Legacy Warnings Still Restrict the Use of Stablecoins in Treasuries
These attractive qualities make stablecoins a natural choice for global treasurers. Yet, they aren't used that often. When I speak to CFOs and treasurers, it's not that they are resistant to using stablecoins - just reluctant to navigate the patchwork of regulations and policies in using them. Even worse, some of the policies they refer to are really just 'positions,' which despite being years old, are still strong enough to ward off any new adopters.
To back up: Treasurers always look for faster, cheaper sources of liquidity and easier methods for cross-border transfers. Stablecoins seem to meet most of these requirements. They could bring more efficiency to global remittance and treasury flows, as by their design, they are liquid and easy to transfer (where they are accepted). And in a perfect world, they would offer a more accessible, cost-effective, and transparent method to transfer funds. Increased use of stablecoins could also give liquidity providers a boost in competitiveness, improve their operational efficiency, and give them the ability to attract a broader range of traders, investors, and customers. I see how stablecoins do this in plenty of markets - they are seriously underutilized by many of the world's largest players.
(For what it is worth: The European Parliamentary Research Service, in their report on stablecoins, also acknowledged that stablecoins have the potential to enhance financial inclusion in global markets, boost overseas remittances, and to positively impact international trade and global payment arrangements).
Despite these benefits, stablecoins still haven't been adopted en masse, and that's due to misconception and mis-regulation. In 2019, a report by the Group of Seven (G7) countries identified several potential risks that stablecoins could pose, including a lack of adequate consumer and investor protection, threatening payment system integrity, their use for illicit finance, and other obstacles to financial operational resilience. What was overlooked is that stablecoins can actually deliver operational resilience for global treasuries. The other concerns raised are important, but are far more likely to be exploited by a memecoin, not a fiat-backed stablecoin. This is just one example of a past (strong) objection - there are dozens more to be found, easily. If I'm a corporate treasurer, all I need to look up is, 'stablecoin legality in my country/regions of operation' and I can find half a dozen institutional warnings and objections to the tech. Even if, now, it is either legal or widespread in its acceptance.
All to say: These past objections still keep liquidity providers from fully using stablecoins. Even with the new guard in the U.S. sending positive signals about crypto, and MiCA regulation in play in Europe, the previous years of warnings have built up a resistant hesitancy amongst liquidity providers to adopt them.
The early adopters, who were either in favorable markets or able to tolerate operating in a 'gray area' of compliance, have flourished thanks to their stablecoins. Licensed businesses including payment services providers, money transfer operations, banks, and more use them daily. Regulators could review these use cases and use them to develop a flexible framework that gives licensed financial services providers the room to use stablecoins without fear (while also updating their previous guidance).
Or, alternatively, they could pass stablecoin-explicit guidance. Until there's clear regulation that can provide a 'translation layer' for stablecoin use to comply with existing policies, there just isn't a clear road ahead for many providers. The absence of this policy not only deprives businesses of immediate transactional advantages, but also jeopardizes our economy's long-term growth. This is especially true in the world of treasury, fintech, finance and foreign exchange, where speed and rates define your ability to stay liquid and afloat. If multinational businesses, fintechs, and even banks could optimise their treasury management with stablecoins, that means their customers (SMEs, startups, individuals) could benefit from these savings too.
Treasuries that run better are better for everyone. Stablecoins are a part of that future. The sooner we have regulation that acknowledges this, the faster everyone - from individuals to multinational businesses - can start realizing the savings.
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These investors can be a great customer base that you can sell your product or service to once you've launched your business. Since crowdfunding isn't a business loan and you may not have to repay, crowdfunding platforms won't check your credit history to determine your creditworthiness. But keep in mind that your business's reputation is on the line. If you're using rewards-based or equity crowdfunding, you want to reward your investors in a timely manner by delivering on your promises. Debt crowdfunding may or may not use your credit history, but either way, it's important to repay the loan on time. Cons of crowdfunding The downside of using crowdfunding for your business is that you may not receive full funding, and you'll have to promote your campaign heavily. These and other downsides to consider: When crowdfunding your business financing goals, there's no guarantee that you'll get all the funding your business needs. According to The Crowd Data Center, about a fourth of projects receive the full funding that they were expecting. You may want to expect your project to not receive the full funding. You can either set your goals higher than your needs, or you can try to find other funding sources to finance your business. Some crowdfunding platforms charge fees when you run a successful campaign. For example, Kickstarter charges a 5 percent fee for all donated funds. You'll also pay a payment processing fee of 3 to 5 percent each time a person donates to your campaign. Kiva is a platform that doesn't charge any fees or interest on the invested amounts, but you will need to repay the money from investors. Since crowdfunding uses many single investors, you'll need to promote your crowdfunding campaign to everyone you know. You may spend time on social media promoting your campaign to friends, family and followers interested in your business. Some crowdfunding platforms like Kiva also have their own network where you can promote your campaign. Crowdfunding works best when you have many connections to people who might be interested in your venture. As you're promoting your idea to the public or to individual investors, those investors may get interested in your business idea in another way. They may try to create a similar product or service and go to market themselves. This can take away the market advantage that you may have, especially if you have an original idea not seen on the market yet. Alternatives to crowdfunding for your business If you don't have the time to run a small business crowdfunding campaign without guaranteed results, there are some alternative lending products worth considering. These options include both money that needs to be repaid and funds that are yours to keep. Grants: You may find small business grants for your industry at both local and federal levels of government. Grants must be applied for — and there will be a wait time — but the money doesn't need to be paid back. Business credit cards: Like personal credit cards, business cards offer a revolving line of credit. Business credit cards can have an introductory interest rate or other rewards and perks. Additionally, if you don't carry a monthly balance, you won't be charged interest. Business lines of credit: A line of credit is also revolving, but it operates similarly to a loan. You'll apply through a traditional bank or online lender who will deposit money into your account when you request a draw. Loans: Startup business loans are also a good option for new businesses. Some lenders only require a few months in operation to qualify. Business loans are dispersed in one lump sum to give you an instant boost in cash flow. Bottom line Crowdfunding for your small business can be an innovative and attention-grabbing way to garner fast support for your business or latest idea. Be sure to do your homework on the front end, ensuring your effort is unique enough from any potential competition. You will also want to research your hosting platform to ensure a good fit and your funding goals to ensure they are realistic and worth the effort. Frequently asked questions about small business crowdfunding Can I used crowdfunding to start a business?Yes, you can use crowdfunding to raise capital to fund your business startup or a specific project for your business. How much should my crowdfunding goal be?Be sure the goal for your crowdfunding project covers the total cost of your effort and any fees or commissions your funding platform charges at the end of your campaign. Do you pay back crowdfunded money?You may need to pay back crowdfunded contributions, depending on what kind of campaign you run. Donation-based crowdfunding usually operates without contributors expecting repayment; debt-based crowdfunding projects assume future repayment plus interest. 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