By Andrey Peshkov, USDX Wallet CEO
Recently, the largest bank in Japan, Mitsubishi UFJ Financial Group (MUFG), has announced the imminent release of its stablecoin. Jesse Lund, who’s responsible for blockchain developments at IBM, has hinted at “IBM stablecoin” possibilities. There are rumors that Facebook plans to launch its stablecoin too. So why large corporations are so interested in this type of crypto? What problems they are trying to solve with its help?
Stablecoin: it’s “economically” sensible
The main problem of cryptocurrency is its high volatility, once again demonstrated during recent dramatic fall and rise of Bitcoin and main altcoins. Stablecoin’s main “task” is to fix this volatility, since it’s tied to the value of fiat. Enters Tether (USDT), the first stablecoin pegged to the US dollar at 1:1 ratio.
That’s clear, but what problem a stablecoin can fix for large corporations? The answer is – it can simplify money transfers and payments. For example, the MUFG has originally planned to use its stablecoin (J-Coin) for internal transactions. It was recently announced that J-Coin could also be used for payments in restaurants and shops, as well as transferred to other banks’ clients.
A couple of months ago, JP Morgan also announced the issuance of its stablecoin (JPM Coin). Initially, it was planned as a means for corporate commercial settlements, but now it will be used in international payments of corporate customers and instant settlements of securities. International payments are very complicated, they require lots of documents, and they are too slow. An introduction of a stablecoin to the mix could become a huge step forward not only for corporate clients of the bank but for the banking sector as a whole. Stablecoin also simplifies the transfer and storage of significant amounts of money. While newly-launched stablecoins of unknown startups struggle with trust issues, a stablecoin of a reputable bank won’t encounter a confidence problem.
IBM is also going to issue stablecoins for banks’ needs and international payments simplification. IBM and Stellar have developed the Blockchain World Wire (BWW) platform, enabling banks to make cross-border money transfers in real time. At the moment, calculations are carried out with the XLM token. However, IBM has signed an agreement of intent with six banks to issue its stablecoin, backed by national currencies. Three of these banks are already known: the Philippine RCBC, the Brazilian Banco Bradesco, and the South Korean Bank Busan. Jesse Lund has stated that unlike a JPM Coin, an IBM stablecoin will be more accessible and backed by more than one national currency. Apparently, it will be exchanged on the BWW platform.
It’s rather clear how banks – and IBM, for that matter – will benefit from their stablecoins issuance. But what’s Facebook interest in it? The answer is simple – payments, again. WeChat has proved that payments could be successfully made via social networks/messengers. In 2018, 84.3% of all payments in China were made via WeChat Pay. Facebook’s management realizes the massive potential of this market. A stablecoin can make P2P payments quick and easy, eliminating the complexity of transfers via banks. The only problem Facebook could face is regulation. On the other hand, the IT giant will surely have an opportunity to get licenses and permissions from the government.
The future: corporations + stablecoins = …?
There is little doubt that corporations will start the issuance of their stablecoins. The blockchain will enable fast and easy cross-border transfers of large banks and small P2P transfers of social networks’ users. However, are there any other use cases for stablecoins? In addition to remittances, they could become a means of payment (although some will question the need for crypto payments while we still have fiat). Stablecoins have more significant potential in countries with volatile inflation (Venezuela, Zimbabwe) and limited access to banking services.
Will more corporations issue stablecoins for their internal settlements? If JP Morgan will set a successful example, why not? The critical question, though, is this: will top management of multinational companies have enough courage for disruption?