Will Stablecoins Still Be Relevant After FedNow?

Given the upcoming launch of the FedNow service, which aims to provide instantaneous payments and settlement, there is growing curiosity about how stablecoins will adapt and remain relevant.

After all, stablecoins gained traction by addressing the sluggishness and outdated nature of the traditional US banking system. 

FedNow is a centralized payment system provided by the Federal Reserve for instant interbank transactions, while stablecoins are decentralized digital assets that aim to provide stability and fast transactions by pegging their value to specific assets or currencies.

So, will stablecoins still have a place in the digital age? Indeed, according to Bitwise crypto research analyst Ryan Rasmussen, stablecoins are expected to maintain their relevance, for several reasons.

One big common factor between the two is that they are capable of processing transactions at any time, unlike traditional banking systems.

But ultimately, stablecoins come out on top with five clear advantages, according to Rasmussen, enumerated in a blog post published on May 31.

1. FedNow has limited utility and does not have a global reach

The analyst noted that stablecoins make the US dollar more accessible worldwide, helping in countries like Venezuela, Argentina, and Turkey where there are shortages of banknotes and high inflation. 

By using platforms like Aave and Compound, stablecoins provide access to financial services and can make a positive difference for millions of people around the globe, he said.

2. Stablecoins offer financial access for all

FedNow requires users to hold a US bank account, while stablecoins offer financial access without such limitations.

FedNow doesn’t help the millions of unbanked households, including marginalized communities, while stablecoins provide instant access to the financial system for anyone with a computer or smartphone, the analyst said.

3. Stablecoins power on-chain transactions

Stablecoins have seen a massive surge in demand, with their total supply growing by a more than 8,000% since Jan. 2017, according to the researcher.

They are used in DeFi protocols, trading against cryptocurrencies like bitcoin and ether and for on-chain payments. Unlike FedNow, stablecoins allow dollars to exist on-chain, making them irreplaceable in these applications, he said.

4. Stablecoins offer a way for individuals to send money overseas 

Stablecoins are borderless and accessible anywhere, making cross-border payments more affordable and accessible. This is reflected in the growing popularity of stablecoin transfers, with over $17 trillion transferred to date, including $2 trillion in Q1 2023 alone, according to the data.

To put that in perspective, $2 trillion exceeds the total transaction volume processed by PayPal throughout 2022, he noted.

5. Stablecoins have no limits on transaction size 

Unlike FedNow, which imposes transaction limits, stablecoins have no such restrictions. Whether you’re sending $500 or $5,000,000, stablecoins can handle transactions of any size.

---

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.