News
Stablecoin Hits 10: CEBR and BVNK Report Finds Coins Can Unlock $11 Billion in Enterprise Capital
KEY POINTS
- Stablecoins can free up $11.6 billion of working capital trapped in slow cross-border payment systems: CEBR and BVNK report
- Cross-border stablecoin payments are expected to reach $2.8 trillion this year alone
- Stablecoin payment volumes could reach $15 trillion by 2030, BVNK co-founder Chris Harmse says
Ten years after the first stablecoin was launched in July 2014, stablecoins have grown into a key class of cryptocurrencies that provide investors with price stability, largely through backing by the U.S. dollar and other specific assets. Most cryptocurrency tokens have weathered the storms of volatility, but stablecoins have become the epitome of resilience.
Coinciding with the tenth anniversary of stablecoins, a new report has been released by leading economic consultancy firm Center for Economic and Business Research (CEBR) and B2B payment provider BVNKThe report found that stablecoins can free up approximately $11.6 billion of corporate capital trapped in slow payment systems in any given second. The report demonstrates, for the first time, the quantitative link between increased stablecoin use and economic impact.
Freeing trapped capital
Today’s cross-border payment systems are plagued by long delays in funds transfers that trap working capital and require financial service providers to hold money in pre-funded accounts to offset risk. CEBR analysts examined four major routes (US-Latin America, Europe-Africa, Europe-Southeast Asia, and Europe-Latin America) with settlement delays that at any given time, $11.6 billion in working capital is trapped, capital unavailable for growth and a significant opportunity cost for companies.
The graph shows the enormous value of working capital trapped in B2B payment systems. CEBR – BVNK
Through stablecoins, global settlements are accelerating. This year in particular is expected to be a huge year for stablecoin settlements. It is expected that in 2024, there will be $2.8 trillion in cross-border stablecoin payments. Such payments improve liquidity for companies, especially SMEs. They reduce borrowing costs and also improve operational efficiency.
In addition to costs and operations, stablecoin payments also have a “direct financial benefit.” They are expected to generate $2.9 billion in returns for companies by 2027 across the four pathways studied. Because stablecoins bypass the need to pre-fund accounts, near-instant settlement has the potential to free up more than $5 trillion in tied-up capital, the analysis found.
“Businesses and economies lose when funds are tied up in slow payment systems and can suffer from local currency volatility. CEBR partnered with BVNK to explore how the growing global adoption of stablecoins alleviates these problems. Among other benefits, stablecoins can streamline the payment process, freeing up idle capital that can be used for a productive purpose. In select routes that account for approximately 10% of cross-border payments, we find that faster stablecoin transactions will unlock $2.9 trillion in increased economic output by 2027,” CEBR CEO Nina Skero told the International Business Times in a statement.
Mitigating the costs of currency volatility
Volatility has long been a problem for many emerging economies. The report found that stablecoins, which are predominantly pegged to the U.S. dollar, can help offset GDP losses due to local currency volatility in emerging economies. Losses have averaged 9.4% of GDP since 1992 in 17 countries studied, including Nigeria, the Philippines, South Africa, and others. The largest impacts were seen in Indonesia ($184 billion) and Brazil ($172 billion).
The map shows the extent of GDP losses in emerging economies triggered by currency volatility. CEBR – BVNK
Stablecoins give emerging economies the ability to protect consumers’ savings and corporate balance sheets from the impacts of inflation, while allowing companies to avoid unfavorable business contracts due to currency devaluation.
“With industry leaders already predicting the stablecoin market cap to grow from $160 billion to $1 trillion in the next few years, stablecoin payment volumes could reach $15 trillion by 2030. We believe the rise of yield-based stablecoins will also have a huge impact on the industry. At 3% interest rates, stablecoin issuers could generate $30 billion annually in economic value on stablecoin deposits through yield alone by 2030,” said Chris Harmse, co-founder of BVNK.
Bridging the dollar gap
There is strong international demand for a stable, global currency, and as a digital replacement for the US dollar, stablecoins fill the gap where access is limited.
CEBR analysts looked at 17 countries that showed significant demand for stablecoins. In the aforementioned emerging economies, businesses and consumers were willing to pay an average premium of 4.7% over the standard dollar price to access stablecoins. In countries like Argentina, the figures are as high as 30%. The 17 countries, which include Malaysia, Mexico, Romania, Poland, and Thailand, are estimated to pay a premium of $25.4 billion alone to access stablecoins.
The map shows the high premiums paid for access to stablecoins in some emerging economies, particularly Argentina and Nigeria. CEBR – BVNK
“Companies are diversifying their supply chains and expanding their global customer base. For many, access to strong fiat currencies is difficult and it is difficult to move money quickly across borders. These are not just inconveniences, they have a direct impact on capital efficiency and liquidity. Stablecoins bring the full utility of the Internet to payments, connecting buyers and sellers globally in an instant. For businesses, they offer a powerful alternative to today’s slow and cumbersome cross-border payment systems,” said Ben Reynolds, CEO of BVNK US
Stablecoin 10 years and beyond
When they were first launched, stablecoins were primarily used to purchase cryptocurrency tokens on trading platforms that did not have fiat currency trading pairs. As more people adopt stablecoins, they have evolved and can now be used to pay for certain goods and services.
The potential of the stablecoin industry to solve cross-border payments problems is clear, and as more and more studies emerge on other potential use cases 10 years after the stablecoin industry’s inception, it’s safe to say that stablecoins are standing the test of time.