Stablecoins Go Mainstream: From Crypto Tool To Potential New Payment System Pillar

Summary Why stablecoins are suddenly so ￰0￱ the Genius Act became a gamechanger for ￰1￱ and opportunities in ￰2￱ ￰3￱ passed landmark legislation to regulate so-called stablecoins, or digital tokens that are designed to maintain a fixed value against assets such as the ￰4￱ Marple, Associate Vice President and Senior Economist with TD Bank Group, says while the new legislation is not without risks, it could potentially reshape the ￰5￱ system making remittances and trade payments faster, cheaper and more ￰6￱ Kim Parlee: Stablecoins, digital tokens pegged to the U. S. dollar, are no longer just a niche tool for crypto traders, and new ￰7￱ is bringing them into the regulated financial mainstream with the potential to reshape payments and global ￰8￱ next guest has written a report on this called Stablecoins Enter the ￰9￱ Marple is associate vice president and senior economist with TD Bank ￰10￱ is great to have you in ￰11￱ Marple: It's great to be here, ￰12￱ Parlee: It's a really good report.

I'm just going to tell people, if they want it, it's on the TD Economics ￰13￱ should take a look because we're not going to get into all of ￰14￱ let's just start with ￰15￱ for someone who's learning for the first time, what the heck is a stablecoin? James Marple: Sure. Well, a stablecoin is a digital asset or a token, like you mentioned. It's recorded on public blockchains like Bitcoin and all of the other cryptocurrencies out there, but it is engineered to maintain a steady value with the U.

S. dollar, so you know that when you go to redeem it, it is worth one U. S. dollar, even if it lives in a digital ￰16￱ as you mentioned, it's really useful for people who want to trade in and out of more volatile cryptocurrencies.

So, if you have had some gains on your Bitcoin, you want to actualize them, you can trade them for a stablecoin, keep it in the digital ￰17￱ don't have to go to your bank and take the money ￰18￱ then, you can get right back into the market if you ￰19￱ that's where it has had its first uses, really, in the cryptocurrency ￰20￱ increasingly, it's also a digitally programmable payment tool that could be particularly useful for people who want to send money abroad, even business to businesses who want to put potentially some contracts into their payments-- they can do ￰21￱ so there are growing use cases really as payments because they are instant and close right away, and so that's where I think the biggest use case ￰22￱ Parlee: It's interesting, you talk about in your report-- as I mentioned, it's great-- about why it originally was used, which you just kind of gave the great, crystallize your gains, don't worry about they're going to go away somewhere in that digital ￰23￱ merchants can use them, institutions and settlements infrastructure, and it could have even more uses down the ￰24￱ Marple: ￰25￱ Parlee: Like what?

James Marple: Well, I mean, right now, as we said, they're just basically used in the digital asset space as a trading ￰26￱ I think the best use case is really remittances, where you have, if you want to send money abroad to a family member, right now, you have to go through a chain of different banks, you go to maybe your credit union, you pay a fee, you have an exchange fee, and then finally they have to go to their ￰27￱ it could take a while to close, and also there are various fees associated with ￰28￱ digital payments, especially with stablecoins, obviously, you can do that, you can maintain its value, its ￰29￱ value ￰30￱ open up a wallet or use a provider, and transfer them directly the ￰31￱ stablecoin, and then they have it and then they can keep it there if they want-- and in many countries actually holding ￰32￱ makes a lot of sense if you're worried about the volatility of your own currency-- or they can cash it out ￰33￱ there are some fees, obviously, associated with moving money in and out of stable coin, but you remove a lot of the intermediate potential costs and time frame so you can lower the costs and speed up the payments, and for many people that's a real important use ￰34￱ Parlee: We're not gonna do this justice, but all of this depends on trust-- that it will maintain its value and that's all there, and that was a ￰35￱ write in your report back in May of 2022 with some groups that...

Terra-- James Marple: TerraUSD, ￰36￱ Parlee: That's right, they couldn't keep the peg where it should be. Now, since then, the GENIUS Act has come in in the ￰37￱ me what that does, why that matters, and if it does build confidence in the ￰38￱ Marple: Well, that's really the whole idea behind it, that TerraUSD was not a coin that was backed by one-to-one with highly liquid assets. So, it was an algorithmic stablecoin that relied really on trust and assurance that it would be there when you needed ￰39￱ it wasn't. There was run risk, just like we see with the potential for bank ￰40￱ this aims to say if coins are held, if their reserves are in ￰41￱ or cash deposits, you know as a user that it's going to be there when you need ￰42￱ so, the GENIUS Act has put that into ￰43￱ has also made sure that they are audited regularly, that coin holders get the first dibs in bankruptcy, so that you can have confidence that you can maintain your assets in stablecoin and they will be worth one-to-one the ￰44￱ that's the ￰45￱ is a lot of detail still yet to ￰46￱ example, the rulemaking takes about 18 months before they have to have all the rules, but they will say even how much has to be held in very, very short-term Treasuries, how much has to be held in ￰47￱ I think those details will really go the next mile to increasing adoption as the certainty around their value is ￰48￱ Parlee: The interesting thing-- and you highlight in the report, and people who are into this space know it-- but it's the second-order derivative of this is that it's interesting for stable coins, but also interesting for the instruments that are used to back the stable coins, so this being U.

S. Treasuries, and where it creates ￰49￱ maybe, I know we've got a chart here that talks about that, and it shows that there's some interesting things ￰50￱ Marple: Yeah, well already, I mean, it's small relative to the pool of global money, but at $250 billion it's not ￰51￱ in the Treasury market, just Tether and Circle-- which are the two biggest issuers-- they hold 130 billion in ￰52￱ that's about 2% of Treasury bill ￰53￱ might seem small, but if you stack that up against other countries, they hold more ￰54￱ than South ￰55￱ Parlee: That's ￰56￱ Marple: ￰57￱ if it grows further, I mean, we're at 250 billion ￰58￱ forecasts are that as use cases increase, the adoption increases, we could go to $500 billion, maybe a trillion dollars.

They're holding primarily short-term ￰59￱ that becomes an important buyer in that market. I mean, that's good and bad. It's good if they're ￰60￱ if there is all of a sudden redemptions, it also could create volatility ￰61￱ that's something that regulators are paying a lot of attention to right ￰62￱ Parlee: What are you watching in the next 18 months in terms of either regulation or adoption or stability? I mean, what are the things you're looking at?

James Marple: Well, ￰63￱ details of some of the rulemaking around what assets exactly, even the maturity of those assets, I think will be important. It's also important how much cash they have to hold, just in terms of the potential implications for the banking system if everyone's holding stablecoins and not holding deposits ￰64￱ is a potential ￰65￱ I think also just the interoperability and having them on multiple chains-- I mean, getting a little bit into the ￰66￱ you really need something that someone can use and can interact with the system, take it out on ￰67￱ a lot of those details, we still have to see the technological innovations and the regulatory backdrop ￰68￱ that's what I'll be ￰69￱ Post