Factom marketing director Greg Forst published a list with four reasons to justify a possible increase in stable currencies in 2020. Increase in institutional capital, increase in the decentralized finance branch, news between fintechs and the use of blockchain by Part of the central banks. The points made by Forst about 2020 are the year of stable currencies.
Institutions of the sector.
In 2019, JP Morgan announced the creation of a digital currency that represents a fiat currency. The impact of the action is significant, as the largest bank in the United States has announced that it uses a digital currency to transfer securities from its institutional clients. In the same year, Facebook announced plans to create a new digital currency and a financial system, called Libra, bringing attention back to stable currencies. As institutions recognize the benefits of blockchain-based digital money, the demand for stable currencies is likely to increase in 2020.
These developments marked an important moment for institutional participation in the blockchain sphere, acting as an episode to recognize the great potential of this technology, especially in the financial sector. The need for digital money that is mobile, constantly accessible, instantaneous and inexpensive has become apparent. A particularly important factor for institutional participation is the concept of stability. Stable coins have all the benefits of other cryptocurrencies in terms of security, speed and cost, according to Forst.
The difference, he said, is that stable currencies are combined with more reliable and more liquid assets, with the ability to trade in fiat currencies.
Increase in decentralized finances (DeFi)
Surveys have shown that the total amount managed in the decentralized finance business more than doubled in 2019. DeFi's growth remained stable last year, with monthly advances in collateralization, volume and loans. There is a sense of growth about decentralized technology, power and duty, to play a key role in future financial services. Stable currencies are believed to play a crucial role in this decentralization movement.
Currently, several issuers of stablecoins are offering decentralized products that deal with complex procedures and high transaction fees that prevented widespread adoption. Forst quotes PegNet, a network of stable currencies that offer unlimited conversions between assets for 10 cents per exchange. The network behind PegNet, Pegged Asset Tokens, provides a mechanism for managing international payments that overcomes slow and costly processes.
There are no brokers that obtain a percentage of the value, only the total decentralization. As long as DeFi continues to grow, the proposed benefits for stable currencies will not be discounted in 2020.
New generation of fintechs
The last decade represented an important advance for the financial sector in terms of technology. Regarding the area of investment, the growth scale went from US $ 2 billion in 2010 to US $ 50 billion in 2018, and more than US $ 30 billion in 2019. Along with this growth, there is an increase in the recognition of the financial services that remain untreated. Too much time in the hands of few institutions, which makes consumers want to regain control of their data.
In Europe, a standard called PSD2 was implemented to combat the power of large banks, eroding their control over user data. PSD2 will democratize financial services by opening competition to anyone who wants to build on new accessible data.
By offering a decentralized payment solution, stablecoins appear and propose a fairer form for the user-centered payment industry. Stablecoins offers a cheaper and faster form of international payments. In the current era of financial democratization, PSD2 and the growth of the fintech industry represent the perfect scenario for stable currencies to find their place in the financial world in 2020.
Blockchain and central banks
After the announcement of the Libra Facebook project, several central banks announced the exploitation of digital currencies (whose acronym in English is CBDC). In Europe, the European Central Bank formed a working group on cryptocurrencies, which aims to work closely with banks in the "euro zone" and study the benefits and costs of a digital currency for the region.
The central bank of China, called the People's Bank of China, has been working on its "digital yuan" for years, and is currently testing cryptography before issuing it to the public. In early August 2019, the Federal Reserve of the United States announced plans to launch a real-time payment service to improve the country's payment infrastructure, called FedNow.
These developments indicate that legislators and central banks understand that current liquidity processes are too slow, expensive and inefficient. Digital currencies, particularly stable currencies, can provide the infrastructure for a digital transformation of central banks, offering cheaper, faster and safer forms of liquidity.