The worldwide usage of cryptocurrencies including stablecoins in online trades is wanting. That’s per a new IDA Finance and Quinlan Associates payments report. The study found that digital assets account for only 0.2% of the global e-commerce transaction value.
According to the dispatch, most merchants quote asset volatility as their major fear in accepting transactions in crypto assets. Notwithstanding Fiat-referenced stablecoins’ design to counter that (volatility), risks and uncertainties on regulation, governance KYC, and AML requirements impede merchants from supporting their payments.
An excerpt of the findings states:
All of these risks stem from the absence of well-defined legal frameworks that outline the rules and responsibilities for both issues and users of stablecoins. This landscape of uncertainty leaves merchants hesitant to accept stablecoins as a mainstream payment option.
IDA Finance and Quinlan Associates payments report
Users, on their part, have decried the lack of transparency regarding reserve holdings of some unregulated stablecoins. To them, this lack of clarity breeds doubts about the assets’ safety and reliability. That uncertainty about what backs the coins deters their mainstream usage.
Regulatory uncertainty exposes stablecoin users to risks
The report further highlights the various risks to which this regulatory ambiguity exposes stablecoin users. The first is market risk due to the absence of legally set reserve ratio requirements. As such, the coins may lose their peg values when the assets backing them fluctuate, as with Terra’s collapse.
Secondly, lack of licensing gives the issuers free reign over their ventures. With no one overseeing their management, there’s the danger of mismanagement leading to financial challenges. When that happens, users could lose their funds or be unable to redeem them at full fiat value.
Finally, there’s liquidity risk. Stablecoin projects may struggle to fulfill sudden and voluminous redemption requests, as with NuBits. Insufficient reserves and flailing user trust saw one of the pioneering stablecoins crash in 2018.
These risks stress the gravity of stablecoin transparency, an issue that robust regulations can help address. To date, the European Union’s Markets in Crypto-Assets law remains the boldest move to rein in the sector. Other nations have followed suit providing guidelines for safe and open usage of the coins.
Cash and fiat dominate transactions despite growing crypto adoption
While crypto adoption is growing, cash remains the preferred mode of completing transactions. Even the outlets accepting stablecoins still contract external payment processors to convert the crypto assets to fiat.
Therefore, their indirect acceptance of cryptos further limits stablecoin usage in real economies. It doesn’t help that those outlets usually restrict crypto usage to pay for low-value items. Their cautiousness highlights how far along we are from mainstreaming crypto payments.
Land a High-Paying Web3 Job in 90 Days: The Ultimate Roadmap
