Stablecoins: making a case for crypto cross-border payments

Introduction

Those in the crypto space will always sing the praises of crypto as the best alternative to making payments beyond the shores. They no doubt understand the technology and intricacies behind it. But for the outside world, both individuals and corporate bodies avoid all crypto transactions because there is always that element of unpredictability.

The important question that begs for answers from the perspective of masses is: How do you use currency whose values always fluctuate to make transactions of huge volumes and retain the value? The fear is there that at the end of the transaction, $10 for example might be worth less than that. The question of who bears such risks put fear into the mind of the populace and they avoid crypto as a means of international payment entirely.

Stablecoins remain the solution for a crypto-based cross border payment solution. Consider why with stablecoins, we already have the solution to using crypto for cross-border payments.

Cross-border payments - challenges and stable coins solution

So we will focus on 2 major challenges to using crypto for cross-border payments. Then we would learn how stablecoins prove to be ideal for overcoming each challenge. Alright lets kickoff with the very first challenge.

Problem 1: Price fluctuations

The very first and perhaps biggest hurdle to using crypto for cross-border payments is the unsteady prices. In the crypto space, it is normally called volatility. This very feature of all cryptos make it risky business for anything. Cross-border payments require that the same amount sent is to be received across the border. But with price fluctuations, that could be a big gamble.

The price of all crypto moves up and down. It can happen in the time it takes one to blink. And what is challenging about price volatility in crypto is that the differences when the price of assets change could be very significant. A crypto asset could loose as little as $1 or as large as $100 in a matter of short time depending on market conditions.

So imagining a situation where a big corporation wishes to pay overseas staff with crypto and they really got caught up in a bear market situation. If they sent payments to their staff abroad, the crypto payments would definitely worth less by the time they arrive the recipients wallets. Because of this particular possibility, both businesses and mass try to avoid crypto as a means of conducting cross-border payments or transactions.

Solution: Stablecoins are - yes stable

Stablecoins are a special category of cryptos designed to retain their value and hold a measure of stability. Such coins are pegged to or backed by a real world currency such as fiat money or other valuable physical assets like gold. Because of the asset which backs them up, stablecoins most usually hold a steady value just like fiat money. Even if their prices should fluctuate, the rate of change is very often negligible.

The value stability of stablecoins makes them a really special category of crypto. For cross-border transactions done with crypto, stablecoins remain the only option to get it done. Transacting parties would be assured that irrespective of market fluctuations, the value being sent across to a client at the other end would be same value delivered.

So for businesses with international clients, for organizations with overseas staff and for anyone hoping to send payments across the shores, stablecoins remain the ideal crypto to facilitate such transactions. That way, the exact value sent and received are same.

Problem 2: Unpredictable exchange rates

The second problem of using any other crypto for cross-border payment is the risk of unstable exchange rates. Other cryptocurrencies have unsteady market prices. This instability also makes it difficult to predict their exchange rates at any particular point in time.

For example, a cross border payment involving any other crypto would still require that such crypto be exchanged. This could become a serious issue as the sender would not be able to calculate what the exchange rates would be at the other end because crypto prices keep on changing all the time. The exchange rates might be higher or lower at any point in time. Hence when funds are sent using other cryptos, the challenge of not knowing the exchange rate could make it difficult to know the final values the receiver will get.

Solution: Stablecoins predictable exchange rates

With stablecoins, the problem of exchange rates simply does not exist. The predictability of stablecoin values at any point in time also helps to know its exchange rates at any time. For users sending payments across the border, it is easy to calculate the current exchange rate and add it to the value being sent. Once the receiver confirms the transaction, they could perform an exchange using the pre=determined rates. With that, the value sent is same as the one received.

Stablecoins allow the sender and receiver to stay protected from risks associated with exchange rates. Once they agree to use a stablecoin, it is all too easy to know what the rates would be from the start of the transaction to the end, just like you would always have it in traditional finance.

Conclusion

Stablecoins could be the next big giant in crypto to drive the change of cross-border transactions. The masses need to know that there is a special type of crypto that retains its value. When they do, they could start considering the possibilities of using stablecoins for their next cross-border payments.

Credits

Thumbnail from Pixabay

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