In today’s issue, Advantage Blockchain’s Alec Beckman explains stablecoins and their growing use cases for institutions and advisors.
Next, CK Zheng of ZX Squared Capital shares tips on preparing for tax season in Ask and Expert.
-Sarah Morton
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Stablecoin Use Cases for Advisors
One of the biggest barriers to blockchain adoption to date has been utility, particularly when looking from the perspective of financial advisors and how these public blockchains and decentralized finance (DeFi) protocols can have an impact on their customers.
Stablecoins – digital currencies linked to stable assets like the US dollar – have become a powerful tool for modernizing savings, payments and settlement processes. These innovations represent a significant opportunity for advisors to improve the value they deliver to their clients while staying ahead of market trends.
How can advisors leverage stablecoins to streamline operations, reduce costs and provide cutting-edge financial solutions? Here’s how stablecoins can become a transformative tool for your clients:
Savings account / becoming bankless
- Financial inclusion: Stablecoins offer customers a way to store value outside of traditional banking systems, providing access to financial services to the unbanked or underbanked. Anyone with an internet connection can use stablecoins.
- Stability: Unlike volatile cryptocurrencies, full-reserve, dollar-backed stablecoins maintain a constant value (for example, USDC is tied to the value of $1).
- Liquidity and accessibility: Stablecoin funds are accessible globally 24/7, providing liquidity without relying on conventional banking hours.
- Best performance: Thanks to on-chain financing, stablecoins can generate a significantly higher return than a savings account (for example, Coinbase offers an APY of just over 4%, beating traditional savings accounts).
- Self-guard: Many people, including myself, have been held by a third party escrow or bank. If anyone can stop you from spending/sending money, it’s not your money. The ability to hold your own assets yourself provides a smoother way to deal with your own funds.
Payments
- Efficiency: Transactions using stablecoins are fast and cost-effective, without global restrictions, relevant for those sending payments domestically or cross-border.
- Retention of value: The stability of these digital assets ensures that the amount sent is equal to the amount received.
- Adoption by institutions: Financial institutions are recognizing stablecoins as a complementary payment system, indicating growing acceptance among the general public.
- Commercial Adoption: Stablecoins are less expensive and more efficient than credit card payments for merchants.
Regulations
- Instant Transactions: Settlements via stablecoins are near-instantaneous, improving liquidity and reducing counterparty risks for clients managing high-value transactions.
- Reduced costs: By eliminating traditional clearing and settlement processes, stablecoins significantly reduce fees.
- Global versatility: Whether your clients are transacting internationally or managing 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 related to its global Starlink operations. SpaceX protects itself from currency volatility by collecting payments in various currencies and converting them into stablecoins. Stable coins, linked to the US dollar, provide a stable intermediary before being converted back to dollars.
This approach offers several advantages:
- Reduced currency risk
- Improved efficiency
- Liquidity preservation
This strategy demonstrates how stablecoins can be a powerful tool for multinational corporations and can be applied to managing client wallets.
Why this matters to you and your customers For financial advisors, stablecoins can elevate 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 integrating stablecoins into conversations about savings, payments or settlements, 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 capitalization reached a record $215 billion, mainly concentrated in the two coins Tether and USDC, together accounting for 85% of the market capitalization. Liquidity in the stablecoin market remains healthy as more stablecoin issuers such as Visa, Stripe, and PayPal enter this unique subclass of digital assets. Given the pro-crypto stance of the new Trump administration, we expect more crypto-friendly rules and regulations for this asset in the coming months, which will support the continued 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 this is not required). The functionality of stablecoins in the crypto market is comparable to that of money market funds in the traditional financial market. Money market funds have reached a market capitalization of $10 trillion, which serves as a short-term investment and parking place. Stablecoins will serve a similar purpose in the digital asset space. The quality and liquidity of the issuer’s holdings of short-term assets denominated in fiat currency are among the critical risks associated with stablecoins, particularly when the financial market is under severe stress.
Q: Do country borders matter when it comes to stablecoins?
National borders are very important, as different countries may have different rules, regulations and licensing requirements for the stablecoin market. One of the main regulatory requirements associated with stablecoins concerns the stability, liquidity, disclosure and transparency of the short-term assets that issuers hold for the underlying stablecoins.
– CK Zheng, co-founder and CIO, ZX Squared Capital
