With the forthcoming launch of the FedNow service, aiming to provide instantaneous payments and settlement, stablecoins have come under scrutiny regarding their continued relevance. Originally, stablecoins gained traction by addressing the sluggishness and outdated nature of the traditional US banking system. While FedNow is a centralized payment system offered by the Federal Reserve for instant interbank transactions, stablecoins are decentralized digital assets aimed at providing stability and fast transactions by pegging their value to specific assets or currencies.
Despite their similarities, Bitwise crypto research analyst Ryan Rasmussen contends that stablecoins will maintain their relevance, primarily due to five distinct advantages over FedNow. For starters, stablecoins enable the US dollar to be more accessible on a global scale, assisting countries like Venezuela, Argentina, and Turkey where shortages of banknotes and high inflation persist. Platforms like Aave and Compound are helping create positive change for millions of people worldwide by utilizing stablecoins to provide access to financial services.
Another advantage of stablecoins is their financial inclusivity. While FedNow mandates users to hold a US bank account, stablecoins offer financial access without such constraints. Consequently, stablecoins grant instant access to the financial system for anyone with a computer or smartphone, including the millions of unbanked households marginalized by traditional banking services.
Stablecoins are also important for powering on-chain transactions. With their total supply growing by over 8,000% since January 2017, they serve a crucial role in DeFi protocols, trading against cryptocurrencies like bitcoin and ether, and processing on-chain payments. Unlike FedNow, stablecoins permit dollars to exist on-chain, making them irreplaceable in these applications.
Moreover, the borderless and accessible nature of stablecoins enables them to facilitate cross-border payments more affordably and conveniently. Stablecoin transfers have seen tremendous popularity, with over $17 trillion transferred to date, including $2 trillion in Q1 2023 alone.
Lastly, unlike FedNow, which imposes transaction size limits, stablecoins have no such restrictions. As a result, they are capable of handling transactions of any size, ranging from $500 to $5,000,000.
In conclusion, while FedNow represents a significant innovation in payment technology, stablecoins remain highly relevant due to their utility, global reach, and inclusive nature.
Source: Blockworks
