The ANZ Bank has minted the first-ever stablecoin that is pegged to the Australian dollar.
This move by the bank is off the back of Australia’s push to legitimise the use of cryptocurrency in real transactions. Senator Andrew Bragg recently announced a new legislative proposal by way of the Digital Services Act. This piece of legislation is designed to create a foundation for the adoption of blockchain technology and cryptocurrency use in Australia. This will include crypto market licensing, decentralised autonomous organisations, debanking, tax reform, and the protection of Australian consumers. Senator Bragg suggested that the Act be built on the four pillars of technological neutrality, flexibility, Ministerial rather than bureaucratic oversight, and use of government resources. ANZ (and other financial institutions) sought to capitalise on this proposal developing digital alternatives of money.
When individuals think of cryptocurrency, their main focus is on Bitcoin, Ethereum, and maybe Dogecoin. However, the use of stablecoins is a hidden secret that underpins the entire cryptocurrency market. Stablecoins refer to decentralised digital assets that are able to track the value of another currency. Most commonly, this is through a peg to the US dollar, where a stablecoin will always equal one US dollar and algorithmically adjust to match inflationary changes. Stablecoins are essential for yield purposes, stability by limiting volatility in price, and reduction of risks. They are also lightning fast, utilising the blockchain to process massive transactions in a fraction of the time as traditional banking. Stablecoins are the driving force for widespread cryptocurrency adoption and ANZ sees this.
But despite stablecoins sounding like the answer to bridging the gap between traditional finance and decentralised finance, there is one major problem – stablecoins require true backing. Recent reports in 2021 discovered that many of the largest US stablecoin companies, particularly Tether’s USDT, were not fully backed by US dollars. Instead, USDT and similar stablecoins are backed by corporate bonds, cash equivalents and a lot of unsecured short term debt. This means that sooner or later, the stablecoin industry will mimic the current US financial system of constantly printing money with nothing supporting the value of the stablecoin. Consequently, without the right safeguards, the $185B stablecoin industry collapses may collapse the entire cryptocurrency market with one wrong move.
The Reserve Bank of Australia has taken a particular interest in ANZ’s stablecoin and will likely use the example of the A$DC to design its own central bank digital currency. Only time will tell whether A$DC will see widespread Australian adoption.