%20(1).png)
In the world of telecommunications, few moments were as transformative as the rise of mobile internet through 3G, 4G, and eventually 5G. With years spent in the industry, I witnessed how telecom operators built the backbone of this revolution, laying vast networks and investing heavily in infrastructure. Yet, as mobile internet became a household necessity, a crucial opportunity slipped through the hands of those who had constructed its very foundation.
Credit: Tech Sabado
Instead of capitalizing on the explosion of data usage with their own end-user services, telecoms maintained a narrow focus on network provision, while Over-The-Top (OTT) players—companies like WhatsApp, Netflix, YouTube, and Meta—moved swiftly, capturing the market and reshaping consumer behavior. Telecom operators, despite their investment in technology, were sidelined as these OTT platforms generated billions in revenue from the very data highways telecoms had paved. It’s a classic case of being so close to the innovation that you can’t see the forest for the trees.
Today, the financial sector is standing at a similar precipice with the emergence of stablecoins and blockchain technology. Financial institutions have spent years building regulatory frameworks, fostering consumer trust, and establishing robust transaction networks. But much like the telecoms that underestimated the potential of mobile data, these institutions risk being left behind if they don’t recognize stablecoins as a transformative force in digital finance. This time, the innovators—the DeFi platforms, fintech companies, and digital asset providers—are poised to disrupt traditional finance in ways that will be just as profound as OTT services were for telecoms.
With regulators in regions like the UAE and Singapore embracing stablecoin frameworks and companies like Stripe investing in blockchain infrastructure, it’s clear that this shift isn’t speculative; it’s happening now. Financial institutions that hesitate may find themselves standing by as others define the future of money, payments, and financial services.
The Shift from E-Money to Stablecoins: A New Financial Frontier
Credit: Digital Virgo
E-money, accessed through mobile wallets and digital banking, has transformed financial accessibility for billions globally. According to the World Bank, over 1.4 billion previously unbanked individuals have gained access to financial services through digital channels. However, despite this leap forward, e-money remains a centralized solution, dependent on intermediaries that add friction to the system through fees, delays, and compliance hurdles.
Stablecoins, in contrast, leverage blockchain technology to provide a decentralized, efficient, and cost-effective alternative. Operating on public ledgers, stablecoin transactions are fast and transparent, reducing the reliance on middlemen and simplifying cross-border payments. This shift has already proven its relevance, with stablecoins processing over $2 trillion in transaction volume in 2023, according to the Chainalysis Global Crypto Adoption Index. Stablecoins are increasingly positioned as a solution to modernize financial transactions, particularly for cross-border payments and remittances, which often face high fees and slow processing times.
As digital payments evolve, many are turning from e-money to stablecoins for a more versatile and borderless financial experience. Unlike e-money, which often operates within national boundaries and regulatory constraints, stablecoins enable cross-border transactions with ease, making them accessible globally without the need for costly intermediaries. While e-money networks are developing international frameworks—such as Project Nexus, which connects Malaysia, the Philippines, Singapore, and Thailand—these efforts are slow-moving compared to the rapid advancement of blockchain technology. Stablecoins provide the added benefits of transparency and decentralization, allowing users to retain control of their assets outside traditional banking systems. The decentralized finance (DeFi) ecosystem further expands these use cases, enabling users to lend, borrow, or earn interest in ways traditional banks have yet to offer. In regions facing high inflation or political instability, stablecoins have become a hedge against local currency devaluation, preserving value in times of crisis and offering a stable financial lifeline where traditional systems may fall short.
The Impact of Stablecoins on National Currencies: Varied Risks and Responses Across Jurisdictions
Stablecoins can impact a country’s currency by introducing an alternative form of digital money that can bypass traditional banking systems, potentially reducing demand for the national currency. This shift can have implications for monetary policy, as stablecoins, especially those pegged to foreign currencies like the U.S. dollar, can weaken the effectiveness of a central bank's ability to control the money supply and influence economic stability. In cases where a stablecoin gains popularity, local currency demand may decline, leading to reduced control over inflation and exchange rates. Additionally, capital flight concerns arise as people might hold stablecoins instead of the local currency, especially in regions facing economic instability.
To address these concerns, regulatory frameworks are being considered to integrate stablecoins within the financial system without compromising monetary sovereignty. Measures like requiring stablecoin issuers to hold reserves in local currency or even developing central bank digital currencies (CBDCs) allow governments to offer a secure, regulated alternative. By enhancing oversight and promoting interoperability between CBDCs and stablecoins, governments can better manage the risks, preserving financial stability while allowing the benefits of digital assets.
