We disseminate data. We broadcast music. We broadcast the video. Thanks to Stablecoins, we are about to start spreading the whole economy.
The stables of the US dollar have recently taken an important step – they represent approximately 1% of the American money supply (based on M2 measure). This is not a big problem, you may think, but in fact, it could become one in the near future.
Stablecoins increase at a phenomenal rate, around 55% per year. Although this does not continue forever, it is not difficult to predict a future, less than a decade, where stablecoins represent an amount equal to around 10% of the M1, which is defined as money, notes and digital money “easily accessible” such as current bank accounts.
Stablecoins are designed to be easily accessible and usable, which certainly seems to be integrated into this definition of the money supply. Indeed, chain services are starting to look much like standard banking services. Except that they work faster and cost much cheaper.
Now imagine if the movement of the money was, indeed, free and instantaneous. Do you manage your money differently? You could. Indeed, global companies are already starting to think about it.
Today, companies keep a lot of money in many separate places around the world. It is not particularly different from the way they manage the physical inventory. Since the movement of money through the borders is expensive and slow, companies must keep a decent cash offer locally to pay the bills. And, as customers do not necessarily pay invoices with absolute predictability, companies must keep a cash stamp at hand to manage the variation between predictable costs, such as pay and unpredictable income.
Things can be different in the future. If it costs nothing to move money worldwide and can be done almost instantly, the size of these local stamps can be considerably reduced. Instead of maintaining two weeks of spending locally, including payroll, you could simply choose to keep only one day at hand. A slightly larger pile of cash can be maintained in the center and sent if necessary. Companies could rebalance their world cash funds every six hours. The result: a significant decrease in working capital requirements.
This can start at a global level for large companies could spread quickly, not only in the B2B space. Why not pay each employee every day for the real hours worked? Salary lenders are making a fortune today to roll people between weekly payroll checks. Why not charge customers daily for electricity consumption? Electric public services are waiting for 30 days today to charge you and wait another 30 days for you to pay. The gap between the moment you use energy and the moment you pay may be up to 60 days.
It seems absurd, except that mathematics fear. At interest rates of 5%, a debt of $ 10 over a year generates $ 0.50 in interest at current rates, or about $ 0.04 per month. Each week of “float”, you can save (or win) is worth around $ 0.01. Since the payment fees on Ethereum Layer 2 networks are now systematically less than $ 0.01, the answer is yes, this is worth it.
Transaction costs are directed in a single direction, which means that the economically effective size and frequency of the management of your money are only more granular.
We used to buy music. Then we downloaded it. Now we diffuse it. Once upon a time, the idea of broadcasting music on demand – and the whole bandwidth and the calculation had to do it – was considered ridiculous. Now it’s barely a drop in the bucket compared to video streaming. There is no reason to think that payments are different.
As with all technological revolutions, the starting point is always “your waste for less”. This means that the first thing that people will do is to take existing processes (such as monthly billing) and to make them work cheaper. Then it becomes your mess, but faster. Finally, companies are starting to reinvent these processes in the light of the new economy.
Reducing working fund requirements could reorganize the economy in a surprising way. Many companies keep enough money at hand to cover 12 weeks of expenses. US companies generally have around 2 billions of cash dollars and 2.8 billions of dollars in lending working funds in circulation. The transition to a financial streaming model could literally release billions of capital for a new investment.
It could also change people’s behavior. The longer the time gap between an action and a reward, the more difficult it can be to respond to people. Incitations to things such as the use of services or energy out of peak can be much more effective when payment is immediate. No one has ever shot in Paris on instant gratuity.
Warning: These are the author’s personal views and do not represent EY’s views.
