India’s adoption of stablecoins contributes to modernizing its financial architecture

• Stablecoins are crypto assets with a value tethered to traditional assets, providing a sense of stability.

• Various definitions exist, influenced by international bodies like the Financial Stability Board and central banks.

• They fall into three categories:

– Fiat-backed stablecoins: Backed by traditional currencies (e.g., USDT, USDC).

– Crypto-backed stablecoins: Collateralized by other cryptocurrencies (e.g., DAI).

– Algorithmic stablecoins: Maintain stability through algorithms without reserves (e.g., TerraUSD).

• Stablecoins improve cross-border payments, making them cheaper and faster than traditional banking (average cost of remittance is $0.01 vs. $44).

• They signal economic evolution akin to how HTTP transformed information exchange.

• Institutional finance interest has grown, with firms like BlackRock and Bank of America launching stablecoin initiatives.

• Regulatory frameworks (e.g., EU’s MiCA and U.S. GENIUS Act) are establishing stability and protection for stablecoins.

• A new financial structure is emerging, consisting of a blockchain base layer, a reserve layer, and an interface layer for usability.

• Visa and Mastercard are integrating stablecoin settlements into their systems, indicating strategic shifts rather than mere experimentation.

• India is reassessing its cautious stance on stablecoins, recognizing their potential in both domestic and global markets.

• The future of finance is intertwined with stablecoins, especially as they achieve interoperability across various financial systems and technologies.

• Stablecoins will not replace fiat but will redefine its function in a digitally-oriented economy.

India stablecoin adoption is important topic for Civil service exam (WBCS).

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