Morgan, which also has the Onyx blockchain platform that counts among its members hundreds of international banks, has recently launched its deposit token – a privately issued and governed stablecoin to be used on a privately controlled blockchain.
Speculation aside it seems clear that the regulatory attitude and approach has shifted to a more aggressive approach, which is reasonable when seeking to uncover unethical operators in the space. That said, and acknowledging that more volatility may be ahead for crypto firms seeking to launch and expand in the U.S., stablecoins remain critical for crypto mass adoption; let’s take a look at a few of the core reasons why this is still true.
Investor and user familiarity. One of the strongest and most obvious attributes of stablecoins is the fact that these instruments are simpler and easier for users and investors to understand. Lower volatility overall, and the fact that the vast majority of stablecoins – and stablecoin transactions – take place using dollar-backed coins, does make the entire process easier to understand and integrate within current payment rails, controls, and processes.
It is also difficult to overstate the impact and importance of less speculation on the interest and support that stablecoins attract. With millions of Americans, and even more global users of cryptocurrency – even in the face of price volatility and regulatory crackdowns – it is clear that there is an appetite for crypto; stablecoins have proven to be an excellent on-ramp for adoption with no sign of slowing down.
Institutional support. Even though cryptocurrencies and cryptoassets more generally were designed and developed to circumvent and disintermediate traditional financial institutions, stablecoins are a clear sign of how crypto and other blockchain-based applications have embraced by these very same institutions. One the largest and most prominent stablecoins, USDCUSDC issued by Circle, is a direct by-product of a joint venture between the traditional financial world, and the crypto space. While some would bemoan such a combination, the reality is that mainstream adoption requires institutional support and buy-in.
Additionally, and despite many public comments criticizing bitcoin as a Ponzi scheme – or equivalent therein – J.P. Morgan (led by bitcoin skeptic Jamie Dimon) has enthusiastically embraced blockchain and stablecoins. The recent rolling out of its “deposit token,” which operates and resembles a stablecoin in virtually every way, illustrates the upside and opportunity that these instruments have for financial institutions.
Leveraging existing tools. Building on the prior two points, stablecoins represent a unique iteration of crypto that has made it such a viable on-ramp for individual and institutional adoption; the fact that these transactions can – and do – take place on existing payment rails. Although there have been recent setbacks in the recent regulatory environment, the fact remains that some of the largest payment processors and financial institutions in the world, which is important o two (2) reasons.
Firstly, the fact that incumbent financial institutions are making stablecoins both available for investors to use and/or developing in-house options will invariably make it simpler and easier for non-expert crypto users to embrace these tools. Secondly, and even more important given the recent regulatory shift, it appears that stablecoins are the more straight-forward way to work with regulators, overcome legal headwinds, and achieve mass adoption.
Crypto is in for a volatile year, but stablecoins remain the best path for mainstream adoption.
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