Fintech
What are the biggest innovations related to stablecoins?
In recent years, digital currencies have been very popular. However, the idea that digital assets are exclusively some form of currency is slowly falling by the wayside as different use cases are emerging and rapidly being adopted. This may, The times of fintech is trying to showcase some of these new methods and explore how the digital asset ecosystem is evolving.
Cryptocurrencies offer myriad benefits for cross-border transactions. The lack of fees for transporting money abroad greatly distinguishes it from traditional money movement platforms. However, the volatility of cryptocurrencies often means that transferring money in this way can be risky, as by the time the recipient receives the funds, they may be worth less. This is where a stablecoin can come in.
Stablecoins are digital assets pegged to another asset, often government-issued fiat money. Therefore, stablecoins have the ability to use cryptographic payment gateways (which are often fast and have lower fees) without running the risk of volatile value.
Laurent ScoutoutCEO and co-founder of Neo, the cross-border business solutions provider, commented: “Stablecoins are becoming an increasingly viable payment option for goods and services in the real economy. Many see the huge potential that could come from overcoming the slow and inefficient processes of traditional payments and providing greater security, record keeping and transparency.
“While it is too early to tell whether stablecoins will eventually replace traditional forms of payment, treasurers need to start preparing. They should read up and stay abreast of the latest developments and start having conversations about their feasibility and the digital wallets that allow them to store and use them. Those who don’t do so risk being left behind.
“Large companies and institutions have taken notice and have started taking action to ensure they remain at the forefront of any changes to the way we make payments. PayPal has been expanding its presence in the cryptocurrency space, initially accepting payments via Bitcoin until launching its stablecoin late last year. While JP Morgan unveiled an improved tokenized payment platform following the success of its JPM stablecoin.”
Stablecoin with yield
Tether’s success has pushed many companies to enter the stablecoin market trying to replicate its results. However, Seb WidmannHead of Strategy at Komainuthe regulated custodian of digital assets, notes that there are some outliers in the space with new offerings.
“Stablecoins have become increasingly popular as a viable business model following the recent rise in interest rates. This increase has allowed major stablecoin issuers to realize substantial profits from the underlying reserves that support these stablecoins.
“For example, Tether reported more than $4 billion in profits in the last quarter alone. This interesting and simple business opportunity has led to the arrival of numerous new stablecoins on the market, with little differentiation from existing ones.
“However, the market has still seen some innovation, particularly with the emergence of yield stablecoins which pass on some of the yield generated by treasury activities to the end customer holding the stablecoin. This therefore makes it an attractive alternative to existing stablecoins like USDC and USDT we have seen with projects like USYC’s Hashnode or USDY from Ondo Financeas well as others.
“In parallel, following the crash of EarthUSD and Moon ecosystem in 2021, we are seeing traction in algorithm-backed stablecoins again.
“While DAI is still the largest algorithm-backed stablecoin that relies on a pool of other digital assets (and even traditional assets recently), a new stablecoin launched by Ethena, USDe, has generated significant traction this year , worth more than $2.3 billion.
“Unlike fiat stablecons like USDT or USDC, USDe is a synthetic dollar, backed by a basket of cryptocurrencies and a corresponding short futures position. USDe therefore currently maintains an anchor through the use of delta hedging derivative positions against collateral held by the protocol.
Lay the regulatory foundations
The biggest success of stablecoins will revolve around regulatory acceptance, he says Jill Wongpartner of Reed Smiththe international law firm.
“Although the regulatory regime is not yet in place in Hong Kong, some stablecoin issuers are already laying the groundwork. One innovation I see is the use of innovative technology to secure stablecoin transfers and provide hedge verification of reserve of the stablecoin.
“For example, an aspiring issuer of a stablecoin that will be backed 1:1 by the Hong Kong dollar has announced a collaboration with a decentralized computing platform to enable secure and reliable cross-chain and cross-border transfers. Meanwhile, it also provides reliable verification on the stablecoin’s backup media chain. In the future, real-world assets tokenized in the stablecoin can also be transferred reliably and securely.”
Beyond fiat currencies
Matteo McAndrewfounder and CEO of Bubbly wine Advicethe digital marketing agency notes that stablecoins are exploring other values to anchor themselves to.
“While traditional stablecoins like Tether (USDT) and Circle (USDC) are pegged to the value of the US dollar, recent stablecoin innovations have expanded beyond fiat currencies. New stablecoins not backed by fiat currency can be tied to commodities, hedged derivatives, multiple cryptocurrencies (similar to a fund), and even real estate.
“Commodity-backed stablecoins are pegged to the value of the underlying commodity, such as gold, silver, platinum, diamonds or oil. Tokenized versions of commodities offer numerous advantages over traditional commodity-linked derivatives and indices, which often include indirect exposure beyond the value of the commodity itself, such as shares of mining companies.
“Tokenized commodity prices are pegged exclusively to the underlying commodity. Additionally, tokenized commodities allow users to own fractions of assets and can also provide holders with greater liquidity on a 24/7 trading basis, depending on the asset.
“Another recent innovation in the stablecoin field is Ethena: a decentralized alternative to traditional stablecoins based on Ethereum. USDe is a synthetic dollar protocol that maintains stability through collateral on delta-hedged Ethereum and Bitcoin.
“Ethena is being called the “Internet Bond” for global savings, combining yield derived from tied assets (e.g., tied Ethereum), as well as underlying funding and spread from perpetual and futures markets, to create the first crypto -native onchain solution in terms of money and provide holders with a native internet yield. The current sUSDe APY is 15.9% and there are approximately 180,000 Ethena users, with a TVL of $2.3 billion locked in the protocol. .
“The ENA token has been distributed to early participants and is currently traded on several cryptocurrency exchanges, such as Binance AND Bybit.”
No industry can escape AI
Without a doubt, the most impactful technology that has emerged in recent times is artificial intelligence (AI). It seems that no sector, nor sub-sector can escape it. Peter Woodtechnical director at Spectrum Researchrecruiting firm web3, explains how artificial intelligence has influenced stablecoins.
“This year has been significant for stablecoin innovation, particularly through the application of advanced artificial intelligence technologies to improve stability mechanisms. We are seeing a surge in algorithmic stablecoins, which use real-time data and machine learning models to dynamically adjust supply, ensuring tighter adherence to their pegs.
“This AI-driven approach not only improves stability, but also introduces a previously unattainable level of responsiveness, showing a leap forward in how digital currencies can mirror traditional financial stability with a modern twist.
Traditional adoption
Nick MaynardVice President of Fintech Market Research at Juniper Researchmarket researchers, reflect on how innovations are impacting stablecoin adoption.
“We have seen a number of key innovations in stablecoins: many new stablecoins have been launched and experienced growth. For example, PayPal launched PayPal USD in August 2023, which represents a major development in space. We have also seen increased adoption in B2B payments and cross-border payments, which we believe will be major areas of disruption for stablecoins in the future. Ripple it also has has entered the stablecoin spacecommitting to flipping its own coin.
“The biggest development is really how mainstream stablecoins are becoming: Visa recently launched its own analytics dashboard for stablecoin availability, with Band recently announced that it will begin accepting the USDC stablecoin for transactions.”
