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Stablecoins will speed up asset digitisation, Cobalt co-founder says

By Sunniva Kolostyak

February 03, 2021

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While Bitcoin and cryptocurrency are great money-making opportunities, stablecoins is the currency model that could drive institutions towards digital assets, according to Adrian Patten, Chairman and co-founder of Cobalt.

Adrian Patten, Chairman and co-founder of Cobalt, discusses stablecoins
Adrian Patten, Chairman and co-founder of Cobalt

In an interview with IBS Intelligence, Patten, who is in charge of the foreign exchange (FX) and digital asset infrastructure provider, discussed the seismic shifts we have seen in the past year. He stated that the advent of Covid-19 has not necessarily accelerated the dematerialisation of assets.

Rather, the pandemic has altered the way we view different asset classes: the role of Bitcoin, for example, has been widely documented due to the huge price fluctuations and potential revenue. As a result, nearly all major financial institutions are interested in the future of the asset.

“While it is a great money-making opportunity, Bitcoin – or other mainstream cryptos like Ethereum or Ripple – are very unlikely to take over from traditional fiat currencies as a realistic payment method due to the lack of stability and security in their value,” Patten said.

“Stablecoins, however, are likely to speed up the dematerialisation. They have far more chance of real-world payment application due to the fact they tend to be pegged to traditional fiat currencies or other more conventional assets.”

The Cobalt chairman added that the US Federal Regulator, the Office of the Comptroller of the Currency, recently permitted the use of stablecoins for payments. However, they are not an all-encompassing solution.

“Again, these assets are not going to replace fiat currencies, rather they will become more of a presence and future payment systems will likely be reliant on them due to the speed, cost and security benefit,” Patten said. “Something that we are seeing at this very moment is the currency market transitioning into a 24/7 365 market and this is as a result of the influence of digital assets.

The benefits of stablecoins and digital assets are the same as anything digital: they are faster, and they are safer. Moreover, a digital platform offers accessibility.

“Infrastructure, systems and platforms in FX for example have to be constantly updated – requiring manual updates and often resulting in outages and delays. This paired with high costs and other restrictions makes them an unattractive option. As a result, digital platforms are beginning to usurp the incumbents due to the fact they negate the risks and costs associated with them.”

But while utilising digital platforms is great for efficiency and security, this technology does have limits which are particularly apparent within institutions. Several technology providers are trying to change everything all at once and for the financial institutions, but for these, security is everything and an all-in-one move is “just not possible”. Processes have been in place for years for a reason, and while digital transformation is happening it needs to be more of a collaborative effort than an assault on the incumbent tech, Patten argued.

So what do financial institutions have to do to move on with digitisation and digital asset adoption in 2021?

Patten said: “The obvious answer is to be more open to change. Financial institutions are eager to capitalise on the cryptocurrency boom, however, the risk to both their reputation and of the lack institutional style infrastructure keeps many from investing.

“What institutions need to do is look to how non-banks and new market players are operating in these new markets like crypto and apply them to the more traditional ones such as The Fixed Income Clearing Corporation (FICC). What is clear, is that it is time to change and those who don’t will not stick around long.”

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