In today’s edition, Alec Beckman of Advantage Blockchain explains stablecoins and their growing use cases for institutions and advisors.
Then CK Zheng of ZX Squared Capital shares tips on preparing for tax season in Ask and Expert.
-Sarah Morton
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Stablecoin Use Case for Advisors
One of the primary obstacles to blockchain adoption to date has been utility, especially when viewed through the lens of financial advisors and how these public blockchains and decentralized finance (DeFi) protocols can impact their clients.
Stablecoins – digital currencies tied to stable assets like the US dollar – have emerged as a powerful tool to modernize savings, payments and settlement processes. These innovations give advisors a significant opportunity to increase the value they offer clients while staying ahead of market trends.
How can advisors leverage stablecoins to streamline operations, reduce costs and deliver cutting-edge financial solutions? Here’s how stablecoins can become a transformative tool for your customers:
Savings account / becomes unbanked
- Financial inclusion: Stablecoins allow customers to store value outside of traditional banking systems, providing access to financial services for the unbanked or underbanked. Anyone with an internet connection can use stablecoins.
- Stability: Unlike volatile cryptocurrencies, full-reserve, dollar-backed stablecoins maintain a consistent value (e.g. USDC is pegged to the value of $1).
- Liquidity and availability: Funds in stablecoins are globally accessible 24/7 and offer liquidity without reliance on conventional banking hours.
- Better yield: By using on-chain funding, stablecoins can generate significantly more returns than a savings account (e.g. Coinbase offers just over 4% APY, which beats traditional savings accounts).
- Self-care: Many people, including myself, have been held by a third party custodian or bank. If someone can stop you from spending/sending money, it’s not your money. The ability to self-storage your own assets provides a more hassle-free way of trading your own funds.
Payments
- Efficiency: Transactions with stablecoins are fast and cost-effective without global restrictions, relevant for those sending payments domestically or across borders.
- Value Retention: The stability of these digital assets ensures that the amount sent is equal to the amount received.
- Adoption of institutions: Financial institutions recognize stablecoins as a complementary payment system, signaling increasing mainstream acceptance.
- Acceptance of Trade: Stablecoins are cheaper and more efficient than credit card payments for merchants.
Settlement
- Instant Transactions: Settlements via stablecoins are almost instantaneous, improving liquidity and reducing counterparty risk for clients managing high-value transactions.
- Lower costs: By eliminating traditional clearing and settlement processes, stablecoins significantly reduce fees.
- Global Versatility: Whether your clients trade internationally or manage investments across borders, stablecoins streamline and simplify the settlement process.
Real-world application: SpaceX’s strategic use of stablecoins
SpaceX uses stablecoins to manage foreign exchange (FX) risks from its global Starlink operations. SpaceX protects against currency volatility by collecting payments in different currencies and converting them into stablecoins. Pegged to the US dollar, stablecoins provide a stable intermediary before being converted back into dollars.
This approach offers several advantages:
- Reduced currency risk
- Improved efficiency
- Liquidity preservation
This strategy demonstrates how stablecoins can be a powerful tool for multinational corporations and can be used to manage client portfolios.
Why this is important to you and your customers For financial advisors, stablecoins can elevate portfolios and modernize financial strategies. These assets are not just a novelty – they are a bridge to a more inclusive, efficient and adaptable economic future. By integrating stablecoins into conversations about savings, payments or settlements, you position yourself as a forward-thinking advisor prepared to navigate these changes.
– Alec Beckman, President, Advantage Blockchain
Ask an expert
Q: What is 101 on stablecoins and liquidity?
The stablecoin market capitalization has reached a record of $215 billion, predominantly concentrated in the two coins Tether and USDC, with a combined 85% of the market capitalization. Liquidity in the stablecoin market remains healthy as more stablecoin issuers such as Visa, Stripe and PayPal enter this unique subclass of digital assets. Given the pro-crypto attitude of the new Trump administration, we expect more crypto-friendly rules and regulations for this asset in the coming months, which will support the further growth of the stablecoin market.
Question: Are stablecoins risky compared to traditional finance (TradFi)?
Stablecoins are typically designed to remain pegged to the US dollar (although they don’t have to be). The functionality of stablecoins in the crypto market is comparable to money market funds in the traditional financial market. Money market funds have reached a market cap of $10 trillion, serving the purpose of short-term investments and a place to park money. Stablecoins will serve a similar purpose in the digital asset space. The quality and liquidity of the issuer’s holdings of fiat-denominated short-term assets are some of the critical risks associated with stablecoins, especially when the financial market is under great stress.
Q: Do country borders matter when it comes to stablecoins?
Country borders matter a lot as different countries may have different rules, regulations and licensing requirements for the stablecoin market. One of the main regulatory requirements associated with stablecoins is around the stability, liquidity, disclosure and transparency of the short-term assets that issuers hold for the underlying stablecoins.
– CK Zheng, Co-Founder & CIO, ZX Squared Capital
