Moody’s analysts say that the current enthusiasm surrounding stablecoins may be significantly overstated.
Earlier this month, the United States Senate approved a historic bill to formally legalize the issuance of stablecoins in the country — legislation that, according to those involved, once signed, will unlock the potential for instant payments via blockchain across all sectors of the American economy.
Crypto industry leaders predict that once the federal government gives the green light, hundreds — or even thousands — of stablecoins could flood the market, challenging the dominance of giants Tether (USDT) and Circle (USDC).
But not everyone shares this optimism. Moody’s analysts, one of the world’s leading credit rating agencies, claim that the current enthusiasm surrounding stablecoins may be significantly overstated — and that, even if legislation progresses in the US, there are numerous obstacles to the widespread adoption of these assets.
“I don’t think we will see a flood of new issuers,” said Cristiano Ventricelli, a senior analyst at Moody’s specializing in digital assets, to the Decrypt website. “We must not forget that issuing stablecoins is one thing, but having a viable business model for them is another.”
The reason for caution? It is directly related to whom advocates believe will adopt stablecoins — and why. Two frequently mentioned sectors are institutional finance and large-scale retail. According to the thesis, large banks would rush to create their own stablecoins to make cross-border payments instantly, while large retailers would create their own dollar-pegged tokens to avoid high payment processing fees.
Both use cases, however, face significant challenges, according to Ventricelli.
In the case of large banks, it is true that they could create their own stablecoins to expedite payments. But launching a new currency pegged to the dollar and backed by audited fiat reserves would be a time-consuming and costly process — something that could be resolved more simply with the launch of tokenized bank deposits (like those recently launched by J.P. Morgan and considered by HSBC and Deutsche Bank).
“Do you really need a stablecoin for that?”, Ventricelli questioned, referring to the banks seeking to make payment transfers more efficient. “Or are there other solutions?”
In the retail sector, the situation becomes even more complicated. Although companies like Amazon and Walmart are reportedly studying the launch of their own tokens, Ventricelli is not sure that these plans will indeed materialize.
If large retailers end up launching stablecoins to control their own payment networks, consumers would be left with too many tokens in hand — each likely functioning as a voucher within closed systems, explained the Moody’s analyst. One stablecoin to buy coffee at Starbucks. Another to shop at Walmart. Yet another to buy online at Amazon.
The situation would quickly become unsustainable, Ventricelli said — especially considering that, to exchange one stablecoin for another, robust liquidity pools would be needed for each possible pair of tokens. This harkens back to the universe of decentralized finance (DeFi), where lucrative incentives help form these liquidity pools among pairs of crypto tokens.
“If you want to exchange one asset for another, you need a deep market,” Ventricelli stated. “Can we really imagine a deep market where it is possible to exchange Amazon's stablecoin for Walmart's stablecoin? Maybe yes, maybe no.”
If such liquidity pools do not emerge, the situation will become even more complex.
“I need to convert Amazon's stablecoin into fiat currency, and then use that currency to buy Walmart's stablecoin,” Ventricelli said. “It’s hard to say that we are solving a real-world problem this way.”
In recent weeks, likely motivated by the imminent potential approval of legislation on stablecoins in the United States, major players around the world have begun exploring the issuance of their own tokens pegged to fiat currencies. But curiosity and commitment are very different things.
“The fact that it is now possible to do something does not necessarily mean that everyone will rush to do it,” concluded Ventricelli. “That’s what we hear from the media, but it’s not necessarily how we think about the issue.”