Stablecoins are critical to mainstream crypto adoption

by Arthur · February 20, 2023

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Even with the recent crackdown by the Securities and Exchange Commission (SEC) against cryptoassets – including stablecoins – the most logical and sensible path for mass crypto adoption remains via stablecoins.

2023 has gotten off to an intense start for the crypto-asset sector, with several enforcement actions sending shockwaves through the market, leading some to speculate about the future of crypto-assets in the US. These rumors and speculation that Binance, the largest crypto exchange in the world but the subject of several US investigations, will leave the US market, have only added to the swirling debate and controversy in the cryptoasset space.

Of note is that despite US-led actions to protect investors and better ensure healthy capital markets, investors have diverted funds to stablecoins such as USDTUSDT, a stablecoin that is by all accounts the prime example of questionable accounting, reporting, and disclosures. On the other hand, it is worth noting that JP Morgan, which also has the Onyx blockchain platform that counts among its members hundreds of international banks, has recently launched its deposit token – a privately issued and governed stablecoin to be used on a privately controlled blockchain.

Speculation aside, it seems clear that the regulatory stance and approach has changed to a more aggressive approach, which is reasonable when seeking to uncover unethical operators in the space. That said, and acknowledging that more volatility may be in store for crypto firms looking to launch and expand in the US, stablecoins remain critical to mass crypto adoption; let’s take a look at some of the main reasons why this is still true.

Investor and user knowledge. One of the strongest and most obvious features of stablecoins is the fact that these instruments are simpler and easier for users and investors to understand. Lower volatility in general, and the fact that the vast majority of stablecoins – and stablecoin transactions – take place using dollar-backed coins, makes the whole process easier to understand and integrate into current payment rails, controls and processes.

It is also hard to overstate the impact and importance of minor speculation on the interest and support that stablecoins attract. With millions of Americans, and even more global cryptocurrency users – even in the face of price volatility and regulatory breaches – it’s clear that there is an appetite for crypto; stablecoins have proven to be an excellent on-ramp for adoption with no signs of abating.

Institutional support. Although cryptocurrencies and cryptoassets more generally were designed and developed to bypass and disintermediate traditional financial institutions, stablecoins are a clear sign of how crypto and other blockchain-based applications have been embraced by those same institutions. One of the largest and most prominent stablecoins, USDCUSDC issued by Circle, is a direct by-product of a joint venture between the traditional financial world and the crypto space. While some would lament such a combination, the reality is that mainstream adoption requires institutional support and buy-in.

Additionally, and despite many public comments criticizing bitcoin as a Ponzi scheme – or equivalent – JP Morgan (led by bitcoin skeptic Jamie Dimon) has enthusiastically embraced blockchain and stablecoins. The recent rollout of the “deposit token,” which operates and resembles a stablecoin in virtually every way, illustrates the upside and opportunities that these instruments hold for financial institutions.

Utilize existing tools. Building on the previous two points, stablecoins represent a unique iteration of crypto that has made it such a viable on-ramp for individual and institutional adoption; the fact that these transactions can – and do – take place on existing payment rails. Although there have been recent setbacks in the recent regulatory environment, the fact that some of the largest payment processors and financial institutions in the world, which is important for two (2) reasons.

First, the fact that established financial institutions are making stablecoins both available for investors to use and/or developing internal alternatives will always make it easier and easier for non-expert crypto users to embrace these tools. Second, and more importantly given the recent regulatory shift, stablecoins appear to be the easier way to work with regulators, overcome legal headwinds, and achieve mass adoption.

Crypto is in for a volatile year, but stablecoins remain the best path for mainstream adoption.

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I am a professor at the City University of New York – Lehman College. I sit on the Advisory Board of the Wall Street Blockchain Alliance, where I lead the Accounting Work Group. I also chair the NJCPA’s Emerging Technologies Interest Group (#NJCPATech). I serve on the Advisory Board for Gilded, a TechStars ’19 company and participant in the AICPA-CPA.com startup accelerator. I was a visiting researcher at the American Institute for Economic Research in 2019.