In today’s issue, Alec Beckman from Advantage Blockchain, explains stablecoins and their growing use cases for institutions and advisors.
then, CK Zheng from ZX Squared Capital shares tax season preparation tips with Ask and Expert.
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Stablecoin Use Case for Advisors
One of the main barriers for blockchain adoption to date has been utility, especially when viewed through the lens of financial advisors and how these public blockchains and decentralized finance (DeFi) protocols can impact their businesses. client.
Stablecoins – digital currencies pegged to stable assets like the US dollar – have emerged as a powerful tool for modernizing savings, payment, and settlement processes. These innovations present a significant opportunity for advisors to enhance the value they offer clients while staying ahead of market trends.
How can advisors use stablecoins to streamline operations, reduce costs, and provide innovative financial solutions? Here’s how stablecoins can be a transformative tool for your clients:
Savings account / no bank
- Financial inclusion: Stablecoins provide a way for clients to store value outside of traditional banking systems, providing access to financial services for the unbanked or underbanked. Anyone with an internet connection can use stablecoins.
- Durability: Unlike volatile cryptocurrencies, full-reserve, dollar-backed stablecoins maintain a constant value (eg USDC is pegged at $1).
- Liquidity and Accessibility: Funds in stablecoins are accessible globally 24/7, offering liquidity without relying on standard banking hours.
- Better yield: With on-chain finance, stablecoins can generate greater yields than a savings account (Ex. Coinbase offers slightly more than 4% APY, beating traditional savings accounts).
- Self Custody: Many people, including myself, have been held up by a third-party custodian or bank. If something stops you from spending/sending money, it’s not your money. The ability to self-custody your own assets provides a more seamless way to transact your own funds.
Payments
- Efficiency: Transactions using stablecoins are fast and cost-effective with no global restrictions, which are associated with sending payments domestically or cross-border.
- Value Retention: The stability of these digital assets ensures that the amount sent equals the amount received.
- Adopting Institutions: Financial institutions recognize stablecoins as a complementary payment system, indicating growing mainstream acceptance.
- Commercial Adoption: Stablecoins are cheaper and more efficient than credit card payments for merchants.
Settlement
- Quick Transactions: Settlements via stablecoins are near-instant, improving liquidity and reducing counterparty risks for clients managing high-value transactions.
- Lower Cost: By eliminating the traditional clearing and settlement process, stablecoins significantly reduce fees.
- Global Versatility: Whether your clients trade internationally or manage investments across borders, stablecoins streamline and simplify the settlement process.
Real-world application: SpaceX’s strategic use of stablecoins
SpaceX uses stablecoins to manage foreign exchange (FX) risks from its global Starlink operations. SpaceX protects itself from FX volatility by collecting payments in different currencies and converting them into stablecoins. Stablecoins, which are pegged to the US dollar, provide a stable intermediary before converting back to dollars.
This approach offers several advantages:
- Reduced Currency Risk
- Improved Efficiency
- Maintaining Liquidity
This approach shows how stablecoins can be a powerful tool for multinational corporations and can be applied to managing client portfolios.
Why It Matters to You and Your Clients For financial advisors, stablecoins can enhance 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 including stablecoins in conversations about savings, payments, or repairs, you position yourself as a forward-thinking advisor ready to navigate these changes.
– Alec Beckman, president, Advantage Blockchain
Ask an Expert
Q: What is the 101 on stablecoins and liquidity?
The stablecoin market cap reached a record $215 billion, mostly concentrated in the two coins Tether and USDC, which together have 85% of the market cap. Stablecoin market liquidity remains healthy as more stablecoin issuers such as Visa, Stripe, and PayPal enter this unique digital asset sub-class. Given the pro-crypto attitude of the new Trump administration, we expect more crypto-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 generally designed to remain pegged to the US dollar (although not necessarily). The functionality of stablecoins in the crypto market is comparable to money market funds in the traditional financial market. Money market funds have reached a $10 trillion market cap, serving the purpose of a short-term investment 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 fiat-denominated short-term assets are some of the critical risks associated with stablecoins, especially when the financial market is under severe stress.
Q: Do country borders matter when it comes to stablecoins?
Country boundaries are very important because different countries may have different rules, regulations and license requirements for the stablecoin market. One of the main regulatory requirements related to stablecoins concerns the stability, liquidity, disclosure and transparency of short-term assets held by issuers for the underlying stablecoins.
– CK Zheng, co-founder and CIO, ZX Squared Capital
