StraitsX Insights

StraitsX Insights #13: Can non-USD Stablecoins Offer Stability in an Unpredictable Market?

April 20, 2023

With significant periods of volatility in the crypto market over the years, investors have been hesitant to enter the market, for fear of risks associated with investing in unstable conditions. There lies a major opportunity for stablecoins to help mitigate these risks, and offer stability for investors and players within the DeFi ecosystem. 

Stablecoins: A tool for mitigating market risks

Stablecoins are a type of cryptocurrency designed to maintain a stable value, often pegged to a fiat currency such as the USD or other non-USD currencies like Euro, Singapore Dollar, or Japanese Yen. By maintaining a stable value, stablecoins can offer individuals and businesses alike a way to reduce their exposure to volatility in the crypto market.

Today, stablecoins already play a crucial role in the DeFi ecosystem, specifically with many USD stablecoins making up one half of a trading pair in top decentralised exchange pools, and with lending marketplaces also using USD stablecoins as a popular collateral. 

USD stablecoins have dominated the stablecoins market, making up more than 95% of total stablecoins market capitalisation. That said, the recent clampdown of USD stablecoins by U.S regulators have only compounded more instability within the crypto market. While USD stablecoins will likely continue to dominate moving forward, there could be greater opportunities for non-USD denominated stablecoins to fill any impending gaps within the ecosystem.

The impending rise of Non-USD stablecoins

To illustrate, Binance, one of the largest cryptocurrency exchanges in the world, has recently announced the possibility of issuing stablecoins pegged to other fiat currencies besides the U.S. dollar.  In Japan, greater regulatory oversight on the stablecoin market has been promised, restricting stablecoin players to locally chartered and regulated financial institutions. Keeping a tight fist on regulatory outlook, and being among the first major economies to introduce a legal framework on stablecoins also serves as an opportunity for Japan to shine as a leader in the development of stablecoins and the creation of a more stable and regulated crypto market.

As stablecoins continue to penetrate traditional financial circles, such moves by major economies and industry players can only mean that non-USD stablecoins will continue to have growing influence, thus increasing the stability of the DeFi ecosystem by reducing dependence on USD stablecoins.

Non-USD fiat-backed stablecoins as a reliable option 

Stablecoins backed by different fiat currencies will serve to provide different options for individuals in different countries and regions, easing up the process of on and off-ramping of currencies into the DeFi ecosystem. Furthermore, use cases like Forex trading for stablecoins will also become predominant. For businesses, non-USD stablecoins offer greater diversity and DeFi use cases, while also ensuring a company is able to mitigate risks - should another upheaval in the USD stablecoin market occur, by spreading stablecoin reserves across multiple currencies. 

As non-USD stablecoins continue to grow in the stablecoin market, it is important for individuals and businesses alike to carefully consider the stability of the underlying fiat currency when investing in non-USD stablecoins, and for regulators to continue to monitor and regulate the crypto market to ensure its stability and legitimacy. That said, the fundamental role of stablecoins to accelerate currency circulation speeds also means non-USD stablecoins will become increasingly relevant, propping the global crypto economy for greater diversification and stability.  

XSGD: A 100% fiat-backed non-USD stablecoin

StraitsX issues XSGD, one of the largest non-USD stablecoins pegged to the Singapore dollar. Being backed by the Singapore dollar, XSGD offers stability and predictability for investors, as the value of the stablecoin is directly linked to the value of the Singapore dollar. This makes it an attractive option for investors who are looking to reduce their exposure to market volatility while still participating in the DeFi ecosystem.

In addition, being licensed and regulated by the MAS provides additional assurance and legitimacy for XSGD and the stablecoin market in Singapore. This can help to increase investor confidence and promote the adoption of stablecoins as a reliable and secure option.

Today, StraitsX has begun to explore use cases of Forex trading for stablecoins via StraitsX Swap, which offers individuals and businesses seamless conversions from USDC to XSGD and vice versa. In addition, StraitsX also offers OTC trading services for block trades of stablecoin currencies including XSGD, USDC, USDT, and BUSD. 

StraitsX aims to drive the continuous education and adoption for stablecoins (of all currencies), having also recently joined a group of stablecoin issuers representing 15 global currencies, to form an international standards body, known as Stablecoin Standard. Aside from driving education and adoption for stablecoins, Stablecoin Standard also aims to establish standards for fiat-backed stablecoins through active and open discourse with regulators and decision makers globally.

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