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It is an exciting time to be in business. The emergence of web3 technologies such such as non-fungible tokens (NFTs) and stablecoins are presenting new opportunities for businesses to streamline money movement and other use cases.
Stablecoins specifically have a slew of practical applications that make evaluating their suitability within a business environment crucial. And, according to Bradley Riss, CCO at Checkout.com, “If NFTs are the gateway for consumers to enter Web3, stablecoins should serve the same purpose for businesses.”
To unpack this statement and explore what value stablecoins can provide in the business world, PaymentsJournal sat down with both Riss and Tim Sloane, VP of Payments Innovation at Mercator Advisory Group.
CBDCs, stablecoins, and Web3: defining important terms
Central bank digital currencies
While not the focus of Riss’s and Sloane’s conversation, central bank digital currencies (CBDC) are often discussed in the same realm as stablecoins. “A central bank digital currency is effectively a digital form of fiat. Traditionally, central banks will print money. A CBDC is basically the digital version of that,” Riss said.
Whether dealing with fiat currency (government-issued and not backed by a physical commodity) or digital currency, people need to trust that their money will hold value. “It’s not actually asset based. You’re putting your faith in the regulator, and effectively the country, to ensure that dollar or peso or euro or pound [retains value],” added Riss.
Stablecoins are digital assets pegged at a 1:1 ratio to another asset. Typically, this will be a fiat currency. However, there are also stablecoins pegged to gold and even algorithmically backed. Stablecoins enable the benefits of technology to be realized without the risk of volatility that is associated with cryptocurrencies like Bitcoin.
While U.S. denominated stablecoins like USD Coin (USDC) and Tether (USDT) are minted, there is no central authority issuing them. “So, for example, someone like Circle will take a U.S. dollar and mint a UDSC for that. Once it’s in this digital form, it will then normally run that UDSC on a chain, and this could be on a variety of chains–there is not one blockchain that operates USDC,” continued Riss.
At its most basic level, Web3 is a concept for a new iteration of the World Wide Web based on decentralized blockchain technology. Describing Web3 as a transitionary period, Riss explained that the one constant in the definition of Web3 is blockchain. “From a standards perspective, we are starting to move components of the internet into the blockchain, which hopefully creates a foundation for other functions and apps to operate on top of that,” he said.
Stablecoin business use cases around money movement
Stablecoins can deliver on the promise of improving the movement of value between any two parties, whether that be a business sending money to a business, a business sending money to customers, customers sending money to a business, or consumers exchanging money among themselves. To underscore this value, Riss offered three stablecoin business models that show how they can improve money movement:
Business model #1: Money remittance
Moving small amounts of money across borders is often inefficient and expensive. It also involves complying with assorted global – but locally regulated – banking facilities. With stablecoins, “the transaction could be run on a chain instantly for nothing–maybe not free, but a fraction of [a] cent. In that sort of business, the alternative would be [to] take money in via a bank transfer or even a debit card, for example,” Riss said.
While debit and bank transfers have made enormous strides over the years, they are not perfect. Settlement cycles mean that businesses still need to front that liquidity, taking on a line of credit and adding to their business inefficiencies. That’s where stablecoins moving on a blockchain come in. “If, in theory, that money could be transferred to them on demand or hourly or instantly, then that liquidity gap disappears and you’re making the system much more efficient,” he added.
Business model #2: The gig economy
Freelance networks often consist of small and medium enterprises (SMEs) in affluent countries contracting cost-effective developers in another nation. For example, a business in the United States may want to work with a contractor based in Kenya.
“The actual movement of money from, for example, the U.S. to Kenya [can be] done on a chain using the right chains for free and arrives in near-real time. The alternative would be using that SWIFT-esque example [where] that $100 that needs to get there may have $35 cut out of it, another 5% taken on FX when they convert Dollars to Shillings, and could take five days to get there,” explained Riss.
Business model #3: Peer-to-peer payments
Domestic peer-to-peer (P2P) payments can be easily accomplished through apps such as PayPal, Cash App, and Venmo, but they become more complicated when payments are international. Consider the hypothetical scenario of a daughter in the United States who wants to send money to her father who lives in France. “Using the underlying blockchain technology [of stablecoins] would be a way for [her] in real-time to send value, money, in a stablecoin form to him. Maybe it arrives in USDC, maybe it arrives in a Euro denominated stable coin,” Riss said.
Commenting on these use cases, Sloane noted that “almost all of those examples are, in essence, cross-border examples of the challenges associated with moving value. And that has been an age-old problem.”
Stablecoin usage could mimic NFT consumer interest
Non-fungible tokens, or NFTs, are a cryptographic token stored on a blockchain that can be sold and traded. NFTs come with unique identification codes and metadata that distinguish them from one another. They can be used to represent real-world items, such as artwork and real estate, as well as digital goods. Tokenizing real-world assets makes it possible for them to be bought and sold more efficiently.
Much of growing consumer awareness around NFTs involves industry buzz and public figure involvement. For example, celebrities including Eminem, Paris Hilton, Jimmy Fallon, and Steph Curry have been in the news for purchasing Bored Ape Yacht Club NFTs, a collection of 10,000 images of apes with unique traits and outfits.
Riss believes that like NFTs, consumers’ initial touchpoints with cryptocurrency will come from recognizable products or public figures engaging in the space. “There’s obviously a lot of [NFT] buzz in the industry, and I think that has brought a lot of people in. So, I think a lot of consumers’ first touchpoint with crypto won’t be yield farming an alt coin for an attractive APY [annual percentage yield]. It will be a product that they recognize, something which they like the design of [or] something that maybe has a celebrity tie-in and brings them closer as a fan,” he said.
There are many buzzwords being discussed in the crypto space. Knowing where to start in terms of implementing them begins with embarking on an educational journey. This means gaining a deep understanding of terms such as NFT, blockchain, distributed ledger, cryptocurrency, stablecoins, Web3, and more.
“Get an understanding of what the blockchain technology can do,” Riss advised. “If, for example, you’re a fintech and cash flow is important to you, then very potentially the application of stablecoins would have value within your business. If you’re a content producer, very possibly an NFT will be something that your user base or fan base will find appealing,” he added.
Businesses that fail to take these technologies into consideration risk putting themselves–and their customers–at a disadvantage. “Our role in the industry is to help our customers and their customers move value seamlessly. But, of course, as new technologies emerge that improve upon that, I think it would be foolish for any organization who is involved… [to] not look into this and see if it can improve operations for their business inefficiencies,” concluded Riss.