Asia Ripe for Stablecoin Adoption in 2019
Following the aftermath of 2018’s price drop—which saw the value of Bitcoin below 80 percent of the value from its all-time high—stablecoins are looking to become a more attractive crypto solution this year, particularly in the Asia-Pacific Region.
As we begin the new year, it’s important for us to take stock of the stablecoin landscape, and be aware of what the industry should work on to benefit the user.
Unlike Bitcoin or other cryptocurrencies, stablecoins are more immune to price fluctuations because they are pegged to tangible and more stable assets, like the US dollar (USD).
With the current market sentiment turning more towards less price-volatile options, it is unsurprising that interest in the space is on the rise. Most recently, big tech companies like Facebook have even been rumored to have stablecoin solutions in the works.
Setting the Stage for the Future of Stablecoins
In the past year, the sector has made headway in developing several options for USD-pegged coins, such as the USD Coin (USDC) created by Circle and Coinbase, the Gemini Dollar (GUSD) and TrueUSD (TUSD).
We can expect this to develop further in the year ahead, especially with algorithmic stablecoins. These types of stablecoins are essentially smart contracts where people put up collateral in a cryptocurrency (like Ethereum) to back the value of a stablecoin pegged to a fiat currency. With this method, there is no need for KYC measures to be put in place because there is no need for a counterparty to maintain reserves or redeem money from. This mechanism was pioneered by Bitshares and later adopted by MakerDAO.
On the adoption front, it is encouraging that cryptocurrency ATM usage has grown as well. Around the world, there are some well-established companies that have built good solutions, like Bitstop in the US, Localcoin in Canada, as well as Genesis Block and HKBitcoinATM in Hong Kong. Simply put, more cryptocurrency ATMs means improved access to stablecoins, which will only help the ecosystem mature and evolve for the better.
Also, the emergence of more non-USD stablecoins will signal that the market is maturing further and ready for the benefits of stablecoins globally.
Asia Has All the Right Ingredients to Drive Stablecoin Adoption
In Asia’s emerging markets, the technology’s application in the remittance sector is especially promising. According to a recent report by Remitscope, 53 percent of remittance flows worldwide could be attributed to countries from the Asia Pacific (APAC) region.
Current traditional money transfers are far from instantaneous or frictionless and often result in the end customer absorbing unnecessary transaction costs. Stablecoins via blockchain technology can improve the speed and stability of these transfers—particularly in countries where financial infrastructure is still in development.
The regulatory environment in the APAC region is also particularly favorable to encourage such innovation. Without overt regulatory guidance in jurisdictions like Hong Kong, the Philippines, and Indonesia, crypto-solutions have been able to flourish. For instance, Indonesia’s largest cryptocurrency exchange, INDODAX, has been so well received that it is set to overtake the 106-year-old national stock exchange’s number of registered users.
In terms of adoption, they are well placed to adopt stablecoins. While technology advancements, (such as desktop and laptop computers) may have been slow to reach many emerging markets in Asia, countries in the region are quickly catching up.
Whole populations have leapfrogged to adopt new technologies with the benefit of doing so without legacy systems. Myanmar, for instance, saw its mobile penetration rate in recent years spike to 90 percent. Indonesia, which has one of the largest population sizes in Southeast Asia, holds a similar story and now sits among the top 10 countries globally for mobile internet engagement.
More established Asian markets are important to consider as well. Inbound remittances outpace official development assistance in the region by more than 10 fold.
With interest in this solution growing, a stablecoin with a well-developed user experience built into the remittance solution would appeal to these markets. It is also very likely that we will see more non-USD stablecoins being tailormade for Asia—especially in countries like Japan, Korea, and Cambodia.
In 2019, Work on the Backend to Benefit the End User
To drive stablecoin adoption in 2019, further development is needed in both cryptocurrency exchanges and various cryptocurrency services.
First, making it easy to digitally deposit and withdraw fiat currencies into and out of exchanges remains a huge hurdle to widespread adoption of cryptocurrency as the process is tedious and transactions can take a long time or, if they are fast, involve expensive fees.
There is also still a need to solve issues surrounding settlement and velocity in fiat deposits and withdrawals into exchanges. Top exchanges generally take weeks to process transactions and this often leads to increased customer service tickets. This puts pressure on exchanges and, ultimately, can deter banking partners from utilizing crypto solutions.
Another issue is the margins on cash to cryptocurrency exchanges are very high, sitting at 7-10 percent globally. Not only is it expensive to transact and exchange cryptocurrencies on exchanges, but it is also less convenient when needing to withdraw cash. That is why there is a premium on cryptocurrency ATMs.
Cross-border payments and converting cryptocurrency to cash should be made more convenient for users across the world. Stablecoins will be a necessary tool in order to reduce friction when sending money between counterparties as its often quicker, cheaper, and far more convenient. To improve the user experience, I would also encourage money transfer companies to start integrating cash to crypto features in their respective locations. Overall, consumers will benefit the most from this increase in competition with more options in providers and more locations to conduct their exchanges locally.
In the long term, with more stablecoins from various other currencies being made available, we will start to make exchanges become more liquid, enabling greater efficiency in the crypto ecosystem. Risks for companies dealing with cryptocurrency to fiat gateways will also be reduced as they no longer need to worry about banking relationships and can instead just focus on maintaining a cryptocurrency wallet.