Stablecoins: a not so volatile blockchain based digital token
We reiterate our overweight call on emerging markets. Looking forward, we think the EM equity rally can extend until year-end as macro tailwinds from Fed rate cuts and a weak dollar continue. Positioning and flow trends remain supportive amid ongoing strong demand for diversification and positive Q4 performance seasonality.
Stablecoins are blockchain based digital tokens pegged and tied to traditional assets and currencies such as the US dollar. Although the first stablecoin debuted in 2014, their importance has been growing the past few years with forecast of expansion over the following years.
Central banks are currently thinking of issuing their own digital currencies (CBDC), CBDCs will be issued and controlled by central banks in opposition to stablecoins which are issued by private entities.
2 main differences exist between stablecoins and cryptocurrencies:
(a) Stablecoins pegged to traditional assets such as fiat currency have a more stable price as other cryptocurrencies prices are determined by supply and demand.
(b) Cryptocurrencies are usually held for investment while stablecoin are mainly used for transfers and payment settlements.
