A stablecoin is a type of cryptocurrency designed to maintain a value equal to a reference asset, such as the dollar. It combines the benefits of cryptocurrencies — fast, low-cost and borderless transactions — with the relative stability of the asset it is pegged to.
Take the USDC stablecoin. The gist is that for every USDC in circulation, there must be a corresponding dollar or similarly secure government-backed asset held in reserve. So, if there are 61.33-billion USDC tokens in circulation, Circle, the company behind USDC, must be able to prove it holds an equivalent amount in dollar reserves.
In this sense, it’s not all that different from the digital money in your bank account, except it is transacted on a blockchain, giving it the unique, payment-friendly properties that make it so attractive to banks, retailers and payment companies.
Acknowledging this momentum, the US Senate passed the Guiding & Establishing National Innovation for US Stablecoins Act in June, known as the Genius Act. The legislation sets out guidelines for banks and companies that wish to issue stablecoins.
The significance is that banks, fintech firms and possibly even retailers, under certain conditions, may be able to issue stablecoins in the future. It’s another win for crypto adoption, especially considering that the US is seen as the world’s largest crypto market, and when regulation changes there, other countries tend to take note.
It becomes frictionless money — a payment system finally delivering on the promise of the internet
But beyond the headline of regulatory acceptance, what might this mean practically, especially if regulators in South Africa or elsewhere in Africa were to take a favourable view of these developments and explore similar frameworks in their own jurisdictions?
Stablecoins have long featured in conversations around hedging against currency devaluation, remittances and payments generally. However, the elephant in the room has always been the fees attached to converting USDC, for example, into local fiat on the receiver’s side, and then depositing it into a local bank account before it can be used.
Now imagine this: Bank A in South Africa has an international footprint and decides to issue a stablecoin. Given that the dollar is widely used for international transactions, let’s say it creates a dollar-backed stablecoin. A client banking with Bank A wants to pay a service provider in Nigeria, where Bank A also operates. With its own stablecoin — let’s call it Bank A USD — the payment could clear almost instantly, 24/7, bypassing the costly admin and delays of traditional cross-border transfers. JPMorgan’s JPM Coin already operates on this principle for institutional clients.
Now take it a step further. Imagine this stablecoin is integrated into crypto platforms, which in turn are plugged into retail payment networks. It becomes frictionless money — a payment system finally delivering on the promise of the internet. The Genius Act moves us closer to making that vision a global possibility.
De Wit is South Africa country manager at Luno
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