UAE and Bahrain: Leading with Progressive Stablecoin Initiatives
UAE's latest stablecoin initiative with the approved AED-backed digital currency: CoinGabbar
The UAE and Bahrain have emerged as leaders in fostering a regulatory environment that supports stablecoin adoption. In early 2024, the Dubai Financial Services Authority (DFSA) rolled out a regulatory framework for stablecoins, and the UAE’s Central Bank announced plans to introduce a state-backed AED stablecoin as part of its commitment to advancing digital finance. This AED stablecoin, a significant first for the Gulf region, underscores the UAE’s ambition to provide a secure, regulated digital currency that can facilitate transactions within the UAE and across borders. By introducing a government-backed stablecoin, the UAE is paving the way for greater trust and utility in digital finance, reinforcing its position as a digital finance pioneer in the Middle East (Elliptic).
Meanwhile, Bahrain recently made headlines with the launch of a BTC-linked fund, marking the region’s continued push to integrate blockchain-based financial products and attract global digital finance players. This BTC-linked fund, the first of its kind in the Gulf, demonstrates Bahrain’s innovative stance on blockchain and solidifies the region’s role as a central hub for digital asset development (CoinGeek).
In parallel, Singapore’s Monetary Authority of Singapore (MAS) has also adopted forward-thinking policies, offering clear regulatory guidelines for stablecoins and digital currencies. Singapore’s stablecoin framework complements the Middle Eastern initiatives, creating a global environment where digital finance can thrive under the guidance of robust regulatory frameworks, fostering trust and stability for consumers and institutions alike.
Reserve Backing and Liquidity: The DFSA’s Updated Proposal
One crucial aspect of the DFSA’s approach to stablecoin regulation is its stance on reserve backing and liquidity. Initially, the DFSA proposed that 80% of stablecoin reserves should be held in cash to ensure liquidity and reliability during times of financial stress. However, the DFSA has since updated its position to allow greater flexibility, recognizing the diverse needs and structures of stablecoin issuers.
Under the updated proposal, stablecoin reserves must still consist of high-quality, liquid assets that maintain value even in volatile markets. Qualifying assets include cash, government bonds, treasury bills, high-rated corporate bonds, and certain bank deposits. By mandating that reserves meet liquidity and credit stability standards rather than a strict cash percentage, the DFSA aims to balance stability with adaptability, helping stablecoins remain resilient across economic cycles. Regular audits and daily valuations are also required to confirm reserve backing, ensuring each stablecoin issued has corresponding reserves and bolstering confidence in the asset’s reliability.
Private Sector Momentum: Stripe’s Acquisition of Azura and the Future of Blockchain Infrastructure
As regulatory clarity grows, the private sector is also intensifying its focus on blockchain infrastructure, underscoring its confidence in blockchain’s potential to transform compliance, monitoring, and consumer confidence. A recent example is Stripe’s acquisition of Azura, a blockchain infrastructure company, which reflects a strategic move by one of the world’s largest payment processors to integrate blockchain-based services. Stripe’s investment signals a readiness to leverage blockchain’s transparency and security to enhance compliance tools, support digital asset transactions, and prevent financial crimes in a way that traditional systems struggle to achieve.
This acquisition by Stripe is part of a broader shift where fintech companies and payment processors are aligning themselves with blockchain technology to address challenges in regulatory compliance and transaction monitoring. By building blockchain-based infrastructure, private companies are not only able to monitor transactions more effectively but also provide a new level of transparency to consumers. Such initiatives are paving the way for digital finance that is not only faster but also more secure and compliant, further validating the transformative role of stablecoins and blockchain technology.
Stablecoins as a Tool for Crime Prevention and Financial Integrity
One of the critical, yet often underappreciated, benefits of stablecoins lies in their transparency—a feature that makes them effective in combating money laundering (ML), terrorism financing (TF), and proliferation financing (PF). Since stablecoins are recorded on an immutable blockchain, regulators and law enforcement agencies have a real-time, tamper-proof view of all transactions, which can help identify illicit financial flows far more effectively than traditional centralized systems.
A recent report by Chainalysis highlighted that cryptocurrency-based crime accounted for less than 1% of total transaction volume, yet the traceability of blockchain-based assets made it easier for authorities to identify and address illicit activities. Unlike fiat currencies, where tracking requires extensive institutional cooperation and data sharing, stablecoins allow direct, comprehensive monitoring of transactions on public ledgers, making it easier to trace suspicious activities.
In transaction monitoring, centralized and decentralized systems offer distinct capabilities, particularly in detecting criminal activities. Centralized monitoring relies on a single point of record-keeping, which can miss subtle connections in illicit activities. In contrast, blockchain technology enables end-to-end traceability, allowing transactions to be tracked from their origin right up to the present, which exposes suspicious patterns that centralized systems might overlook. Blockchain’s unique advantage is its ability to monitor wallet addresses linked to criminal activity—even though it often lacks the ability to identify the specific owners behind private wallet addresses. To mitigate this ownership anonymity risk, the Financial Action Task Force (FATF) has implemented the 'travel rule,' requiring transaction details to accompany transfers. However, approaches vary; for instance, Malaysia mandates the travel rule for all transactions, while Singapore applies it only to those above SGD 1,500. Looking ahead, a more standardized global approach to the travel rule could help close the gaps, potentially advancing transaction monitoring capabilities beyond those of traditional centralized systems.
