Stablecoin Hype Overblown Despite Senate Bill Passage

Lawmakers and crypto industry leaders have argued that stablecoins will redefine the U.S. economy once relevant legislation passes. However, a senior Moody’s analyst doubts that traditional banks and merchants will create their own stablecoins anytime soon. The analyst believes that too many technical barriers remain, and media hype about an explosion of new stablecoin issuers is overblown.

Earlier this month, the Senate passed a landmark bill to formally legalize stablecoin issuance in the United States. This legislation is expected to unleash the promise of instantaneous blockchain payments across the U.S. economy. Crypto leaders have forecasted that once the federal government gives the green light, hundreds of stablecoins—even thousands—could soon flood the market, challenging the dominance of giants Tether (USDT) and Circle (USDC).

However, analysts at Moody’s contend that the current stablecoin hype may be significantly overblown. They argue that numerous barriers stand in the way of the asset’s widespread adoption. Cristiano Ventricelli, a senior analyst at Moody’s specializing in digital assets, stated that issuing stablecoins is one thing, but having a viable business model for stablecoins is another. He believes that the current hype around stablecoins is overblown and that the barriers to entry are significant.

Ventricelli pointed out that big banks could create their own stablecoins to streamline payments. However, creating a new dollar-pegged currency backed by audited fiat reserves would be time-intensive and costly. A simpler remedy, such as launching tokenized bank deposits, might be more feasible. Ventricelli questioned whether banks really need a stablecoin to make payment transfers more efficient or if other solutions might be more appropriate.

The matter of retail stablecoins is even more complex. While major retailers like Amazon and Walmart are reportedly investigating whether to launch their own crypto tokens, Ventricelli is not certain such plans will ultimately materialize. If top retailers end up launching stablecoins to control their own payment rails, consumers would be left holding far too many different tokens. Each token would likely function as a voucher within closed systems, making the situation quickly become untenable.

Ventricelli highlighted that to swap one stablecoin for another would require robust liquidity pools for each and every conceivable token pairing. This is similar to decentralized finance (DeFi), where lucrative incentives facilitate the seeding of pools for crypto token pairs. However, Ventricelli questioned whether such liquidity pools would materialize, making the situation even more convoluted. If such pools did not materialize, consumers would need to convert one stablecoin into fiat and then use fiat to buy another stablecoin, which would not solve any real-world problems.

In recent weeks, major players around the world have started exploring issuing their own fiat-pegged crypto tokens, likely emboldened by the potentially imminent passage of stablecoin legislation in the United States. However, curiosity and commitment can be two very different things. Ventricelli noted that just because it is now possible to issue stablecoins does not mean everyone will rush to do it. He believes that the media hype around stablecoins does not necessarily reflect the reality of the situation.