Are stablecoin useful even when we talk about enterprises use cases?
Settling payments between institutions and lenders, completing cross-border transactions, and providing corporate debt issuance services are already challenging for enterprises to begin with.
The problems with legacy settlement technologies are even more apparent with wild swings in financial markets. Digital currencies, stablecoins in particular, present a new asset class that can be used to optimize existing financial services and introduce new types of services.
What Is A Stablecoin?
A stablecoin is one type of digital currency. Like digital currencies such as Bitcoin or EOS stablecoins are built on top of a blockchain or other distributed ledger. Unlike Bitcoin, each stablecoin has value that is attached to another asset class.
Most stablecoins are tied to the US dollar and have a per unit price of $1. A few stablecoins are tied to other fiat currencies such as British Pounds, Euros, Japanese Yen, and even precious metals like gold and palladium.
In order to understand the current role of stablecoins amongst enterprises, this piece highlights three companies working on stablecoin solutions.
Each example includes three use cases or features which enterprises or their clients/customers can expect to gain from using their solutions.
JPMorgan and JPM Coin
In February 2019, JPMorgan announced a plan to launch the bank’s own USD-pegged stablecoin called JPM Coin. JPMorgan has stated that 80 Japanese banks have expressed their intent to join the blockchain network that will reportedly launch in the country at some point in 2020.
Three different applications for JPM Coin are envisioned as use cases for the initial launch.
- Cross-Border Payments: JPM Coin can be used to settle transactions almost instantaneously. This is a major improvement over the 3 to 5 business days it usually takes to complete wire transfers for Chase customers.
- Securities: Transactions involving securities can also be settled quicker with JPMorgan’s Quorum consortium blockchain. The company’s brokerage business can solve liquidity challenges commonly found in the stock market.
- Corporate Transaction Consolidation: JPMorgan offers treasury services such as liquidity management, payments & FX, receivables management, trade, and escrow to institutional clients. JPM Coin provides a solution for these clients to transfer money to subsidiaries around the world with much greater fluidity than legacy technologies are capable of producing.
Equilibrium and EOSDT
Equilibrium is a framework that supports decentralized finance (DeFi) applications as well as stablecoins. The project is built on the EOS public blockchain, with decentralized stablecoin EOSDT being the first stablecoin in use on Equilibrium. While JPM Coin is mostly used internally by financial institutions, EOSDT is available to the greater public. Individuals and enterprises both have the ability to use EOSDT for a variety of use cases. Notable use cases for enterprises include:
- Collateralized Loans: On the EOSDT Gateway, anyone can receive a loan in EOSDT by providing EOS as collateral. Because the value of EOSDT is pegged at $1, it’s suited for adding predictability to loan issuance even in volatile markets.
- Exchange Pairings: The world’s largest digital currency exchanges have gone from startups to global enterprises in less than five years. Much like other stablecoins such as USDT, EOSDT can be used as a means of representing the equivalent value of US dollars on blockchain. Traders using EOSDT as half of a trading pair are likely to avoid the higher fees associated with crypto-to-fiat trading.
- Global Payments: Sending and receiving EOSDT is supported via EOS wallets. Enterprises don’t need a bank account.to complete global payments. Stablecoin transfers of large amounts cost much less than bank transfers and can be done in seconds with only a few clicks of a mouse.
Stably not only offers stablecoins built on public blockchains (USDS on Ethereum and USDB on Binance Chain) but also has a special program called Stablecoin-as-a-Service.
According to the project team, Stably is working with at least one enterprise client to issue a stablecoin branded under the company’s name. This enterprise is able to own their own assets and reserve as well as work with Stably on customizations and features. Some integral features of Stably’s Stablecoin-as-a-Service include:
- Secured Custody: Regulated partners offer bank-grade security and FDIC insurance up to $130 million per tax ID.
- Regulated Issuer: Regulated partners can help with tasks such as serving as a regulated trustee or official convertible virtual currency administrator. This could potentially help enterprises with compliance of regulations set by FinCEN and other organizations.
- Customizable Solutions: Stably helps enterprises launch their own networks in two months or less with built-in upgradability for future features.
More Stablecoins To Come?
Major enterprises are assessing the prospects of using stablecoins. Facebook’s Libra announcement in 2019 was met with criticism. Although this stablecoin project touted many partners in the FinTech space, it lost momentum when PayPal, Stripe, Mastercard, Visa, and eBay decided to drop out of the consortium in October 2019. Nonetheless, as of March 2020, Facebook is moving forward with Libra.
In August 2019, Walmart filed a patent for a stablecoin that could “provide a fee-free, or fee-minimal place to store wealth that can be spent, for example, at retailers and, if needed, easily converted to cash.” It may also be used along with a pre-approved biometric credit that restricts or grants access to certain product categories. For example, the so-called “Walmart Coin” could block minors from purchasing cigarettes or alcohol.
Stablecoins and Enterprises: What’s Next?
More enterprises could soon adopt existing stablecoins built on public blockchains or launch branded/closed-loop stablecoins specifically for their own customers. The possible applications could benefit several parts of business operations. An enterprise could simply use stablecoins as a means of improving internal payments within the company and other enterprise clients.
Another possibility is that stablecoin solutions become more consumer-centric. For example, enterprises could pass on cost savings to customers through launching next generation loyalty programs or interest-generating savings accounts.
The projects featured in this piece demonstrate the potential for blockchain technology and stablecoins to improve major areas of global finance. Additional stablecoin solutions and viable use cases are likely to become available over time with increased interest from enterprises.