While the fintech sector currently focuses on various digital currencies, Polygon is gearing up for a significant surge in stablecoin issuance, potentially leading to over 100,000 stablecoins circulating within the next five years. In an interview with The Fintech Times, Aishwary Gupta, the company’s global head of payments and RWA, shared a vision where digital currencies evolve into tools for economic empowerment rather than mechanisms for undermining traditional financial systems, marking the beginning of a stablecoin super cycle.
Empowering Sovereignty, Not Losing Control
Gupta contests the common belief among regulators that stablecoins diminish the control central banks have over monetary policy. He argues that, when utilized effectively, stablecoins can actually enhance a currency’s influence. He cited the yen-pegged JPYC as a significant example of this dynamic, where stablecoins are emerging as a means for the Japanese government to sustain liquidity in its bond market amid ongoing economic challenges. “If managed properly, I don’t believe the government is relinquishing control,” Gupta explained. “It’s about empowering each nation’s currency.” He drew parallels with the US dollar, noting that as demand for the dollar fluctuates, the need for US-pegged stablecoins has grown, thus strengthening the dollar’s global standing. Gupta further elaborated that decisions made by the Federal Reserve, such as interest rate adjustments, also influence stablecoins in a manner similar to traditional fiat currencies, allowing governments to maintain their economic oversight. “It enables them,” he stated. “The effects of federal decisions on the US dollar similarly extend to stablecoins.”
The Battle for Cheap Capital
While stablecoins may offer benefits to governments, they pose a more significant challenge to conventional banks, particularly regarding capital retention. Gupta pointed out that individuals are increasingly reluctant to keep their funds in banks, especially when those accounts yield little to no interest. “People no longer want to hold onto money that earns nothing,” he remarked, noting that stablecoins allow users to earn yields on the same currency. This shift in capital, commonly referred to as CASA (Current Account Savings Account), hampers banks’ abilities to extend credit. In response, Gupta predicts that leading financial institutions will introduce their own deposit tokens to safeguard their liquidity. Using JP Morgan as a hypothetical case study, he illustrated how a deposit token would enable customers to engage with cryptocurrency exchanges while keeping their funds within the bank’s balance sheet. “The money remains with JPMorgan, but this JPMD token represents the same $250,000,” Gupta explained. This strategy would help banks retain necessary deposits for lending.
A Fragmented Future
This proactive approach from banks, combined with consumer applications aiming to avoid card network fees, is likely to lead to a fragmented market landscape. Gupta anticipates a dramatic rise in stablecoin availability, predicting “at least a hundred thousand stablecoins” within five years. “Everyone is eager to provide a financial layer,” he stated. “This is a Stablecoin super cycle… but eventually, they will realize that simply minting a token is insufficient; there must be practical utility associated with it.” He envisions a future where major platforms, including giants like Amazon and regional super-apps like Dubai’s Noon, create their own currencies to retain value within their ecosystems. However, this proliferation could lead to significant confusion for both merchants and consumers. Gupta believes that the emergence of settlement layers or “mesh” services will be essential in simplifying these complexities. “All these stablecoins would effectively operate in the background,” he clarified. A consumer could make a payment using their preferred loyalty token, while the merchant automatically receives USDC, with an aggregator like Ubix facilitating the conversion seamlessly.
Why CBDCs Stalled
In the midst of this private sector growth, Central Bank Digital Currencies (CBDCs) seem to be losing traction, especially in retail applications. Gupta attributes this slowdown to a critical design flaw: isolation. “The reason CBDCs haven’t gained significant traction is straightforward,” he explained. “Once I have a CBDC, what can I do with it?” He stressed that many CBDCs operate on isolated private ledgers, such as R3’s Corda or Hyperledger, where users lack access to diverse assets for transactions. In contrast, stablecoins on open networks like Polygon enable users to engage in transactions involving NFTs, tokenized securities, and other on-chain assets. “JPCY on-chain allows me to purchase these various items because they are all on the same network,” he added. While wholesale CBDCs could still play a role in inter-bank settlements, Gupta believes that the competition in the retail space will ultimately be between bank-issued deposit tokens and private stablecoins, leading to the development of a vast, multi-token economy. “We are just at the beginning of all these developments,” he concluded.
