Stablecoins as Financial Enablers of Web 2.5
Web2.5 has emerged as a crossover between web2 and web3. The idea is to harness the legacy systems of web2 to support the development of web3 infrastructure with web2.5 as the bridging connector. The role of web2.5 is to facilitate the coming to the fore of web3 through the use of solutions that would allow web users to navigate web2 infrastructure using their web3 assets. As most web2 infrastructure operate using fiat-based payments, stablecoins which value are pegged to fiat are financial enablers of web2.5.
Issuance of PYUSD Stablecoin by PayPal for Personal Remittance, Payment Transactions amd Crypto Swaps
On 7 August 2023, PayPal announced the launch of its U.S. dollar-denominated stablecoin, PayPal USD (PYUSD). PayPal’s PYUSD It is fully backed by U.S. dollar deposits, short-term U.S. Treasuries, and similar cash equivalents, and can be redeemed 1:1 for U.S. dollars. Some of the functions of PYUSD include personal remittance, payment transactions and crypto swaps. As the first stablecoin to be issued by a leading web2 payment service provider, PYUSD is charting the way forward for the use of stablecoins as financial enablers of web2.5.
Functions of PYUSD (Source: Mpost.io)
Acceptance of USDC Stablecoin by Visa for Crypto Payments on the Ethereum Network
The use of third party issued stablecoins for crypto payments is another way for web2 payment service providers to harness web2.5 as the bridging connector with web3. In February 2023, Visa disclosed that it is exploring ways to accept Circle’s USD Coin (USDC) payments on the Ethereum network. Visa’s acceptance of USDC would enable users to undertake crypto-fiat conversion using USDC directly on their platform before using them to make payment. To ensure a smooth user experience (UX), Visa aims to seamlessly connect cryptocurrencies and fiat with plans to allow users to draw funds from their Ethereum wallets in the form of USDC.
Visa Acceptance of USDC on Ethereum (Source:Visa.gp)
Storage of USDC Stablecoin on Circle’s Programmable Web3 Wallet
On 8 August 2023, Circle, the issuer of USDC, launched the public beta of its programmable web3 wallet platform on Ethereum, Avalanche, and Polygon, with plans to expand to other blockchains later this year. Through its programmable web3 wallet platform, Circle is supporting the role of the USDC stablecoin as a financial enabler for web2.5 by allowing businesses to offer crypto payment options to customers by integrating Circle’s programmable web3 wallets into their applications to enable their users to send, receive, and store cryptocurrencies, including USDC and NFTs (non-fungible tokens).
Circle’s Programmable Web3 Wallet (Source:Circle.com)
Stablecoins as a Remedy Against Hyperinflation and Currency Depreciation
Latin America (LATAM) countries are facing hyperinflation issues led by Venezuela and Argentina which recorded year-on-year (YoY) inflation rates of 114% and 79% respectively in 2022. Argentina in particular also has to grapple with the issue of currency depreciation as the value of its national currency dropped by more than a thousand times during the period from December 2014 to September 2022. Stablecoins’ USD peg equip them with store of value functions which enable these coins to be used by LATAM residents as a hedge against inflation and for maintaining purchasing power parity (PPP) to counter currency depreciation.
Little surprise therefore that more than a third of Latin Americans have undertaken retail transactions using stablecoins and that stablecoin trades accounted for 34% of all small retail transaction volume in Argentina. Tapping into the market demand for stablecoins in Argentina, Latin American crypto services provider Ripio had in August 2023 launched its USD-pegged stablecoin, Criptodólar (UXD) to help Argentinians protect their assets from inflation. This follows the launching in April 2023 by Brazil-based investment bank BTG Pactual its USD-pegged stablecoin, BTG Dol (BTGUSD).
Ripio’s Criptodólar UXD (Source: Ripio.com)
The fiat-pegged nature of stablecoins render them to stand out from other cryptocurrencies. Stablecoins’ fiat peg enables them to play the role of facilitating trading, transactions, and conversion between fiat and cryptocurrencies. In this manner, stablecoins are financial enablers of web2.5 as they serve as a bridge which connects the fiat-based traditional finance (TradFi) domain that powers web2 and the crypto-based decentralized finance (DeFi) domain that powers web3.
In sum, stablecoins could be financial enablers of web2.5 through addressing the systemic issues of the fiat-powered TradFi domain of Web2 before connecting the domain with the technological infrastructure of the crypto-powered DeFi domain of web3.