By Wallex on The Capital
The move to cryptonize money transfers using Stablecoin can turn a bane into a boon, a boom, and a blast.
The state of stablecoin this 2020 is worthy of note. After five years of growing stablecoin supply to the tune of 6 billion since the first stablecoin was launched in 2014, it ballooned to 12 billion in just a matter of 4 months. Many attribute this to the crypto crash of March 12. Has stablecoin finally reached the mainstream consciousness of trust?
Stablecoin’s popularity grew out of the tiring market volatility of cryptocurrencies as a whole and broke many promises within specified time limits. Though stablecoins have somewhat broken itself from the inherent crypto character of decentralized finance, it somehow had convincing potential to answer lingering questions that prevent cryptocurrencies from becoming an alternative medium of exchange with a store of value.
Stablecoins, to recall.
Two categories define blockchain-operated stablecoins according to function. A stablecoin to be stable must be pegged at a strong fiat reserve, say, the US dollar on a 1 is to 1 equivalent. When you buy one stablecoin, the company that created it deposits 1 dollar to your account. The stablecoin’s market price is the same as that of the pegged fiat. Thus, it is categorized as a trusted stablecoin. You may have kept the stablecoin in your wallet and hold the private keys. But a third party — the coin issuer — handles its value. The risks involved include the ability of the entity to exist long enough for you to still redeem your crypto’s worth. Another is trusting that the company is not running on fractional reserve. Harcore crypto believers oppose this kind of collateralized agreement for the sole reason that it is dependent upon the fiat it is sworn to eliminate. They would prefer the second category that does away with any controlling authority but instead relies on smart auto machination that the blockchain is. The trustless stablecoin category functions in such a way that its collateral is based on an accrued cryptocurrency median held by a smart contract. Pegged price is anywhere above the one stablecoin, which can be 1.75 to 2.25 to buffer in cases of any wild market swings. The only risk happening is the market falling so fast that the smart contract has no time to transact sales in the market.
To remit is an emotion.
Remittances represent an emotional connection between the sender and the recipient. They are almost synonyms to migration. Overseas foreign workers are heavy users of MTOs or money transfer operators (not banks), wherein, they send their wages earned to their waiting families in their country of origin. They are mostly coming from the low-income category that, on average, send $200. Now MTOs systems can already be considered costly on their side given their meager salaries, such that transactional fees of MTOs can suck the value out of the money being sent. Not to include the slow processing systems taking days, or even weeks before the money finally reaches the hands of the intended recipients. A bane, indeed, to OFWs. But pressures from the UN and the G20 and the growing market competition are causing exorbitant fees to dramatically fall. Banks charge expensively at 11.0%, while MTOs average 6.1%. UN and G20 are zeroing in on a 5% to 3% average. What can be imagined is that a higher remittance received can spur the economies of recipient developing countries and the upliftment of the standards of living of recipient families as domestic spending and investing habits can start to germinate.
A boon to OFWs, a boom to the country’s economy, a blast to the remittance industry.
The introduction of decentralized finance into the remittance industry is a cataclysm long-awaited to happen. Stablecoins can broadly redefine unfair legacy structures that are keeping the low-income strata communities from enjoying improved ways of living. Stablecoins, being more than a cryptocurrency with volatility in check, address entrenched fiat barriers by its capacity to make secure transactions across borders at an instant, on a 24-hour basis. It will also help money transfer agencies ease up allocations by discarding pre-funded accounts in advance, limiting capital movement, and are expensive to maintain. This real-time liquidity can entice OFWs to use legal channels instead of the black market. OFWs will be surprised that the use of stablecoins through smart contracts will ensure that their hard-earned money can be securely assigned to their children’s education or to their elders’ healthcare, to begin with.
This user empowerment schematic can draw a lot of inspiration for OFWs to make stablecoin an ally and a friend. The target of UN and G20 is not wishful thinking after all. And 150 countries lie in wait.
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Stablecoins In Remittances: To Cryptonize Is To Stabilize was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
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