In October 2022, MobileCoin partnered with Reserve to launch eUSD, a first-of-its-kind token pegged directly to the U.S. dollar through multiple stablecoin pools. This currency provides users with the stability they need while making no compromises in ensuring payment security and the ability to keep personal data private. This token is used by many of our partners and in our native applications. We believe eUSD will be the future of cross-border payments.
This article is shared specifically to help the community understand the importance of eUSD to $MOB.
Stablecoins provide much-needed stability to volatile crypto markets — something that will be desperately needed after this year
By Marcus Frank/December 21, 2023
Stablecoins have become a key tool in the dynamic crypto world, providing (relative) stability in volatile markets. Practical use cases powered by Web3 technology evolve around the tokenization of physical assets and the simple, permissionless and borderless transfer of assets. Stablecoins have taken center stage in these transfers and gained prominence as a store of value and medium of exchange.
Looking ahead to 2024, several trends are expected to shape the trajectory of stablecoins.
Demand for stablecoins will increase
Over the past two years, the global stablecoin market has grown to over $100 billion in market capitalization, driven primarily by applications in DeFi, trading, and liquidity management. So far, advances in mobile payments, remittances or settlements have not done much to drive demand for stablecoins.
As the cryptocurrency market continues to mature, end-users and businesses alike are recognizing the importance of the combination of stability, security, and speed that stablecoins can provide in financial transactions.
We are already seeing significant developments in the regulatory environment, such as Europe’s upcoming Markets in Crypto-Assets Regulation (MiCA), or Singapore’s stablecoin framework. Better infrastructure around custody, identity (account abstraction), and access (costs of entry and exit) increases the usability of stablecoins. Improved infrastructure and regulatory clarity will allow and encourage more institutional players to enter the market and enable end-user-centric applications over the next year.
Low volatility assets will be a trend
One of the shifts we expect in 2024 is the growing popularity of low-volatility assets in the stablecoin space.
Market participants are becoming increasingly discerning, not only seeking stability in the value of a fiat currency, but also becoming increasingly aware of the need to reduce exposure to, for example, a basket of currencies or commodities as an inflation hedge. Stablecoins track the value of not just one fiat currency, but a basket of currencies.
With this in mind, stablecoins can be a great settlement tool for multinational organizations that need to efficiently settle transactions across borders. The choice of currency for global trade settlement has significant implications, including exchange rate stability, liquidity, transaction costs and political considerations. For example, the settlement of roaming charges between operators, the settlement of interconnection charges between network operators, the settlement of delivery charges by postal operators or the settlement of freight and transportation costs in logistics networks. Multi-currency low-volatility assets can address these complexities. Low-volatility assets also have the ability to track a basket of commodities within a country or community, making them a good hedge against inflation.
Over-collateralization, transparency and diversification of stablecoin collateral will be key
In order to use digital assets sustainably, users need to know that the asset’s collateral is sustainable. The regulation of stablecoins is also moving in this direction; MiCA, for example, distinguishes between fully transparent and decentralized platforms and credit-backed permissioned projects.
Stablecoin collateral needs to be transparent in terms of the assets actually used to collateralize the stablecoin, but it also needs to be transparent in terms of the counterparties involved. Over-collateralization, transparency and diversification of collateral will be key pillars of the stablecoin framework. Every asset used as collateral is prone to certain risks: by over-collateralizing and diversifying assets, projects aim to reduce the risk of single points of failure and ensure the stability and resilience of the stablecoin ecosystem.
USD-based stablecoins will remain important
The dominance of USD-based stablecoins will continue in 2024. The dollar's global influence in foreign exchange markets and the high interest rate environment will support this development. Users in countries with high price inflation and devaluation of local currencies prefer to use US dollars or other stable currencies such as euros. Despite the emergence of other digital currencies such as cEUR, cREAL or eXOF, USDC and USDT alone have a combined market capitalization of over $100 million and dominate the global stablecoin market.
Local currencies will be the trend
Looking ahead to 2024, I predict a shift in the emergence of native digital currencies. As the cryptocurrency space continues to integrate with traditional financial systems, demand for stablecoins pegged to local fiat currencies is expected to rise.
Read more from our Perspectives section: Interoperability is more than just a buzzword
Users need to pay local merchants, taxes or input factors in local currency. If the user has to borrow money to build the business and requires a loan to start, the user will receive the first income from the business in the local currency. To repay this loan, a foreign currency loan will be more expensive if the local currency depreciates. Therefore, users tend to lend money in local currencies. Local currency stablecoins have the potential to bridge the gap between traditional and digital finance, promoting greater acceptance and adoption.
in conclusion
The future of stablecoins in 2024 is marked by factors that reflect the maturation of the digital asset ecosystem. Anticipated growth in demand, the trend toward low-volatility assets, an emphasis on over-collateralization and transparency, the enduring importance of USD-backed stablecoins, and the rise of local currency stablecoins combine to paint a picture of an evolving landscape.
Dr. Markus Franke is an economist who has worked at the intersection of economics and technology at TradFi (JP Morgan, Merrill Lynch, Allianz) and as a postdoctoral researcher (including at Ludwig-Maximilians-Universität München , Columbia Business School in New York and Hong Kong University of Science and Technology) and Web3 (on Celo, as a board member of cLabs, founder of Mento Labs, and consultant to many projects in the EVM field).