Marek Olszewski is cofounder of cLabs, working on Celo, a mobile-first permissionless platform that makes financial tools accessible to anyone with a mobile phone.
Stablecoins emerged in 2018 with exciting promises of being used across the globe to improve financial access and help countries plagued by hyperinflation or cross-border payments and remittance friction/headaches. In practice, they were primarily used to shield traders from the wild volatility of early crypto markets and for arbitrage.
The global crisis brought on by COVID-19 is an opportunity for stablecoins to deliver on these promises and use cases, especially as governments try to deliver stimulus money quickly to large populations that desperately need it. The global economic and health crisis has reinvigorated the use of stablecoins, as well as the discussion of digital dollars and central bank digital currencies. With close to six billion smartphones with active mobile subscriptions in the world, we are nearing a reality where an easy-to-use stablecoin can reach a significant portion of the world’s population.
Over the past month, stablecoins have lived up to their moniker and value proposition. We’ve seen a flight from traditional crypto assets to stablecoins similar to 2018. The market cap of all stablecoins has swelled from $5 billion at the start of the year to above $8 billion in April. And the improved stability and usability of stablecoins equips them to rise to the occasion and prove utility beyond demand from exchange arbitrage and safe haven appeal.
Although most stablecoins in use today are fiat-backed, efforts like MakerDAO and Synthetix have shown it is possible to construct stablecoins pegged to real world assets such as the U.S. dollar but that are collateralized by other crypto assets in a decentralized manner using smart contracts. There have been a number of hiccups and growing pains for both of these systems (including “Black Thursday”), both protocols have been able to keep the price of their stable assets from depegging significantly and continue to provide empirical evidence that you can create a stable value asset entirely in software.
Why now?
COVID-19 emphasizes the need to transact from anywhere, quickly. Sending cash transfers with bank transfers and checks at scale can be both slow and expensive, and expose recipients to possible infection as they try to deposit or cash their checks. Direct cash transfers have been shown to help recipients in times of need if they can be delivered in a timely manner.
After weeks of negotiation, the U.S. has partnered with Square, PayPal and Intuit to pay out the small business loan portion of the stimulus package. Outside of the U.S., especially where mobile money and electronic payments are not widely available, the promise of stablecoins for stimulus payments is more obvious and immediate.
The World Bank is recommending governments send transfers via mobile phone to limit the amount of in-person contact required to receive the funds, but which infrastructure should they use? Because stablecoins operate on open infrastructure, companies can build response tooling and wallet support without governments fearing they will be locked into a single provider.
The future
For stablecoins to be viable alternatives, they must be easy to custody, send and receive on a budget smart phone. Solutions like Argent and Celo are working hard to make this possible.
The use cases don’t stop there. Since stablecoins are programmable, their future counterparts will change how we think about money itself.
Just how Synthetix gives people exposure to gold and other commodities, there will be a growing list of local and regional stablecoins that will give community members exposure to their local economies, incentivize local spending and thus strengthen their local communities. These will act much like today’s printed local currencies (e.g., Ithaca Hours, Bristol Pound) but will be more usable and easy to deploy.
Additionally, programmable stablecoins will enable further experimentation around incentivizing spending during recessions. Direct cash rebates and negative interest rates (or demurrage) become possible on a much bigger scale than previously.
Finally, people will begin to experiment with how money itself is created. Much like how money was backed by gold, new stablecoins can be backed by tokenized resources that we want to see more of in the world (e.g., tokenized rainforests). When picking between two stablecoins, you may soon be able to choose between, say, helping to solve global warming, or contributing to it.
Out of the coming recession, we’ll see stablecoins gain broader adoption from the conversations that have started out of necessity from this new normal.