Should they come into wider use, stablecoins could disintermediate other financial middlemen. Used either as a store of value or a medium of exchange, stablecoins could allow users to settle transactions near-instantaneously without using an intermediary that facilitates settlements.
Many note the value for cross-border settlements, which take time and can be costly. “Firms are also using institutional stablecoins to near-instantly move cash across their subsidiaries to manage internal liquidity, and to facilitate wholesale transactions in existing financial markets, such as intraday repo transactions,” say Gordon Y. Liao and John Caramichael in a paper developed for the U.S. Federal Reserve. “And finally, because public stablecoins are programmable and composable, they are used heavily in decentralized, public blockchain-based markets and services, known as decentralized finance or DeFi.”
Stablecoins are digital currencies that peg their value to an external reference, typically the U.S. dollar, and are recorded on distributed ledger technologies such as blockchain.
The potential disintermediation is clear: “If stablecoins were to see broad adoption throughout the financial system, they could have a significant impact on the balance sheets of financial institutions,” say Liao and Caramichael.
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