Realising the Promise of Stablecoins is Uncertain

Franklin Noll of the Federal Reserve Bank of Kansas City has looked at where stablecoins are held and how they are used in the financial ecosystem in a Payments System Research Briefing ¹.

He makes three main findings:

• Stablecoins are rarely used for payments accounting for less than 1% of all stablecoin use.
• Stablecoin infrastructure lacks interoperability with more than 5% of stablecoins tied up in the infrastructure of the stablecoin ecosystem, primarily bridges.
• The stablecoin ecosystem is still predominantly tied to crypto finance, which accounts for nearly half of all stablecoins used. This suggests the ecosystem is sensitive to the vagaries of crypto finance, rising and falling with the market.

Stablecoins, a type of cryptocurrency intended to maintain a stable value relative to some other asset such as US dollars or treasuries, can function as trading assets or tools that facilitate the trading of other crypto assets and serve as a payment method for person to business (P2B), business to business (B2B), cross-border, and other types of payments.