Bitcoin is still one of the most highly contentious topics in the world of finance and business and beyond. Recently, the popular cryptocurrency has risen in value as corporations such as Tesla have begun to invest in and accept Bitcoin as a way of paying for products and services.
Visa has launched a new trial programme to facilitate Bitcoin transactions through custodian banks, following Paypal and Squares Cash App in giving consumers the choice to use Bitcoin trading through their existing brand offerings.
These companies, like Mastercard, are issuing bank cards that enable users to spend cryptocurrency balances, with some even offering cash-back or crypto-back rewards. CeDeFi, or centralised decentralised finance, is the term we use to describe these services.
Traditional centralised (CeFi) financial organisations – Mastercard and Visa being two of them – are set to adopt developing DeFi apps in this new era (such as Visa and Mastercard). CeDeFi, on the other hand, is a hybrid service that combines the benefits of both centralised and decentralised monetary systems.
In essence, this entails combining older regulatory protections provided by older and more traditional businesses with newer creative financial infrastructure and goods. For example, rather than sitting around as a stored value, Bitcoin and other digital products can be used to collateralize loans and borrowings, just like gold.
However, some critics are unconvinced about the development of CeDeFi In principle, these card and payment business services are beneficial since they enhance the technical railroads between consumers, blockchains and businesses, assisting us all in preparing for a future payment infrastructure transition as we move towards becoming a cashless society.
The reality, however, is that these services are provided by CeFi firms, which make money by collecting transaction fees for settling, transaction services, and the clearing of the payments.
As they consider blockchain payments, their apprehension is understandable. The latter carry out peer-to-peer deals, obviating the need for central middlemen and the related bank costs.
Consumers are left to question if, in the future, they would have to pay these higher centralised services fees or additional transaction costs for moving cryptocurrency between blockchain networks, thus undermining the whole premise and concept of blockchain.
But are there any alternatives?
Users and early adopters of digital currency are looking for alternatives to the above, and some of the solutions that have yet to be seen but have been mulled over and considered include using Stablecoin.
You can read more in this guide to stablecoins, but essentially, it is a new type of cryptocurrency. Price stability is the goal, and it is backed by a reserve asset such as the US dollar or gold. Stablecoins have gained popularity since they try to combine the best of both worlds: the rapid processing and security or privacy of cryptocurrency payments, as well as the volatility-free and stable prices of fiat currencies.
Stablecoins have been around for a while in the cryptocurrency world, but they only became popular in the last year or two. As the name implies, stablecoins are steady in nature – or are meant to be at the very least.
Stablecoins, which grew in popularity as a result of Tether’s USDT, are now saturating the cryptocurrency market. There are already over a hundred different stablecoin projects on the market, with many more expected to launch over the next year or two.
Stablecoins are gaining acceptance among institutional and retail investors alike, making this the most appropriate time to address their role in broad adoption.
- Stablecoin, which is pegged to fiat currency, allows for low-cost on-chain payments.
- Stablecoin payment applications that are simple to use.
- Payment acceptance fees that are lower than they are presently in the major card platforms.
- Stablecoin payments and settlements in real time on the blockchain, linked to the fundamental data that supports the payment
- Stablecoin funds that are held off-chain in a partner bank account are protected by card brands and banks.
In this case, the alternative payment firm or card issuer would release a Stablecoin that customers could use to conduct blockchain transactions. Payments in stablecoins would be linked to the underlying information, such as what was bought, and would be visible and real-time on the blockchain.
The sides that are involved in acquiring and issuing would benefit from current card brand services such as onboarding, balance protections, risk management, and so on, but merchants and consumers would not be charged transaction fees for real card payment transactions.
While this may appear unsustainable in terms of revenue for the card companies in issue, they might still profit from on- and off-ramp value-added services, as well as interest on the assets that underpin the Stablecoins.
What is holding up the process?
The industry applauds Visa’s recent news, but the fundamental problem is that Bitcoin is simply just too erratic to be used for payments, and we will not see widespread use of Bitcoin payments until its value stabilises.
Stablecoin payments on blockchains, on the other hand, are clearly needed. This is a unique selling point that card brands and alternatives can provide, in addition to the value-added risk management, cash management, onboarding, and other services that are already available in fiat money.
Some may counter that this prevents payment providers and card brands from collecting fees as they do now, but that is the essence of blockchain payments: eliminating the need for central clearing and moving to a peer-to-peer system.
While some centralised financial institutions may be hesitant to embrace the spirit of blockchain, they may find themselves forced to do so because alternative emergent stablecoin payment networks are more than likely to satisfy the market need even if traditional companies fail to catch up.
How could your business benefit from using stablecoins?
- Stablecoins can be readily transferred to anyone across the globe, as long as they are willing to accept the transfer. Stablecoins are borderless, which is one of their key advantages.
- Stablecoins make your transfer both possible and affordable, as most transactions cost only a fraction of the money you are sending. It means you will not have to include the transaction fee when sending the required amount.
- When you make a bank transfer, you pay a large service fee while unsure if your bank can handle it, and the transfer could take up to 5 days to complete. Slow speed can affect firms in today’s society, where rapidity is crucial. The money you wish to send or receive from a sale will arrive in minutes with stablecoins, and in some cases, the transfer will be instantaneous.
- Another issue with fiat transfers is that they are unavailable on holidays and weekends. This prevents any transfers you may need to make over the weekend or on a holiday that may not be a non-working day for your company, which is another advantage of utilising stablecoins, as they function 24 hours a day, 7 days a week.
- Stablecoins can also be programmed, allowing you to construct and design a stablecoin that is tailored to your specific business needs, such as supply chain management and communication. Stablecoins can also assist in the development of a simple loyalty programme for both employees and customers.
- Stablecoins are stable because they are backed by a fiat currency. The amount you put into a stablecoin transfer, less any costs, is the amount your receiver receives. This way, you won’t have to worry about foreign exchange rates in the middle of your purchase if you order products from other nations.