At a time when hundreds of cryptocurrencies are battling alongside bitcoin to earn the trust and mass embrace of consumers, business and banks, their digital cousins in the stablecoin market remain comparatively scarce.
And that’s just fine, Jeremy Allaire, CEO of Circle Internet Financial, told PYMNTS’ Karen Webster while outlining the huge growth trajectory he sees for digital money that’s backed by a major currency.
“I think the doors are starting to open to where, in the next two to three years, we get to a place where there are billions of people who are using stablecoins,” Allaire said. “We're not likely to be in a world where there are, like, dozens of different dollar stable coins. I think we're very likely to be in a world where there are two or three.”
In fact, the stablecoin menu has been purposely kept small to facilitate widescale, mass-market acceptance and trust. Allaire said that’s narrowed the current field of stablecoins to a small handful, with the fastest-growing one being USDC.
“What the market wants is clarity; what the market needs is to know what the rules of the road are,” Allaire said. “And so financial-market participants — whether they be banks or FinTechs or just companies that are going to do commerce on the Internet — want to know, ‘How do we interact with this?’”
The Commercial Embrace Of USDC
Allaire, who describes himself as an Internet technologist rather than a currency guru, said the critical issue underpinning stablecoin adoption will be tech-enabled functionality — or more specifically, the interoperability of USDC between existing payment platforms.
“Like, why can't I use Venmo to pay someone who has Square cash?” Allaire offered as an example. “I mean, we live in the Internet era.”
After all, someone with a Gmail account can send email to someone with an Outlook account across borders — instantly and at no cost. Allaire believes the same standard should apply to transferring money.
While that might seem far-fetched today, Allaire said the development of market infrastructure around stablecoins is moving virtually at the speed of light.
“The technology infrastructure that's coming out of the blockchain industry is just remarkable,” he said. For instance, he said third-generation blockchains can already run and support tens of thousands of transactions per second, providing settlement finality in milliseconds. “That's the here and now,” Allaire said.
Rapid Scaling Of Stablecoins
Allaire believes stablecoins’ current support and growing embrace from traditional payments companies, FinTechs and other innovators will be why the concept will scale out to the private sector — and billions of users — over the next 24 months. He added that the pandemic has only accelerated the process, with surging demand for U.S. dollars as other currencies experience increased volatility.
In terms of growth and adoption, Allaire said USDC stable coin is up 500 percent, going from about $30 billion in transaction volume to $140 billion in the past six months.
But while impressive, Allaire cautions that as with any fast-growing product or industry, the rise of stablecoins won’t be without missteps. “Anytime you have these breakthrough Internet innovations, they're double-edged swords,” he said.
Managing The Risk
To harness the innovative and disruptive potential of stablecoins and unlock their true potential for people, businesses and the financial system will require a solid and transparent regulatory framework.
Allaire said managing those risks is and will continue to be the job of national and supranational regulators, including central banks, the International Money Fund, the World Bank, the Bank for International Settlements and the Financial Stability Board. If global stablecoins are to work around the world and be used broadly, consistent supervision and regulation will be needed.
With so much growth and potential, it’s hard to imagine a scenario where the disruption caused by stablecoins doesn’t also have some casualties in its wake.
To that point, Allaire predicted that the ability to extract a significant profit margin for processing a payment or conducting foreign exchange on a payment will be greatly reduced over the long term.
“People who have big fat margins in payment transactions that have huge percentages of FX markup and stuff like that — I think those businesses probably have to think about other sources of revenue or other ways to provide value,” Allaire said.
And while stablecoins’ mainstream moment might still be in the works, standing in the way of progress is never a good idea.
“Scaling is happening now — we're seeing that infrastructure come on now,” Allaire said. “Things happen faster on the Internet now.”