Understanding of the profound influence of stable coins on traditional finances. Part 1

A stable coin, as the name implies, represents a stable cryptocurrency designed to be resistant to price volatility typical for such cryptos as BTC or ETH.

Stablecoin – the burning issue of the recent years.

According to Blockchain.News Wiki, the key of this concept is understanding of the term.

The article entitled “Blockchain brings money and financial freedom” provides 3 internal factors for describing money:

1. Monetary form;

2. Currency issue;

3. Cash flow.

We can consider stablecoins as a new form of money, and, more precisely, an encrypted form of printed money.

Stablecoins do not affect the money issue but, as they are usually based on blockchain, they can imply another money movement system from traditional financial systems.

Such assets face new challenges associated with confidentiality, transparency and regulation.

As long as stablecoins are able to operate with the speed of real cryptos using the unchangeable, transparent and secure blockchain, new financial services based on stablecoins can replace banking and other traditional financial institutions that currently have monopoly on financial operations.

These new financial services based on blockchain are called the decentralized finances, or DeFi.

SWIFT compared to blockchain system.

SWIFT represents the most widely spread way of money remittances and cross-border payments used around the world. The system was launched in 1970-s on the basis of an ambitious and innovative vision of creating a global service for financial exchanges.

Still new systems like DeFi , that are based on blockchains, have a unique advantage compared to SWIFT which represents a centralized service. All blockchain systems are fully decentralized.

This is important since in case of SWIFT, you should rely on centralized financial institutions for each payment or transaction. And that means all the exchanges have higher fees because money should first be sent via centralized system, and only then it is sent to the recipient.

Besides, as long as each of transactions should be verified by the supervisory entity, SWIFT transactions can be processing for several days. As for blockchain, it eliminates the need for some central authority for ensuring trust and transferring costs. Blockchain systems take the power and control from large organization and pass them to users. Due to the network’s decentralization, blockchain ensures more secure, fast and cheap transactions.

According to the database of the World bank concerning fees for remittances, an average commission for sending $200 via

SWIFT to low- and middle-income countries in the second quarter of 2019 is 6.9%. On the contrary, blockchain systems may significantly reduce fees for money movements, and this is what has become the catalyst for Facebook Libra project.

This should be a new kind of de-nationalized money, fully digital asset that would be implemented by blockchain.

And although high fees for SWIFT transactions can, for the most part, be explained by the outdated technology, users also suffer from the corporative interest of traditional financial institutions.

Somehow, the announcement of Libra launch have threatened “money issuing” that is fully governed by the US Fed.

Right after the Libra release, the contradictory stance of the Federal Reserve System and other regulatory institutions came to the surface, and it seems that all the regulatory entities are working together so that the project would never reach its initial goal.

The Us Federal reserve aims to fully “regulate” and govern Libra in Russia, while the European Commission announces that Libra can destroy the world finances. On the other hand, fearing the initiatives of other countries like China that has recently announced launch of CBDC, regulators express their support to the project’s development in accordance with a rigid strategy approved by governments. So the development of stablecoins is considered as a compromise between the new digital financial systems and the traditional exchange control. To be continued.