In the next few years or months, Central Bank Digital Currency (CBDC) will become a thing. This will drive the adoption of Bitcoin since it is the inspiration for the development. Nevertheless, its journey to replace the fiat system will be farther away from reach. The current ecosystem of cryptos especially the most popular ones cannot satisfy the need to have a fiat currency. Just like the Mastercard CEO opined during the Fortune Global Conference on Tuesday, 27th October, Bitcoin’s Volatility will scare many away. Bitcoin is useless as a fiat currency if holding it can cost you hundreds of dollars uncertainty daily. CBDCs however, since they will be legal tender, will be the true representation of cash.

What does this mean for Stable Coins?

Fiat-backed Stablecoins will take on a new role, especially for widely known fiats like USD. They will serve as a bridge to the ecosystem of existing blockchains. If the blockchains that host CBDC for each country are public, it will be easier to audit custodial wallets- oracles will be a better fit for this. Interestingly, fiat-backed stablecoins will find more use cases than now with CBDCs.

The LoopHole

CBDCs are great because they will be based on blockchain technology. But, interoperability will continue to be an issue since each country will create its tailor-made blockchain. The issues of having to wait several days before cross-border remittances are completed might be reduced, but it will still be an issue. This is where existing blockchain innovations will come in.

Ripple’s ODL

There will be a need for central banks to find a neutral ground, a commonly accepted technology that can serve as a bridge. Technologies like On-Demand Liquidity will by then have gained a lot of attention and visibility. Ripple’s ODL for example will be mainstream as banks looking for common ground can use it to instantly complete cross-border transactions. The idea behind ODLs are to convert fiat A into a crypto (XRP in the case of Ripple) and from the crypto convert it to fiat B instantly without the need for trusting a third-party. A crypto-asset like Ripple can be easily trusted by central banks as a common neutral ground since it is the fourth-largest cryptocurrency by market capitalization. The fact that its operation has a green footprint (it does not consume too much energy) is an added advantage for its adoption. 

The Stock Market and CBDCs

The stock market might be taking a huge blow in the face with CBDCs since they are not made to list cryptos originally. But since they can work around with Bitcoin, it might not be such a bit deal. But, the advent of CBDC may launch a crypto-friendly stock market years to come. Imagine Apple’s APPL and Amazon’s AMZN being crypto assets.Attention: These are only speculations inspired by recent happenings around cryptos. They might be wrong and not come to pass. This is not financial advice!!!