Industry Leaders Agree Overcoming Regulatory Hurdles While Onboarding Wider Audience Into Crypto Space Are Keys To Expanding Stablecoin Usage
Creating incentives for individuals to understand cryptocurrencies and assuaging regulators’ fears in the crypto space are two crucial steps to growing the popularity and usage of stablecoins, crypto industry leaders agreed during a recent panel.
Cofounder of Blockgeeks Ameer Rosic, business development team member Jennifer Senhaji, Chief Compliance Officer at Tether Leonardo Real and founder of Ventuary Lab and Gravity Protocol Aleksei Pupyshev gathered virtually for a panel discussion concerning the stablecoin ecosystem hosted at Untraceable’s Futurist Conference on Thursday, November 12.
Stablecoins combat price volatility commonly associated with cryptocurrencies by matching the value of fiat currencies. These currencies experienced a boom over the summer along with the rise of yield farming and decentralized finance (DeFi). One of the earliest DeFi applications to earn significant adoption, MakerDAO, recently saw its stablecoin DAI hit 1 billion in circulation, illustrating the growth and interest in the industry.
The recent boom in DeFi has turned more regulatory attention towards the crypto industry. In October, the Financial Stability Board published a report outlining recommendations for regulating stablecoins. The authors’ primary concerns circled around the threat of stablecoins ushering in financial instability, a complaint frequently leveled against stablecoins.
The report suggested that if large groups of people or businesses begin holding their wealth in stablecoins rather than local fiat it could adversely affect exchange rates and domestic bank funding. It added that if people were to use stablecoins as a store of value, their wealth may experience large fluctuations if the value of the stablecoin altered even slightly.
Real pushed back on the complaint that stablecoins may bring financial instability during Thursday’s panel, arguing that regulators have failed to define financial instability in their arguments against stablecoins.
“It seems very odd to me that we’re trying to create a solution for a problem when the problem hasn’t even been defined,” Real said.
Real outlined that when talking about financial instability regulators are usually thinking of either hyperinflation or a violent fall in the prices of assets. Real stated that stablecoins would not trigger hyperinflation and went on to add that arbitrage opportunities ensure that stablecoin values will remain honest. If a stablecoin like Tether begins trading for higher than the dollar, traders will move the market to even out the discrepancy.
“The whole point of Tether is that it serves as a complementary tool to other services within the crypto industry,” Leo said. “It’s not really meant to be a competitor to fiat, rather what it does is serve services where fiat is less efficient and so not surprisingly the main use cases have been in the digital world and in the digital space.”
US Regulators’ concerns that a stablecoin may interfere with the value of fiat currencies are unwarranted in Real’s mind.
“Stablecoins will grow not where fiat is sufficient. If you’re paid in dollars, you bank in dollars and you buy coffees in dollars, stablecoins won’t be competitive in the coffee buying game,” Real said. “But they will be competitive in terms of receiving better rates, they will be competitive in terms of international transfers, they will be competitive in countries with very high rates of inflation like Turkey or Argentina.”
He hinted that regulators seem to have designed new rules with Facebook’s Libra stablecoin project in mind leading to lots of assumptions and poorly explained policies. While Libra has garnered a lot of unpopular attention, Rosic believes the Facebook-run project presents an important opportunity to onboard new crypto users.
“If you want to expand outside of the crypto circle you really have to start thinking about incorporating an incentive model into web 2,” Rosic said. “I think for a very long time there’s going to be a hybrid model between web 2 and web 3, it’s going to be a slow progress to get to web 3, but think about it there’s billions of people online.”
Encouraging Facebook’s 2.7 billion users to explore stablecoins through Libra could be the sort of institutional buy-in the crypto industry needs to pull in new people and grow the space as a whole. This coupled with regulatory certainty could potentially improve cryptocurrencies’ nebulous reputation.
By Emily Mason