This was an early promise of bitcoin. The narrative was that it would end up banking the unbanked.
Unfortunately, this has not turned out to be the case. There are millions who are involved in cryptocurrency who never got their hands on any bitcoin. We can see this from many of the Nigerians, as an example. The testing of VSC was the first time they had bitcoin in any form.
Stablecoins, on the other hand, are fulfilling this purpose. It is truly opening up the door to banking services. Over time, this is going to grow.
Ionically, it is the tied to the US Dollar that is doing this. It is a fact recognized by the CEO of Tether. Source
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Many people do not have bank accounts. There are a variety of reasons for this.
One is that, in many parts of the world, the banking systems are overtly corrupt. banks are notorious for being criminals yet some take it to another level. There are countries where, if a deposit is made, the bank will claim it never took place.
We also have a large portion of the global economy who cannot sign up for banking services. This could be due to location, lack of identification, or lack of qualification.
None of this matters to cryptocurrency. A digital wallet is not concerned with any of that. As long as an individual is able to connect to the Internet, the wallet is accessible (with the private key).
This was the dream of bitcoin. What people are finding is that, having access to the US dollar is very important especially to those in developing countries. This is a medium of exchange that is recognized. At the same time, the are dependent upon the exchange with the USD since many products are trading internationally.
Here is where a stablecoin serves as a dual mechanism. Not only does it serve as a medium of exchange but, against the local currency, it is actually a store of value. This is of great benefit to people in these nations.
There are roughly $107 billion Tether in circulation with another $32 billion USDC. These are the two biggest stablecoins.
People like Elizabeth Warren constantly espouse how these are threats to the global financial system. This is simply bad math. We are talking about roughly double the money the US sent to Ukraine. Global financial threats are measured in the trillions (more likely tens of trillions).
What is overlooked is the asset backed stablecoins actually feed into the existing system. As these expand in number, they purchase US Treasuries (mostly T-Bills) for the reserve. In a twist of fate they are essentially tokenizing US Treasuries.
It is not, however, expanding the money supply. Since each stablecoin is generated by the deposit of a dollar, this money is actually flowing into the banking system. What changes is the utility is shifted from the digital dollar to the stableocoin.
This also most likely moves, at least to some degree, outside the United States.
Here is where the unbanked start to enter the picture.
In my view, the future of crypto, at least in the medium term, is stablecoins. We are going to see millions of other tokens created yet it is this token that will be utilized as currency.
Therefore, it is prudent to consider what is the future of stablecoins?
I would say we are rapidly heading toward a time where trillions of them will be required. As a frame of reference, the latest H.6 from the Federal Reserve shows $2.32 trillion banknotes in circulation. The second leading currency (EUR) has roughly $1.6T (priced in USD).
We have around $4 trillion in banknotes (physical cash) between the two.
Thus, $140 billion is a drop in the bucket. We are talking about 3.5% of the cash, leaving aside what is in people's bank accounts.
To summarize, the future is more.
If we are going to need a lot more stablecoins, what form do they take? Many believe asset backed is the way to go. It certainly is what the regulators desire.
However, my take is a future where algorithmic stablecoins emerge as the popular choice. These can expand in a more rapid fashion and can be tied to specific networks. It also shifts where the money supply is located.
Instead of being inside the banking system, since Treasuries are purchased for USD, the expansion of this supply occurs outside of it. Even if a stablecoin is trusted, there is counterparty risk to the banks. We also see risk from the US government.
Do you think they are above absconding assets? Just ask the Russians. There is no way to guarantee the US Government will not wake up one day and confiscate the assets. It is a risk simply not worth taking.
Cryptocurrency is designed to change the financial and monetary system. Algorithmic stablecoins are a threat because they operate in a much different manner.
Here is where the elimination of counterparty risk enters. While there are still risks, they are not from a third party intermediary.
Instead, we have the blockchain responsible for coins. This is a major difference.
And, as long as someone has the private key to a digital wallet along with an Internet connection, he or she is "banked".