By integrating blockchain infrastructure, fintech companies like Stripe are reinforcing the notion that stablecoins and digital assets are not only viable for transactions but are also effective tools for financial transparency. The transparency inherent in blockchain technology allows financial institutions and fintechs to build stronger, more compliant systems that improve consumer confidence and reduce financial crime.
A New Era of Financial Inclusion and Innovation
Beyond transparency and compliance, stablecoins also offer unique opportunities for financial inclusion. They are particularly suited to supporting cross-border transactions for small and medium-sized enterprises (SMEs) and underserved populations. In 2022, global remittance flows amounted to $630 billion, much of which was subject to high fees due to intermediary costs (World Bank). By reducing reliance on costly financial intermediaries, stablecoins make international payments faster and cheaper, opening up new markets and economic opportunities.
Determining the true value of stablecoins is challenging due to a lack of comprehensive data on their use, particularly as they are often facilitated by unregulated digital asset players in many jurisdictions. This absence of regulatory oversight makes it difficult to accurately understand the demographic profile of stablecoin users. For example, there is little data to confirm whether stablecoins effectively broaden financial access in rural areas, where limited internet connectivity may already hinder adoption. Answering these questions requires robust data collection, something regulatory sandboxes can support by providing a controlled environment to gather insights.
Find out how stablecoin works, its uses and potential concerns
Underserved communities often include those denied traditional financial access due to anti-money laundering (AML) concerns. Certain sanctions, for instance, place Iranians on the Financial Action Task Force (FATF) blacklist, requiring financial institutions to apply countermeasures before onboarding them. While FATF guidelines don’t explicitly ban financial institutions from serving Iranians, many institutions—lacking the compliance capabilities to handle such clients—simply avoid onboarding them altogether. Stablecoins, however, offer a potential alternative for these underserved groups to access financial services, demonstrating that AML/CFT requirements, while essental, can inadvertently limit financial inclusion for specific populations.
As global economies evolve, stablecoins have the potential to become more than just digital payment tools. They could serve as “eco-currencies” supporting environmental initiatives, or “nomad currencies” for the growing number of digital freelancers and expatriates. As societies become more interconnected, stablecoins enable real-time economies and support the demands of a digital, borderless workforce.
Financial Institutions at a Crossroads: Seize the Opportunity or Risk Obsolescence
Financial institutions today stand at a crossroads, much like telecom operators once did. Just as the latter missed out on the full potential of the mobile internet era, banks and traditional financial entities risk falling behind as DeFi platforms, fintech firms, and digital asset providers redefine the future of money. Stripe’s acquisition of Azura is a clear signal that the private sector is gearing up to integrate blockchain into the mainstream financial infrastructure, capitalizing on blockchain’s transparency, efficiency, and potential for compliance (Blockworks).
For financial institutions, the rise of stablecoins presents an opportunity not just to stay relevant but to lead the next wave of digital finance. By embracing stablecoins, they can expand their service offerings, enhance compliance capabilities, and reach new markets with innovative solutions. The future of finance will belong to those who are willing to adapt. Institutions that fail to recognize this shift may find themselves left behind, watching from the sidelines as tech-driven innovators shape the financial landscape.
Check out The MoonCast – Our First Podcast Episode Breaking Down Fiat, E-Money, Stablecoins & More!
For an in-depth look at how fiat, e-money, stablecoins, and other digital assets compare—and what this means for financial regulation and innovation—don’t miss our latest podcast episode on The MoonCast. Razin Nizar and I break down these concepts in detail, exploring how each one is uniquely regulated and why stablecoins are proving to be a game-changer for financial inclusion and transparency. Tune in to gain a deeper understanding of the dynamic digital asset landscape and how these shifts could reshape global finance.
Listen now and join the conversation on The MoonCast to stay at the forefront of the future of money! You can check it out as well on Spotify
Authors
Razin Nizar (Associate - AICB, ACRC, ACAML, CAML) is the founder of Pragmax Consulting, specializing in risk and compliance.
Sanad Karkar, JD is a business and legal strategy consultant and the founder of Moonrock Consultancy Consultancy, with expertise in Business, Technology and international law.
Bridging Technology, Compliance and Law
This series of articles, blogs, and webinars will focus on highlighting the latest developments in regulatory compliance, legal frameworks, and the technological advancements shaping the blockchain industry. It brings together two former college friends from Bond University —Razin Nizar and Sanad Karkar—who, after diverging into different professional paths continents apart, have reunited at the forefront of digital assets more than 14 years later. As experts in risk management, compliance, business, and legal strategy, our collaboration is dedicated to exploring how the intersection of law, technology, and compliance can address the challenges of this rapidly evolving ecosystem.
Yorumlar