(Crypto)currency Wars: Corporate Coins Wage a Global Arms Race


Just a couple of years ago, there were only a handful of stablecoins on the market–small, seemingly relatively ineffectual; they stood as an important part of the cryptocurrency industry but had little or no meaning outside of it.

Flash forward to today. After explosive growth in both the number of stablecoins and their trading volumes, stablecoins are slated to be the ultimate bridge between the cryptocurrency world and mainstream financial spheres.

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This is demonstrated by a number of central banks’ interest in developing their own stablecoins, as well as the fact that a number of non-crypto mega-corporations have begun dipping their toes into the stablecoin pool: Facebook, Russian social media giant VKontakte, Japanese banking giant Mizuho, Walmart–the list goes on and on.

For each of these proposed projects, many important questions must be answered–what is the purpose of these projects? Will they exist within a closed or an open system? Will they only be available to the company’s pre-existing users? Will they be geographically limited, or will these stablecoins make it possible to send and receive money from anywhere in the world?

On the flip side: would a stablecoin issued by a company based in one country (the US, let’s say) be allowed to access capital markets and users in countries that it may have political tensions with (Russia or China, for example)?

And if, perhaps, these stablecoins would be allowed to compete for users freely, regardless of political tensions–which of them would “win”? And moreover, why does it really matter?

Fiat-pegged “Corporate Stablecoins” can act as covert vehicles for national currencies

These Corporate Stablecoins could hold a particularly large amount of power if a company’s users or customers were properly incentivized to transact with them–and with the right kinds of “pegging” mechanisms, this power could directly feed into the strength of a country’s national currency.

For example, let’s say that Huawei issued a digital currency that was pegged to the Chinese Renminbi (RMB). If global users of Huawei’s mobile services received a discount for paying for their services with Huawei’s coin, an entirely new group of people could be indirectly transacting with Renminbi without even consciously realizing it; thus, the RMB would grow stronger through the use of Huawei’s coin.

By the same turn, individuals and companies that transact with a stablecoin pegged to a fiat currency other than the one issued by their own government may incidentally weaken their own nation’s currency. For example, if a large number of Russian users were properly incentivized to use a USD-pegged stablecoin, they could indirectly be weakening the Ruble in favor of the dollar.

Corporate Stablecoins could also bring undesirable political and cultural influence

Even if these Corporate Stablecoins aren’t directly tied to a single currency, the cultural and political influence that they might bring with them could be unsavory to certain governments.

After all, there are often close ties between governments and mega-corporations: for example, alleged connections between Google and the US government–connections that have contributed to bans on Google in certain countries.

One of these countries in China. Google and Facebook have already been banned within the country for several years. Therefore, there has been quite a bit of speculation that although Libra will not be solely pegged to the US dollar, there is still a chance that the Chinese government may not allow its citizens to use the network (if, indeed, it ever launches.)

China could soon enter the ring with its own corporately- or nationally-issued stablecoin

Regardless of whether Libra will or won’t be allowed for use in China, the Chinese government seems to recognize the threat that something like Libra could pose to its economy–and the opportunities that creating a competitor for Libra could hold.

Who will win the (crypto)currency war?

So, which of these stablecoins could “win” the war for users–and thus, for global power?

Krapels explained that while there may be a clear leader, there will always be some competition in the market: “I doubt there will be one GlobalCoin (as Libra was first called),” he said. “There will just be too much competition in that space.”

“I think that if world regulators eventually accept this Corporate Stablecoin concept (and there’s no guarantee that it ever will because minting money is one of the sources of power for any government) then we will see these Corporate Stablecoins dominate their industry vertical or their particular region,” he said.

Ultimately, though, Krapels explained that the key lies in on- and off-ramping options. “The easy answer is competition should be based on how these products interact with CBDC (if any) and bitcoin,” he said.

“As with crypto exchanges, the key differentiator often comes down to fiat onramps. If that’s the case, the CSC with more buy-in from their own local government (and others) wins.”

For example, “if ‘AliCoin operates in a country where it is easy to swap into a CBDC and then that money can be spent freely on phones everywhere in the country, then it will dominate that country. However, it will not have this built-in advantage when it goes outside of mainland China.”

“That’s where I think the ability to swap into bitcoin will become very important in other countries,” he added. “Especially those that are a long way from having a CBDC.”

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