Stablecoins are the cornerstone of the digital asset market with a market capitalization of over $100 billion. Governments are already investing significant resources to keep up with trends. The November 2021 report from the President’s Working Group on Financial Markets describes various measures to ensure that stablecoins are regulated in accordance with government guidelines. A survey of the global central bank by the Bank for International Settlements (BIS) shows that 86% of central banks are currently active in some way in Central Bank Digital Currencies (CBDCs), which are government-backed stablecoins. According to the Atlantic Council’s Central Bank Digital Currency Tracking, seven of this group of central banks have officially launched central bank digital currencies, with another 17 in the beta phase.

Like all cryptocurrencies, stablecoins rely on blockchain technology to support peer-to-peer (P2P) digital transactions, providing them with a bearer tool and limited monetary settlement options. This core decentralized infrastructure promises benefits such as faster transactions, lower settlement costs, increased transparency, and increased control for end users.

Many different players in the market, both public and private, have developed many fragmented blockchain networks. To get all the benefits, stack coins must work with several of them. Today, developers of innovative coins such as Dai (DAI), TerraUSD (UST), and USD Coin (USDC) face unnecessary costs and security risks by building disposable bridges to do so. For market growth and further innovation, there is a need for a global communications network that reliably connects all blockchain networks. These versatile interoperability solutions will also help CBDC and stablecoin developers overcome the costs and security risks associated with disposable buildings.

The need to interact with the blockchain
Digital assets cannot fulfill their potential in disparate networks, and stablecoins are no exception. Compliant design solutions will enable stable assets to play a critical role in the economic transformation of many countries by reducing the costs, time, and management associated with cross-border transactions, transfers, and even supply chain management. Interoperability solutions can facilitate the distribution of digital assets across blockchain networks and between specific CBDCs.

USDC, one of the most stable currencies on the market, gives us a good example of the need for interoperability between blockchains. After the USDC was initially deployed on Ethereum, the USDC developer Consortium CenterC had to rebuild the USDC stack on other blockchain networks such as Solana and Algorand, among others, to respond to the growing demand for applications on these networks. By creating these stacks, the USDC developers have eliminated the real problems and flaws: various technology groups are hashing the liquidity of their stacks.

A single network of interactions between different blockchains can make these decentralized applications (DApps) and assets available to the entire blockchain ecosystem without reallocating software stacks on each new blockchain network. This will help reduce the burden on developer resources at the protocol and application level.

The interoperability of the blockchain will mean that stablecoin transactions, including payments and price transfers, can take place between stablecoin issuers and owners of different blockchain networks. This type of solution will significantly increase liquidity and provide a significant share of the $100 billion-plus stablecoin market. This will also eliminate the need for stablecoin issuers to go through the cumbersome process of listing their stablecoins separately on each blockchain network, as is currently the case.

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CBDCs also require interoperability. The July 2021 BIS Report highlights the need for multi-stakeholder collaboration and the need for communication between CBDCs. While some governments will want to pursue protectionist policies, interoperability will benefit those who take a more open approach by facilitating international transactions involving digital central bank currencies, including cross-border trade flows, international remittances, and cross-border transactions. These benefits may be part of the reason why Banque de France collaborated with the Central Bank of Tunisia on the seventh CBDC trial in France. On the launch of the Nigerian digital currency, the Governor of the Central Bank of Nigeria eNaira spoke about the benefits of the recently launched digital currency, which operates in an interoperable system.

Source: CoinTelegraph