In today’s edition, Alec Beckman of Advantage Blockchain explains stablecoins and their growing use cases for institutions and advisors.
Next, CK Zheng of ZX Squared Capital shares tips on how to prepare for tax season on Ask and Expert.
– Sara Morton
You’re reading Crypto for Advisors, CoinDesk’s weekly newsletter analyzing digital assets for financial advisors. Subscribe here to receive it every Thursday.
Stablecoin use case for advisors
One of the main obstacles to blockchain adoption to date has been utility, especially when looking through the lens of financial advisors and how these public blockchains and decentralized finance (DeFi) protocols can impact their clients. .
Stablecoins (digital currencies pegged to stable assets like the US dollar) have become a powerful tool for modernizing savings, payments and settlement processes. These innovations present a significant opportunity for advisors to improve the value they deliver to clients while staying ahead of market trends.
How can advisors leverage stablecoins to streamline operations, reduce costs, and provide cutting-edge financial solutions? Here’s how stablecoins can become a transformative tool for your customers:
Savings account/running out of a bank
- Financial inclusion: Stablecoins provide customers with a way to store value outside of traditional banking systems, providing access to financial services to the unbanked or underbanked. Anyone with an internet connection can use stablecoins.
- Stability: Unlike volatile cryptocurrencies, fully-reserved, dollar-backed stablecoins maintain a constant value (for example, USDC is pegged to the value of $1).
- Liquidity and accessibility: Stablecoin funds are globally accessible 24/7 and offer liquidity without relying on conventional banking hours.
- Better performance: Using on-chain finance, stablecoins can generate significantly higher returns than a savings account (for example, Coinbase offers an APY slightly above 4%, outperforming traditional savings accounts).
- Self-custody: Many people, including myself, have been held by a bank or third-party custodian. If someone can stop you from spending/sending money, it’s not your money. The ability to custody your own assets provides a more seamless way to transact with your own funds.
Payments
- Efficiency: Transactions using stablecoins are fast and cost-effective, without global restrictions, which is relevant for those sending payments domestically or cross-border.
- Value retention: The stability of these digital assets ensures that the amount sent is equal to the amount received.
- Adoption by Institutions: Financial institutions are recognizing stablecoins as a complementary payment system, indicating growing widespread acceptance.
- Adoption by Commerce: Stablecoins are less expensive and more efficient than credit card payments for merchants.
Settlement
- Instant Transactions: Settlements via stablecoins are nearly instantaneous, improving liquidity and reducing counterparty risks for clients managing high-value transactions.
- Lower costs: By eliminating traditional clearing and settlement processes, stablecoins significantly reduce fees.
- Overall Versatility: Whether your clients trade internationally or manage cross-border investments, stablecoins streamline and simplify the settlement process.
Real-world application: SpaceX’s strategic use of stablecoins
SpaceX uses stablecoins to manage the foreign exchange (FX) risks of its global Starlink operations. SpaceX protects itself from exchange rate volatility by collecting payments in multiple currencies and converting them into stablecoins. Stablecoins, pegged to the US dollar, provide a stable intermediary before being converted back to dollars.
This approach offers several advantages:
- Reduced currency risk
- Improved efficiency
- Liquidity Preservation
This strategy demonstrates how stablecoins can be a powerful tool for multinational corporations and can be applied to managing client portfolios.
Why this is important to you and your clients For financial advisors, stablecoins can elevate portfolios and modernize financial strategies. These assets are not just a novelty: they are a bridge to a more inclusive, efficient and adaptable financial future. By integrating stablecoins into conversations about savings, payments or settlements, you position yourself as a forward-thinking advisor prepared to navigate these changes.
– Alec Beckman, President, Advantage Blockchain
ask an expert
Q: What is the basic information about stablecoins and liquidity?
The market capitalization of stablecoins has reached a record of $215 billion, predominantly concentrated in the two coins Tether and USDC, which together represent 85% of the market capitalization. Stablecoin market liquidity remains healthy as more stablecoin issuers, such as Visa, Stripe, and PayPal, enter this unique subclass of digital assets. Given the pro-crypto attitude of the new Trump administration, we expect more cryptocurrency-friendly rules and regulations for this asset in the coming months, which will support further growth of the stablecoin market.
Q: Are stablecoins risky compared to traditional finance (TradFi)?
Stablecoins are typically designed to remain pegged to the US dollar (although they do not need to be). The functionality of stablecoins in the cryptocurrency market is comparable to that of money market funds in the traditional financial market. Money market funds have reached a market capitalization of $10 trillion, providing short-term investing and a place to park money. Stablecoins will serve a similar purpose in the digital asset space. The quality and liquidity of the issuer’s holdings of short-term assets denominated in fiat currency are some of the critical risks associated with stablecoins, especially when the financial market is under great stress.
Q: Do country borders matter when it comes to stablecoins?
Country borders are very important as different countries may have different rules, regulations, and licensing requirements for the stablecoin market. One of the key regulatory requirements associated with stablecoins has to do with the stability, liquidity, disclosure and transparency of the short-term assets that issuers hold for the underlying stablecoins.
– CK Zheng, co-founder and CIO of ZX Squared Capital
Keep reading
