This PaymentSource article claims volatility and a lack of brand recognition have blunted crypto adoption. Based on this it assumes stable coins issued by merchant brands will fix the problem. This isn’t correct and below is some of the argument PaymentSource makes and then below that is my counterargument:
“Stablecoin Tether has been a top-10 cryptocurrency by market cap since its launch. The crypto community clearly recognizes the need for stablecoins as a store of value unaffected by the ups and downs that plague traditional cryptocurrencies.
But it’s not just existing crypto customers who need to get on board. Cryptocurrencies will never become a viable payment mechanism unless they move from the fringe to the mainstream. Many of the people sitting on the sidelines are waiting for assurances that cryptocurrencies are not some passing fad, for prices to stabilize, and for acquiring and using them to become easier. Stablecoins address the pricing issue. I believe that tying them to the brands people already know, love and trust will result in more staying power than the next decentralized stablecoin no one’s ever heard of, and there are few better positioned to provide a world-class user experience.”
First of all, crypto believers must be apoplectic that stable coins even exist. After all, fixing crypto by pegging the value to the US Dollar is exactly the currency manipulation the crypto believers argued crypto would eliminate. That said, I’m not arguing the volatility isn’t a problem, I’m only saying that volatility has been present with every introduction of a new currency. Indeed the US Dollar was certainly not an instant hit and had serious volatility problems (lack of confidence drove discounts at acceptance) from the get go. There are several formulas being promoted today in an effort to establish stable coins and it is beyond my expertise to determine if these can be successful. I am confident however that eliminating volatility will not, in and of itself, make crypto more acceptable to consumers as a payment instrument.
The fact that crypto today is used almost exclusively as an investment vehicle is certainly in part because of volatility but it is also driven by the broader lack of awareness, lack of confidence, and lack of merchant and bank acceptance.
Crypto is likely to gain some visibility as major brands release “crypto solutions,” but again crypto believers will correctly argue that these implementations aren’t actually cryptocurrencies. Merchant coins will be attached to prepaid accounts funded with US Dollars. These accounts operate within the regulated prepaid space. It is this regulatory environment that provides merchants and consumers confidence in the new coins. As consumers become aware that existing regulatory and legal systems will protect them if things go terribly wrong, confidence will increase.
So coins released into the market by established brands will be perceived as safer by consumers because they know these are centrally controlled coins that fit within a regulatory construct. Cryptocurrencies are as far from this model as possible. They exist as the antithesis to this regulated model.
Consider that current cryptocurrencies are actually controlled by software engineers and owners of distributed nodes that all pretend they are not the authorities controlling the platform. This is ludicrous in that all software needs an authority to manage the platform even if nobody wants to call it that.
One last observation: When two planes of the same model crash, everyone recognizes the pattern. Yet when 30 or more cryptocurrency implementations and exchanges crash and burn, or become embroiled in controversies that would shut down a bank in seconds, the crypto believers behave as if there is no lesson to be learned. Isn’t human nature amazing?
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group