Sovereign Stablecoins
Stablecoins not pegged to USD, and also not CBDCs
Been thinking about sovereign stablecoins: stables pegged not to the USD (also not CBDCs). I’ve encountered a few of these recently, and though they are not a new concept they are still fairly emergent to date (if you combine all the non USD stablecoins together, the total value, denominated in dollars is not as large as USDC alone).
Writing this with a request - if you see any interesting people, companies, or reading material around this area, please send my way. Have talked to a few folks building here, but eager to learn more.
Few thoughts
I’ve long thought that the majority of stablecoin demand has first been about giving defi use cases a currency to settle in and second about giving non US individuals and companies access to USD, with the former driving velocity/turns and the latter driving money at rest.
Under the hood, all the benefits of speed, programmability and more, are not at all bounded to stablecoins being backed by dollars. As a result countries that experience these frictions in financial services (settlement delays, time constraints around liquidity, limits etc) can really benefit from the technology itself, vs the USD access tailwind
The additional regulatory clarity from MICA & GENIUS create blueprints for regulators around the world, and supports infrastructure for them to connect to.
The administrative volatility in the US probably makes the ground marginally more attractive for stables to exist
Use cases & open questions
A few use cases are emergent and I’m curious about
Liquidity & Settlement: making it easy to go fiat to onchain in local currency with instant settlement and 24/7/365 availability (lots of countries have a local instant rail like Brazil with Pix and India with UPI, but how that works in practice differs from rail to rail)
FX: enabling a fully realized onchain currency pair that sidesteps the fiat to USD[Insert Issuer Here] conversion
What are the local conditions that make a stablecoin make sense to build and reach scale in a particular country?
Is there room for a sovereign stablecoin if the country already has an instant rail? Are the presence of limits the constraint? Why would someone who lives there choose to hold the local currency in fiat vs. onchain? What advantages would need to exist.
What does the presence/absence of regulatory clarity do to the development of a sovereign stablecoin? Are the users primarily consumers, businesses, or institutional users?
Does yield get treated the same around the world? Do banks have the same fears around the world? What’s different and why?
> Does yield get treated the same around the world? Do banks have the same fears around the world? What’s different and why?
I think the case here that you might want to think about is how banks and their relationship to their local government institution. The basic difference I can think of is having a variable yield rate dependent on market conditions like a Money Market in USD vs a government who controls this, and sets rates (or manipulates the market).
Q4) Is there room for a sovereign stablecoin if the country already has an instant rail? Are the presence of limits the constraint? Why would someone who lives there choose to hold the local currency in fiat vs. onchain? What advantages would need to exist.
A4) Nigeria has an instant Stablecoin - however, with the FX restrictions in Nigeria, the Naira-based stablecoins exist as a way to build stablecoin liquidity for swaps, enable the importers and cross-border traders easier on/off ramps, as well as treasury management on chain. The NGN-based stablecoins also act as an easier way to acquire USD stablecoins for smaller players due to the FX volatility as they can easily stack stablecoins and then swap for USD-based ones when exporting, thus helping with their liquidity, especially if their incomes are in NGN and their expenses are one-time USD expenses.
Q6) Does yield get treated the same around the world? Do banks have the same fears around the world? What’s different and why?
A6) Yes. USD-based stablecoins have caused currency flight and volatility in Nigeria. - at least that's what the government believes. The existence of NGN-based Stables may quell those concerns.