We stream data. We stream music. We stream video. Thanks to stableecoins, we are starting to stream the entire economy.
The US dollar stableecoins recently hit a milestone – they represent approx. 1% of the US money supply (based on the M2 measure). Not a big thing you might think, but in fact it can be one in the near future.
Stableecoins grow at a phenomenal speed, approx. 55% per year. While it will be unlikely to continue forever, it is not difficult to predict a future, less than a decade away, where stablecoins represent an amount equal to approx. 10% of M1 defined as cash, notes and “easily accessible” digital money as current bank accounts.
StableCeCoins are designed to be easily accessible and useful, which certainly seems it would fit into this definition of the money supply. In fact, on-chain services begin to look like a lot by default banking services. Except they work faster and cost much less.
Now imagine that if moving money around was effective, free and immediate. Wanna manage your money differently? You might. In fact, global companies are already starting to think about it.
Today, companies store plenty of money in many separate places around the world. It is not very different from how they manage physical warehouse. Since moving money across borders is expensive and slow, companies must keep a decent supply of cash available locally to pay bills. And since customers do not necessarily pay invoices with absolute predictability, companies must keep a buffer of cash available to manage the variation between predictable costs, such as payroll and unpredictable revenue.
Things may look different in the future. If it does not cost anything to move money globally and it can be done almost immediately, the size of these local buffers can be dramatically reduced. Instead of keeping two weeks worth of expenses locally, including payroll, you may just choose to keep a day worth on hand. A slightly larger cash pile can be kept centrally and sent out as needed. Businesses could rebalans their global cash holdings every six hours. Result: A significant decrease in operating capital requirements.
What can start at the global level for large companies could spread quickly and not just in the B2B room. Why not pay any employee every day for the actual hours of work? Lenders of payday make a fortune today to rip people over between weekly paychecks. Why not bill customers daily for electricity consumption? Electrical tools today are waiting 30 days to invoice you and wait another 30 days for you to pay. The gap between when using power and when you pay for it, it can be up to 60 days.
This sounds creepy except that math pencils out. At 5% interest rates generate a debt of $ 10 over a year $ 0.50 in interest to current interest rates, which is about $ 0.04 per year. Month. Every week of “Float” you can save (or earn) worth approx. $ 0.01. Given that payment costs on Ethereum Layer 2 networks are now routinely below $ 0.01, the answer is yes, it’s worth it.
Transaction costs are only led in one direction, which means that the financially efficient size and frequency of control of your money only becomes more granular.
We used to buy music. Then we downloaded it. Now we are streaming it. Once for the time being, the idea of streaming music as needed – and all bandwidth and calculation needed to do it – was considered ridiculous. Now it is hardly a decrease in the bucket compared to video streaming. There is no reason to believe that payments are different.
As with all technological revolutions, the starting point is always “your root for less.” Which is to say that the first thing people want to do is take existing processes (as monthly billing) and just run them cheaper. Then it will be your mess, but faster. Eventually, companies are beginning to imagine these processes in the light of the new economy.
Requirements for operating capital could rearrange the economy in surprising ways. Many companies probably keep cash available to cover 12 weeks of expenses. US companies have collected about $ 2 trillion cash available and $ 2.8 trillion in outstanding operating capita loans. Switching to an economic streaming model could literally release trillion in capital for new investments.
It can also change people’s behavior. The longer the time gap between an action and a reward, the harder it can be to make people respond. Incentives for things such as using services or energy on off-peak times can be much more efficient when the payment is immediate. No one has ever gone wrong with betting on immediate satisfaction.
Disclaimer: This is the author’s personal views and does not represent the views of EY.
