What’s next for stablecoins?

‍Anyone who has followed our work over the years, knows we are deep into stablecoins. Along with a lot of development in the regulatory space, and around crypto derivatives, stablecoins are a hot topic right now.

As more and more types of stablecoins enter the market, we expect a lot more competition between them — this is good, as it drives innovation. In this post, we’d like to discuss some of the different areas where we expect such innovation to occur.

Local currencies, beyond USD

At present, most stablecoins are pegged to the US dollar, but in Bitspark’s ecosystem, we also offer access to other stablecoins pegged to the Philippine Peso, Chinese Yuan, Euro, Hong Kong dollar, Australian dollar, Singapore dollar, and the Great British Pound. Eventually, we expect to see the creation of stablecoins for every single one of the world’s 180+ currencies.

This is an incredibly exciting prospect, for a number of reasons. First, since stablecoins act as a bridge between cash and crypto, the diversification of stablecoins across different currencies will make it easier for more people — including the unbanked — to access the crypto market.

Second, as stablecoins provide an alternative avenue to trade across conventional currencies, it seems not too far-fetched to imagine that we will eventually see business models specifically take shape around forex markets made possible by stablecoins. It’s currently not easy to trade the Philippine Peso to US dollar market on traditional forex trading exchanges, but it does exist today on the Sparkdex.

Payments

On account of their stability, stablecoins are suitable for daily payments. It’s no surprise there has been so much commotion around the possible launch of Libra: as an asset-backed stablecoin, which stands to benefit from Facebook’s access to a 2.4 billion strong user base, its release could significantly disrupt the payment space.

Some have even gone so far as to see this type of digital currency displace the US dollar as the dominant currency.

But Libra is not the only contender. Walmart has hinted at the option, and, only recently, a major bank in the Philippines has announced the imminent launch of its own central bank-backed cryptocurrency, and we’ve seen similar reports with respect to China. Whether or not stablecoins issued by governments and large corporations are in demand, remains to be seen, but these heavyweights certainly have the means to make a significant impact.

Techniques

In one of our previous posts, we discussed the different types of stablecoins where we distinguish between the ways in which they achieve their stability. Specifically, there are fiat collateralised, crypto collateralised, asset-backed, and algorithmically stabilised stablecoins. Each come with their own set of challenges and advantages.

While fiat collateralised stablecoins are the most dominant type, taking into account counterparty risks but also looking at regulatory directions, we expect crypto collateralised stablecoins, such as stable.PHP, to take a lot more market share over the coming years.

Interest rates

Currently, firms such as Tether — or even Facebook once Libra has been launched — generate their revenue from collecting interests on their reserves. As more firms step into the stablecoin space, offering to issue stablecoins in exchange for fiat deposits, at one point offering customers a portion of that interest would be the logical thing to do.

Similarly, with crypto collateralised stablecoins, there are such incentives to could drive more market participants to lock up some of their funds in smart contracts in order to create stablecoins.

So in the next evolution of stablecoins, we expect to see more exotic currency stablecoins, a bigger payments market, more focus on trustless stablecoins and the rise of interest rates linked to stablecoin deposits.

Originally published at https://www.bitspark.io.