London Blockchain Conference 2023: Stablecoins and not-so-stablecoins

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After lunch on Day 1 of the London Blockchain Conference (LBC) 2023, the business stage was host to a discussion on the merits and future of stablecoins in the digital asset ecosystem as well as the broader economy.

Besides a busy day of blockchain talks and networking, attendees of LBC 2023 were treated to an afternoon panel titled “Stablecoins and digital currency,” where three industry insiders gave their two cents on the sometimes-controversial topic of stablecoins.

“Primarily stablecoins are an infrastructure project, it can still be a profitable thing to run, but you need to work through the first phase of being an infrastructure project,” said Bernhard Müller, General Manager & Chairman of Centi Ltd., a company which recently issued the first Swiss Franc Stablecoin.

Müller spoke from experience of the regulatory hurdles, dependent on jurisdiction, that need to be jumped through to get stablecoins off the ground. Fortunately for Centi, “Regulatory clarity was established pretty quickly,” said Müller. However, it’s not always easy, as explained by fellow panelist Niels van den Bergh, CEO of mintBlue:

“There is a lot of regulation involved in getting into stablecoin… it depends on timing and opportunity.”

Van den Bergh said that once you get past the regulatory barrier to entry, stablecoins can provide “a whole new world” of possibilities, particularly for a tech startup.

In this regard, he was speaking of fiat-backed stablecoins, such as Tether, which is (supposedly) backed 1:1 by USD. But the panel did touch on the more divisive topic of algorithmic stablecoins.

The broaching of this subject drew chuckles from the packed room of attendees and broad agreement from the speakers with regard to the merits of algorithmic stablecoins: the verdict being that they were essentially not stable.

Algorithmic stablecoins often do not hold reserve assets, distinguishing them from traditional stablecoins. Instead, they control supply through smart contracts and an algorithm, which means that in a crisis, they are particularly vulnerable.

“Algorithmic stablecoins might work in theory until it really matters to be stable. When there’s a market downturn, in these cases, they historically fail,” Müller explained.

The panel’s third speaker, Tokenized CEO James Belding, went further, suggesting that algorithmic stablecoins are “doomed to fail.”

However, Belding was more optimistic about the future of non-algorithmic stablecoins, saying, “I think (stablecoin) is quickly gonna get snapped up by the big financial players… it’s going to get taken more seriously soon, and they’ll be some big changes.”

Some of these “big financial players” could be central banks, which would most likely point to central bank digital currencies (CBDCs): “Stablecoins are a very exciting proof on concept and steppingstone towards CBCDs,” suggested Belding.

When asked if a company like Centi, which produces a Swiss Franc Stablecoin, could develop into a de facto CBDC or ‘federal reserve,’ Müller responded, “As a private company no, but the technology could certainly be used.”

Jokes and big dreams aside, a key theme discussed in the panel was trust and accountability, which the panelists agreed that stablecoins could provide if done correctly, transparently, and within the law (here’s looking at you, Tether).

“A stablecoin is on a public ledger, its publicly verifiable and anybody can check,” said Müller. Belding added, “It removes black boxes and potential fraud… it fundamentally simplifies things from an accountability side.”

This is the theory, at least, and from the panelists’ consent and the audience’s warm reception to the conversation, there is enough faith in the ideas and possibilities of stablecoins to carry the technology to greater uptake and application.

Watch: Swiss Franc Stablecoin Built by Centi on BSV