Stablecoins are taking the US dollar global — but for how long?

With the European Union’s Markets in Crypto-Assets Regulation framework coming into place and  pro-crypto politicians coming into office in the U.S., experts say that there is about to be a virtual renaissance of the stablecoin industry, according to a panel discussion at The Block’s Emergence conference on Friday. 

“You're going to see a lot more fragmentation in the market given that that's happening,” Vishal Gupta, founder of True Exchange and former head of USDC at Circle, said during the "Are Stablecoins the Key to Mass Adoption?" panel . “You're going to see not just two stablecoins that matter, you're going to see a proliferation of them,” he added, referring to the top stablecoins by market capitalization USDT and USDC. 

It was a point echoed by Kevin Tharayil, head of special projects at the Celo Foundation, who noted that now that the infrastructure is in place to make launching stablecoins as easy as launching a memecoin on Pump.fun, there will be an explosion of “regional stablecoins” to support local currencies. 

There are the beginning traces of this happening already on the Celo blockchain with projects like decentralized stablecoin platform Mento, Tharayil said. Mento currently supports assets like cREAL, pegged to Brazil’s real, and eXOF, tied to the CFA franc shared by 14 countries in Africa.

“So these kinds of use cases, as we build, actually allow for a more diverse, more robust stablecoin ecosystem,” Tharayil said. 

Eduardo Morrison, a former Binance executive and founder of Schuman Financial, noted that his firm is particularly interested in tokenizing the euro, given the E.U.’s clear stablecoin regulations. In particular, he believes there’s untapped potential in connecting various cross-border corridors for corporate payments between regions like Latin America, Africa and the Middle East in connection to the European market.

Dollar domination

To date, the stablecoin industry has been dominated by USD-denominated tokens, whether or not those assets’ issuers are based in the U.S., like Circle and Tether, respectively. This has been a blessing and curse for the industry and global user base, the panelists argued. 

On the one hand, having access to a USD-denominated bank account used to be a “status symbol” for people living in developing countries, Gnosis co-founder Friederike Ernst said at Emergence. Stablecoins helped democratize exposure to the dollar, and it’s becoming commonplace for people living in countries with accelerating inflation to keep their savings in assets like USDT. 

“Stablecoins are not primarily a product for the global north,” Ernst said, adding that for Westerners like her, it often is easier just to have a bank account and send money via wire, a luxury not everyone around the world has access to. 

“We can give everyone a dollarized account," Ernst said"There's no need to gatekeep this from people.”

In fact, part of the reason why President-elect Donald Trump has pledged to pass stablecoin regulation is that stablecoins help maintain the dollar’s hegemony. 

However, Ernst pushed back on the notion that stablecoin issuers should focus on the U.S. dollar. She argued that “there's no reason why the global population should be conducting their economy in U.S. dollars” for the simple reason that U.S. monetary policy is set “set for the 400 million U.S. subjects, not for the 7.6 billion other people in the world.

“There's no reason why a Kenyan farmer should kind of conduct business in U.S. dollars when selling their coffee beans to an Egyptian merchant,” Ernst said. 

Cryptographic experimentation

This is especially true give that, with crypto, there are now a near infinite number of ways to design a currency. Ernst hinted at a project Gnosis is working on called Circles that would “reinvent” how “money works” by allowing individuals to create their own currencies and economies. Circles will debut early next year, according to Ernst.

“We live in a technological era where cryptography makes it possible to issue money on the personal level,” she said. 

Indeed, Celo's Tharayil noted that there may soon be a time when DAOs mint their own stablecoins?. This comes with its own issues, because in a world where ever company or organization can launch their own money, it will become increasingly difficult to differentiate between the safe and the unsafe tokens, he added. 

While there are many algorithmic stablecoins that seem to exist on safe footing today, like MakerDAO’s dai token, one of the crypto industry’s biggest blunder was the collapse of TerraUSD, which was meant to be backed by free-floating sister token via an algorithm. 

“You're overcollateralized only until you're undercollateralized,” Gupta said. "Best case scenario for an algorithmic stablecoin, its worth a dollar. Worst case, it’s not worth a dollar."

Whether the coming proliferation of stablecoin issuers focus on the U.S. dollar or other fiat currencies, whether they’re decentralized organization with their own corporate scrip or individual people minting “personal money,” whether they’re fully collateralized or algorithmic, there was one thing all the panelists agreed on: a USD CBDC is not going to happen. 

“No one would want to use it,” Gupta said.