This week we talk to Austin Kimm, Director of Strategy & Investments at Choise.com about the evolving landscape of stablecoins and central bank digital currencies. Choise.com is a crypto-banking app which performs the same function for digital currencies as conventional banks perform for fiat currencies.
Stablecoins have emerged as a bridge between the worlds of fiat currencies and cryptocurrencies. They are digital assets, but they are usually pegged to conventional markets, like the US dollar or gold. Central bank digital currencies – CBDCs – are also becoming part of the lexicon, as more central banks ponder the launch of their own digital currencies. But what are the implications here for traders? How will they be any different to fiat currencies?
Austin talks on the podcast about Web3 and metafi. He calls Web3 more of a concept than reality but explains that the metaverse is already playing a big role in supporting the world of cryptocurrency transactions. With many companies now already offering access to the cryptocurrency market, facilitating payments, regulators are also now aware that many participants in the crypto market are trying to use it to make money. This raises the question of whether cryptocurrencies should be regulated as securities?
It is incredibly tough to keep up to speed with the fast-evolving world of blockchain and DeFi, while also trying to make money at the same time. But can a stablecoin offer investors the same risk-return profile as a central bank-backed currency? Ultimately many stablecoins are backed by private institutions and there is an ongoing debate over whether a stablecoin is actually backed by the asset it claims. But with that additional layer of risk comes an additional layer of opportunity.
Are stablecoins investment securities?
What happens if stablecoins become an alternative source of money? Where should the regulatory burden fall? On the provider of the coin itself or the institutions that provide traders with access to that market? Regulation is bound to play an important part in building investor confidence in the stablecoin market.
As for central bank digital currencies, are these really being launched because governments are simply suffering from FOMO? Governments like the UK are being very cagey about what their CBDC is really going to look like. Banks are having to wake up to the fact that fewer people are actually using cash. Yet central banks want to use this digital technology to exercise more control. Often governments need to fight to bring in a new measure that will allow them to exercise more control, but CBDCs offer them an opportunity that seems to be readily embraced by the citizen.
The dominance of the US dollar in the global economy over the last 75 years and the obvious link between US strategic interests and the USD market, mean some countries now look at the CBDC market as a potential road into a new financial system in which the USD will not play such a dominant role. But CBDCs also deliver governments a multitude of other benefits: we discuss some of these with Austin and it does start to sound like there does not seem much reason for central banks not to introduce them,
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