Modernisation of financial architecture: how India is adopting stablecoins, Pg9

Key Highlights:

• Stablecoins, a type of crypto asset designed to maintain a stable value, have a circulation of over $220 billion.
• Visa reports that stablecoin remittances cost around $0.01, significantly less than the $44 average via traditional banking.
• Major financial institutions like BlackRock, Fidelity, and Societe Generale have launched stablecoin initiatives.
• The EU's MiCA framework and the U.S. GENIUS Act are codifying regulations for stablecoins, providing definitions and consumer protections.
• Finance Minister Nirmala Sitharaman has indicated that India needs to be ready to engage with crypto assets like stablecoins.

Detailed Insights:

• Stablecoins are digital assets on blockchain, maintaining value via reserves like fiat currencies or other crypto assets.
• There are three main types of stablecoins: fiat-backed, crypto-backed, and algorithmic stablecoins .
• Stablecoins facilitate faster and cheaper cross-border payments compared to traditional systems like SWIFT, settling transactions in seconds.
• The emergence of stablecoins could enable "agentic payments", where AI systems autonomously initiate transactions.
• A three-layered financial structure is emerging: a decentralized blockchain base, a reserve layer backed by regulated institutions, and an interface layer for everyday use .
• India's digital infrastructure, including UPI and Aadhaar, can leverage stablecoins for enhanced financial interoperability .
• Clear regulation and institutional backing are essential for stablecoins to serve as a bridge between blockchains, currencies, and algorithms .

Key Concepts Involved:

• Stablecoins: Crypto assets designed to maintain a stable value relative to a specific asset or basket of assets.
• Blockchain: A decentralized, distributed, and immutable digital ledger used to record transactions across many computers.
• Virtual Digital Assets (VDAs): A broad term for digital representations of value that can be digitally traded or transferred.