Growing Spate of CBDCs Like China’s Key to 2020 Being Year of Stablecoin
Interest in stablecoins started to gain momentum in 2019. Market insiders have now been overly convinced that the growth of this form of digital currency, which seems to have been shot to limelight by Facebook’s proposal of its Libra project, will be bigger in 2020 going by developing trends.
Several factors would be responsible for that, according to Greg Forst, Director of Marketing at Factom Protocol. They include the growing wave of potential Central Bank Digital Currencies (CBDCs) with the likes of the People’s Bank of China’s proposed “Digital Yuan” in the forefront. Forst assumes that 2020 will be the year of the stablecoin as crypto’s biggest use case as several central banks are now on their toes to explore the issuance of a CBDC.
From the European Central Bank forming a cryptocurrency task force to study the benefits and costs of a possible eurozone CBDC to the U.S. Federal Reserve Board planning to release a real-time payments and settlements service to boost the FedNow payments infrastructure, the interest in stablecoin has risen. It somewhat builds on JP Morgan’s initiative last year to be the first U.S. bank to create and successfully test a digital coin representing a fiat currency. 2020 is likely to see how using blockchain-based technology to transfer payments between clients by the largest bank in the US will bring more institutions into the fold knowing that it only took Facebook four months after JP Morgan’s announcement to reveal its plans for Libra stablecoin.
Stablecoins have all the benefits of their crypto counterparts in terms of security, speed, and cost but different only as pegged to more reliable assets hence more liquid for fiat currency transactions at relatively unchanging rates. Their offering a uniquely decentralized payments solution and cheaper, faster, and global payments also makes them a fit for onboarding a new Fintech generation.
China is currently putting its digital currency to test ahead of public issuance which is expected soon. Put aside the US, both countries are diverging into separate spheres with technologies like 5G networks, data storage and microchips — forcing other countries to choose sides. However, as more institutions realize the benefits of blockchain-based digital money in general regardless of their location, “the necessity for stablecoins will augment and 2020 may well deliver this growth”, Forst says, adding that the need for digital money that is mobile, constantly accessible, instant, low-cost, and secure is now evident and institutions love stability.
There is also the rise of decentralized finance (or DeFi) whose growth Forst says was constant throughout 2019, with monthly surges in collateral, volume, and loans outstanding. “There is a growing sense that decentralized technology can, and should, play a key role in financial services in the future, with stablecoins forming a crucial part of this movement to decentralization.” With no brokers taking a percentage of trade value and no counterparty risk, but full decentralization, DeFi’s upward growth trajectory is set to continue with stablecoins benefitting from it in 2020.
Gartner predicts that mobile cryptocurrency would have increased by 2025 when 50% of people with a smartphone but without a bank account are expected to be using a mobile-accessible cryptocurrency account. This is dependent on the view that marketplaces and social media platforms will start supporting cryptocurrency payments leading more users (especially in Africa) to shift to mobile-accessible cryptocurrency accounts that will also drive e-commerce as trading partners emerge.