We transmit data. We transmit music. We transmit video. Thanks to Stablecoins, we are about to start transmitting the entire economy.
The American dollar stable recently reached a milestone, represent approximately 1% of the monetary offer of the United States (according to measure M2). It is not a big problem, it can be thinking, but in fact, it could become one in the near future.
The stable are growing at a phenomenal rate, approximately 55% per year. While it is unlikely that this continues forever, it is not difficult to foresee a future, less than a decade of distance, where the stable represent an amount equal to approximately 10% of the M1, which is defined as cash, notes and digital money “easily accessible” as current bank accounts.
Stablecoins is designed to be easily accessible and usable, which certainly seems to fit into that definition of the money supply. In fact, services in the chain are beginning to resemble standard banking services. Except that they work faster and cost much less.
Now, imagine if moving money was, indeed, free and instantaneous. Would you manage your money differently? You could. In fact, global companies are already beginning to think about it.
Today, companies maintain a lot of money in many separate locations worldwide. It is not particularly different from how they handle physical inventory. Since moving money through borders is expensive and slow, companies must maintain a decent cash supply locally to pay bills. And, since customers do not necessarily pay invoices with absolute predictability, companies must maintain an cash shock absorber to administer the variation between predictable costs, such as payroll and unpredictable income.
Things can be different in the future. If it costs nothing to move money worldwide and can be done almost instantly, the size of those local shock absorbers can be drastically reduced. Instead of keeping two weeks of expenses locally, including payroll, you may choose to keep only one day at hand. A slightly larger cash pile can be maintained centrally and sent as necessary. Companies could rebalance their global cash holdings every six hours. The result: a significant decrease in working capital requirements.
What can start globally for large companies could spread rapidly, and not only in the B2B space. Why not pay each employee every day for the real hours worked? The lenders of the payment day make a fortune today that takes it to people among weekly payment checks. Why not bill customers daily for the use of electricity? Electrical public services today wait 30 days to bill it and wait another 30 days to pay it. The gap between when he uses energy and when he pays it can be up to 60 days.
This sounds absurd, except that mathematics is repeated. With interest rates of 5%, a debt of $ 10 in the course of one year generates $ 0.50 in interest at current rates, which is approximately $ 0.04 per month. Every week of “float” can save (or win) is worth approximately $ 0.01. Since the payment costs on the Ethereum Layer 2 networks are now routinely below $ 0.01, the answer is, it is worth it.
Transaction costs are directed in a single direction, which means that the economically efficient size and frequency of managing their money only become more granular.
We used to buy music. Then we downloaded it. Now we transmit it. Once upon a time, the idea of transmitting music on request, and all the bandwidth and calculation necessary to do so, was considered ridiculous. Now, it is barely a fall in the cube compared to video transmission. There is no reason to think that payments are different.
As with all technological revolutions, the starting point is always “its disaster for less.” That is, the first thing people will do is take the existing processes (such as monthly billing) and simply execute them cheaper. Then it becomes your disaster, but faster. Finally, companies begin to reimagine these processes in the light of the new economy.
The reduction of working capital requirements could reorganize the economy surprisingly. Many companies keep enough cash to cover 12 weeks of expenses. American companies together have approximately $ 2 billion in cash and $ 2.8 billion on pending working capital loans. Changing a financial transmission model could literally release billions of capital for new investments.
You could also change people’s behavior. The longer the time gap between an action and a reward, the more difficult it can be to make people respond. Incentives for things such as the use of services or energy in times of lower activity can be much more effective when payment is immediate. No one was wrong betting on instant gratification.
Discharge of responsibility: These are the author’s personal opinions and do not represent EY’s opinions.
