Stablecoins are the less popular sibling of crypto assets. They are different, as they are a payment method rather than an investment or asset. Pegged to an underlying asset they are inherently more stable than crypto as an asset. With a stablecoin, the price is designed to be pegged to a cryptocurrency, fiat money, or exchange-traded commodities (such as precious metals or industrial metals). They are currently a small part of the overall crypto market, worth around the $130bn mark, which is about 5 per cent of the market. That said, their size has doubled since 2020.
Stablecoins have thus far been confined to crypto payment systems, with an emergent and experimental use case being seen in wholesale financial market players and large corporates. Yet it is another facet of stablecoins that is emerging; their potential use by central banks to create a central bank digital currency (CBDC).
A CBDC would integrate into existing payment systems used by financial...