Stablecoins, and their ability to interact with both traditional fiat and emerging cryptocurrencies, pose an exciting opportunity for businesses to streamline global operations. We’ve already seen them, more than any other cryptocurrency, elevated to mainstream awareness.
Technology-forward establishments like Facebook have been major proponents, driving policymakers to take the technology seriously and begin the conversation around the regulatory parameters for stablecoins. Tether, the USD-backed stablecoin, has surpassed bitcoin as the most widely used cryptocurrency.
Amid this backdrop, it is important for companies to understand how stablecoins can be used for their businesses if they are to truly take advantage of the opportunity in front of them.
In an ever-connected global economy, your business is only as strong as the exchanges it makes. That’s why, when making cross-border payments, businesses are frequently undermined by extended settlement periods and payments delayed by intermediaries.
Let’s say a global business wants to move $1 million USD from its New York headquarters to its Hong Kong office to fund Asian expansion plans in HKD. Those USD first must be sent to a correspondent bank, that exchanges the USD for HKD, which in turn are sent to the Hong Kong office’s bank account.
Fees are applied to each exchange or movement, and the settlement will take a couple of days – without taking into account any bank closures for the weekend, or the national holidays of either country that can add further delays to settlement.
A stablecoin, however, is nearly immediate. The USD to HKD example is a common, but fairly simple example. For more “exotic” currencies, that have less liquidity, these international exchanges can be more difficult to conduct.
A Norwegian business looking to invest in its Cambodian office may have to exchange its Norwegian Krone to USD before exchanging that for Cambodian Riel – adding an additional step, with additional fees.
Stablecoins, with their instant settlement and high liquidity, avert the issues that have long plagued cross-border transactions. This better equips businesses to manage their international finances and provides much-needed liquidity to the underserved economies of lesser economically developed countries.
The launch of more stablecoins pegged to a wider variety of fiat currencies will be important and in the year ahead we can expect more issuers to step in to fill the demand in this arena.
Improving stablecoin liquidity will also be important if we are to truly see mass business adoption. To do so, there need to be more ways for security tokens to be traded on the secondary market.
Exchanges such as Gemini and Coinbase are well-regulated crypto exchanges on the market. They already offer secure and instant transactions to their clients, we can expect other similar players to follow suit in the year ahead.
Trying to maintain accounting across so many jurisdictions is a challenge that can create ample opportunity for misreporting and error.
A stablecoin’s history, however, is logged and tracked on the blockchain – its accounting is immutable by default. This prevents the corruption of data across several borders.
With many stablecoins operating on public ledgers, this also adds a layer of transparency and accountability to transactions.
An automatically updated record on the blockchain is digital, taking up less computing space than a traditional record, and far less than a physical filing system. This makes it a sustainable method of record for businesses of any size, and it’s a method that can scale.
With this more accessible and manageable dataset, it is then easier for multiple departments to access and track the same data, without having to interact with multiple layers of legacy systems.
If payroll, HR, business development and international expansion directors can all track the cash flow that matters to them, they can better strategize in a way that serves the whole company, not just their own departments.
Clarity around the operational parameters for the technology is improving too. As public attention on stablecoins increases, policymakers worldwide are taking steps to better understand the technology to set the regulatory framework around it.
This is a welcome move that will only bring the industry to mature and define the role of surrounding services like custodians, which in turn, will only help to attract more established players to the space.
Better record-keeping means accounting or payroll departments can take an element of the organizational burden off employees.
Stablecoins may address other pain points. At present, the pension account of any employee exists in one country, and can generally only be updated with the sovereign currency of that country.
A business with employees temporarily based overseas faces a fairly tangled mess of pensions, contributions and cash flow when trying to manage a pension for a worker who switches between currencies.
With stablecoins, assets can be exchanged and traded instantly, and stored together securely, making it a far simpler way to manage the pensions or salaries of a global workforce.
Demand for this kind of flexibility is only going to increase in importance, as employees embrace remote working lifestyles, and businesses begin to rely more on the international insights and exposure of their global workforce.
As we take stock of how stablecoins have evolved in the past year, it is becoming increasingly clear that businesses with global operations could benefit greatly from them.
The rise of stablecoins will not totally eradicate regulatory issues surrounding international transactions or the financial pains associated with international business growth, but they provide a foundation to build on, and to equip businesses with the flexibility to react quickly to a fast-paced international environment.