Few Fiat On-Ramps and Off-Ramps Exist in 2019

Below are exchanges that provide USD trading for the top five Stablecoins in 2019. As you can see, the choices are pretty limited. Of course, it’s simple to indirectly exchange crypto to fiat. For example, a Coinbase Pro user could exchange USDC to ETH, then ETH to USD. The problem is that fees required for multiple trades can add up quickly. This might not be a big issue if the goal of a Stablecoin project is to focus only on the blockchain space. However, it’s possible that the next generation of Stablecoins will be competing to provide a cheap, instant off-ramp for the redemption of small amounts of fiat.

USDT-USD: Bitfinex, Huobi US, and Kraken

DAI-USD: Ethfinex, EXMO, and Sistemcoin

PAX-USD: Bittrex, Coinsuper, CREX24, Livecoin, OKCoin, P2PB2B, SouthXChange, and YoBit

TUSD-USD: On June 4, 2019, TrustToken, the company that runs TUSD, announced a partnership with Binance that will allow traders to buy TUSD for zero fees and redeem it for fiat currency. Bittrex also offers the TUSD-USD trading pair.

USDC-USD: No exchanges

TrustToken, the company that runs TUSD, has made progress in simplifying the fiat redemption process.

Facebook and Walmart: Obstacles to Stablecoin Adoption

Perhaps, what’s most interesting about newly-proposed crypto projects is the diversity of industries their respective companies focus on. The size and name-brand recognition of companies also stand out. Besides Facebook and Walmart, several other large corporations are working on native cryptocurrencies. While these could be major catalysts for crypto adoption, it’s easy to wonder if having this many new Stablecoins is necessary? There are at least three areas that serve as potential barriers to user adoption: fungibility issues, lack of user incentives, and lack of efficient fiat redemption options. The Stablecoin project(s) that solves these issues appears to be in a much better position to gain mainstream adoption.

1. Fungibility Issues

It appears that Stablecoins are becoming too centralized, purpose-specific, and/or limited to certain jurisdictions. This creates serious hurdles to user adoption and marks a step backward in an era where decentralized cryptocurrencies have already become global methods of payment.

Will someone in the US who shops or spends money at multiple places soon have to use different Stablecoins at each retail store, website, etc.? Could a given Stablecoin option be used at stores outside of the US? For example, it’s likely that shoppers will only be able to spend Walmart’s Stablecoin at Walmart locations in the United States, creating a closed-loop. From the perspective of a customer, limitations on which places accept certain Stablecoins might make crypto seem merely like a new form of gift cards. At a certain point, it seems that too many native Stablecoins might have a negative impact on fungibility.

Will large corporations choose a common Stablecoin, or will they continue to introduce their own native ones?

2. Lack of User Incentives

Let’s say that a user holds Facebook’s Libra. Is it possible for that user to gain interest by holding the coin? At the very least, this could be a way to keep up with the equivalent inflation of US dollars. For fiat currencies, a lot of high-yield savings accounts allow for this. Stablecoins like DAI also pay APR on DeFi platforms (i.e. Maker or Compound). If Facebook doesn’t offer this, why should people hold Libra for the long-term?

While the main argument for Libra seems to be that it will make payments faster and cheaper for Facebook users, existing Stablecoin options and other cryptos already achieve this for pretty much everyone who uses them. Unless there is an incentive for holders, the only advantage Facebook has is its massive network of potential users. The integration of crypto into an existing social media user interface isn’t that big of a deal, considering Twitter allows users to send BTC tips via Lightning Network. Brave lets users send BAT to content creators on YouTube.

Because DAI can be used to earn APR that is higher than traditional financial institutions offer, an increasing amount of DAI is locked in DeFi contracts.

3. Lack of Efficient Fiat Redemption Options

Prior to 2019, Stablecoin projects didn’t emphasize the need to achieve fast, cheap conversions to fiat. This has improved drastically, though. For example, TUSD announced back in May 2019 that it would lower its fiat redemption minimum requirement from $10,000 of TUSD to only $1,000. While the redemption itself is instant and free, it still takes time to wire funds to a registered bank account.

For Facebook and Walmart Stablecoins to have a better chance to succeed, they will likely need to provide even better fiat redemption options. Today’s standard for efficient fiat redemptions is higher than before. It is likely that competition to lower minimum dollar equivalents will allow crypto users to redeem much smaller amounts of Stablecoins for fiat in the near future.

Will Facebook’s Libra bring innovation and foster further adoption of Stablecoins?

Conclusion

Do we need another USD Stablecoin? The answer is “yes and no”.

If a new Stablecoin can bring positive changes to the user experience and solve the challenges that existing projects can’t, it would be a welcome arrival.

If a new Stablecoin doesn’t intend to solve at least one of the three problems listed above, it will have a tough hill to climb in an increasingly competitive market.