Stablecoins is a big wave of change in in Fintech. So I was delighted when Alan Scott agreed to speak to me about how Stablecoins will change our world.
Alan Scott is currently Managing Director EMEA at 24 Exchange. Alan and I first started working together over 12 years ago and I have enjoyed talking to him over the years about all subjects related to cryptocurrency and FX, particularly Stablecoins. Alan is that rare combination, both deeply knowledgeable and an outside the box thinker. He is a serial entrepreneur and senior executive who knows how innovation actually gets traction in the real world. You can read all about Alan on his LinkedIn profile.
I started off by asking Alan to pick the markets most likely to be impacted by Stablecoins. Alan picked 3:
- The Foreign Exchange market.
- Loyalty Coins for marketing.
- New currencies for use by billions of people.
Each is a massive market and a complex subject and so my next question was much harder. I asked Alan to explain succinctly how Stablecoins are likely to impact each of these three markets. Here is what he told me:
How Stablecoins will change the Foreign Exchange market.
FX is a big market, with US$5 trillion traded every day (25x the daily trading volume in global equities). FX is a hyper efficient market, but the market structure has remained fundamentally unchanged for decades and is dominated by a few big banks (the Interbank players) that quote prices in currency pairs. Stablecoins could change that game. One way to visualise the FX market today is like a hyper efficient version of the early telephone exchanges where each call was connected by an operator. Stablecoins that are designed to be non-volatile against all the major currencies could enable a centralized switchboard where each currency is quoted against that Stablecoin rather than against another currency. That would be a game changer in one of the biggest markets in the world.
How Stablecoins will change Loyalty Coins for marketing
There are two visions of a Stablecoin future. In one vision, we will have one maybe two that get network effects and dominate the market. In another vision, we will have thousands, even millions, of Stablecoin-powered Loyalty Coins that get used for marketing. Maybe the future will be some combination of the two with one or two dominant Stablecoin powering a large number of Loyalty Coins, some of which will compete by offering greater levels of fungibility while still rewarding customer loyalty.
Stablecoins could enable new currencies for use by billions of people.
That is what Facebook wants to do with Libra, which is due to be launched later this year after their big announcement last year. The idea of a stateless global currency is clearly both big and game-changing. It is unlikely that the nation states who currently control currencies will give that up without doing some innovation of their own. So we can expect lots of announcements of Central Bank Digital Currencies.
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