Crypto for Advisors: The Growth of Stablecoins

In today’s issue, Alec Beckman from Advantage Blockchain explains stablecoins and their growing use cases for institutions and advisors.

Then, CK Zheng from ZX Squared Capital shares tips on preparing for tax season in Ask and Expert.

– Sarah Morton

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One of the primary hurdles for blockchain adoption to date has been utility, especially when looking through the lens of financial advisors and how these public blockchains and decentralized finance (DeFi) protocols can impact their clients.

Stablecoins – digital currencies pegged to stable assets like the U.S. dollar – have emerged as a powerful tool for modernizing savings, payments, and settlement processes. These innovations present a significant opportunity for advisors to enhance the value they offer to clients while staying ahead of market trends.

How can advisors leverage stablecoins to streamline operations, reduce costs, and provide cutting-edge financial solutions? Here’s how stablecoins can become a transformative tool for your clients:

• Financial Inclusion: Stablecoins provide a way for clients to store value outside of traditional banking systems, granting 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 (ex. USDC is tied to the value of $1).
• Liquidity & Accessibility: Funds in stablecoins are globally accessible 24/7, offering liquidity without dependence on conventional banking hours.
• Better Yield: Using on-chain finance, stablecoins can generate significantly more yield than a savings account (Ex. Coinbase offers slightly over 4% APY, beating traditional savings accounts).
• Self Custody: Many people, including myself, have been held up by a third-party custodian or bank. If someone can keep you from spending/sending money, it is not your money. The ability to self custody your own assets provides a more seamless way of transacting your own funds.

• Efficiency: Transactions using stablecoins are fast and cost-effective with no global restrictions, relevant for those sending payments domestically or cross-border.
• Value Retention: The stability of these digital assets ensures that the amount sent is equal to the amount received.
• Adoption by Institutions: Financial institutions are recognizing stablecoins as a complementary payment system, signaling growing mainstream acceptance.
• Adoption by Commerce: Stablecoins are less costly and more efficient than credit card payments for merchants.

• Instantaneous Transactions: Settlements via stablecoins are near instantaneous, improving liquidity and reducing counterparty risks for clients managing high-value transactions.
• Lower Costs: By eliminating traditional clearing and settlement processes, stablecoins significantly reduce fees.
• Global Versatility: Whether your clients are trading internationally or managing investments across borders, stablecoins streamline and simplify the settlement process.

SpaceX uses stablecoins to manage foreign exchange (FX) risks from its global Starlink operations. SpaceX shields itself from FX volatility by collecting payments in various currencies and converting them into stablecoins. The stablecoins, pegged to the U.S. dollar, provide a stable intermediary before being converted back to dollars.

This approach offers several advantages:

• Reduced Currency Risk
• Enhanced Efficiency
• Liquidity Preservation

This strategy demonstrates how stablecoins can be a powerful tool for multinational corporations and can be applied to managing client portfolios.

Why This Matters to You and Your Clients For financial advisors, stablecoins can elevate portfolios and modernize financial strategies. These assets aren’t just a novelty – they’re a bridge to a more inclusive, efficient, and adaptable financial 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

Q: What’s the 101 on stablecoins and liquidity?

The stablecoin market cap has reached a record $215 billion, predominantly concentrated in the two coins Tether and USDC, having a combined 85% of the market cap. The liquidity of the stablecoin market stays healthy as more stablecoin issuers such as Visa, Stripe, and PayPal enter this unique digital asset sub-class. Given the new Trump administration’s pro-crypto attitude, 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.

Q: Are stablecoins risky compared to traditional finance (TradFi)?

Stablecoins are typically designed to stay pegged to the U.S. dollar (though they don’t need to be). The functionality of stablecoins in the crypto market is comparable to money market funds in the traditional financial market. The money market funds have reached a $10 trillion market cap, which serves the purpose of short-term investment 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 greatly as different countries may have different rules, regulations and license requirements for the stablecoin market. One of the key regulatory requirements associated with stablecoins is around the stability, liquidity, disclosure and transparency of the short-term assets the issuers hold for the underlying stablecoins.

– CK Zheng, co-founder & CIO, ZX Squared Capital

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