The Unexplored Potential of Stablecoins
A new competitor in the FX NDF market
Recent weeks have seen the proliferation of stablecoin projects. With more than 50 projects, the space is getting crowded. While we believe the space will eventually be dominated by a few key players, we are excited by the potential for stablecoins to function as tokenised FX.
Stablecoins can be broadly divided into collateral-backed and algorithmic tokens. Collateral-backed stablecoins can be backed by crypto, fiat or gold and pegged to existing currencies. Examples include Tether (USDT), TrueUSD (TUSD), Paxos (PAX), Digix (DGX) and Dai (DAI). The most common peg is the US dollar, with other fiat currencies (EURO, KRW) emerging too.
Collateral-backed stablecoins with a fiat peg have the potential to compete with the Non-Deliverable Forwards (NDF) FX market. NDFs are cash-settled forwards that exist to allow trading of currencies that are not internationally traded or whose trade is limited in the domestic market. NDFs traded in USD/CNY, USD/INR, USD/KRW are among the most commonly traded. In Asia, the NDF market is especially important, equilibrating market demand and supply in the presence of capital controls.
Thus, stablecoins can trade as a form of tokenised FX, functioning as a more efficient and decentralised (sometimes) NDF. As market makers, we are excited about the growing global liquidity in stablecoins and the prospect of a new competitor to the trillion dollar NDF market.
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The information in this post (the “Information”) is presented in summary form, and is solely for informational purposes, and does not purport to be complete. The information is not — nor is it intended to be — an offer to sell, or a solicitation of any offers to purchase any securities. The information does not constitute, and should not be treated as investment advice. The Information does not account for the specific investment objectives, financial situation(s), or any other particular needs of any prospective investor. No representation or warranty is hereby made, expressed or implied, with regards to the fairness, correctness, accuracy, reasonableness or completeness of the Information, nor does QCP Capital undertake to update the Information. Under no circumstances should the Information be regarded by any investor and/or individual as a substitute for their own judgement or research. All views expressed herein should not be relied upon as advice, and individuals and/or investors should seek their own legal, regulatory, tax, investment, accounting, financial, and any other relevant advice.
