A branded stablecoin is a price stable digital asset issued and supported by a specific or group of brands, enterprises, institutions etc. The next stage in the evolution of price stable assets, branded stablecoins can move beyond simply combining stability with blockchain technology, to enhancing the relationship and value that exists between brands and consumers. Branded stablecoins, and the broader realm of branded currencies, gained increased traction in 2019 with the inception of Facebook’s Libra Project, and Walmart’s stablecoin patent.
Are branded stablecoins the key to driving blockchain adoption?
Familiar Environments & Complimenting Consumer Learned Behaviour
Stability has proven a pain point to adopting alternative currencies, but it is not the only obstacle — familiarity plays an equal, arguably greater role. Charles Duhigg’s the Power of Habit, discusses the inherent issue people have with change. Blockchain and cryptocurrencies remain intimidating, foreign concepts to the masses. This apprehension further stifles adoption. Introducing stable assets is great, but if people still find difficulty using them, it doesn’t matter if they are able to predictably value goods or save money.
Branded stablecoins will operate within existing applications that consumers are familiar with, built directly into the consumer experience. Brands will be able to collateralize these digital tokens and integrate them into the applications they maintain, allowing consumers to interact with them seamlessly, in some cases not even perceiving that they are using a cryptocurrency. The consumer will be able to leverage a stable asset they can understand, and benefit from both blockchain technology and the novel intricacies developed by the issuing brand.
Network Effects & the Value of Existing, Active Communities
A second barrier to blockchain adoption comes from a lack of network effect. Networks such as Facebook and WeChat derive value from network effects — whereby value increases as the number of users increase. Arguably, the first entrants to either network got very little benefit in comparison to what new users experience now. Many blockchain solutions tought that when they scale to millions of users, the protocol will realize the full extent of the blockchain’s potential and revolutionize the way in which we do things. But as it stands, existing infrastructure presents more benefits than blockchain-based solutions do. One US dollar has more utility than one dollar in Bitcoin, or even one dollar in a stablecoin. We see this same disparity in utility when looking at today’s branded currencies vs. cash — cash is more flexible, widely accepted and easily understood, granting it more utility than points with the same monetary value.
Branded stablecoins allow integration directly into large, existing communities, taking advantage of established brand ecosystems. As opposed to recreating connectivity, users will benefit from enhanced capabilities, in vibrant environments, on interfaces they know and understand. A prime example observed today is WeChat, a popular messaging app that plays host to approximately 900 million users, and powers around $10 trillion in payments annually. The utility users derive from the platform is so vast that many opt to leave their money within the application.
Upgrading the Loyalty Industry and Consumer Perceived Value
Branded stablecoins fall under the umbrella of branded currencies. Inclusive of assets such as loyalty and rewards points, this asset category has helped to drive consumer behaviour and reward loyalty, creating relationships between brands and consumers beyond the transaction. However, today’s programs are dated by technological standards, resulting in billions of dollars in points left unused.
Branded stablecoins are backed by real-assets (dollars, commodities, basket of goods etc.), as opposed to traditional branded currencies that stand as IOUs. This gives them a feeling closer to digital cash — consumers feel empowered and perceived heightened value when receiving dollars in their app instead of points. Transmission of these stablecoins represents the movement of recognizable value, allowing these assets to be spent at more points-of-sale, addressing the lack of flexibility associated with today’s points economy.
Heightened Marketing Intelligence
Branded stablecoins may allow for the collection of better market intelligence that extends past the point-of-sale — especially within the CPG space where brands have suffered a disconnect with consumers. More effective marketing, targeting, product development etc. ultimately helps brands drive profits and better serve the consumer. This opens up a number of opportunities, such as customized promotions, built-in loyalty features, and the provision of services based on customer buying behaviour and history.
“Retail brands may be the first major catalyst we have seen in supporting the vision of the unbanked — where creditworthiness, storage of assets, and entering into other financial instruments may all be related to your file on hand, digitally stored with the brand. For those without access to a bank, a major brand may suffice to replace this in the near future and branded cryptocurrencies will pave the way for this evolution.” — Michael Luckhoo, DigitalBits VP.
Paving the Way
The advent of branded stablecoins looks to further smooth the consumption of technology, integrating strong, existing communities and familiar interfaces with a stable underlying asset to enhance the ways users interact.