Sep 12 (News On Japan) - Three of Japan’s largest banks, MUFG, SMBC, and Mizuho, have signed up for a new cross-border payment system called Project Pax. Project Pax will use Swift’s existing cross-border payment messaging system and integrate regulated stablecoin currencies.
The project aims to speed up cross-border payments and will be targeted primarily at businesses.
The Utility Of Stablecoins
Stablecoins are a unique type of cryptocurrency that are pegged to the value of fiat currencies like the US dollar, euro, or other assets, which helps them maintain a stable value. Unlike more volatile cryptocurrencies such as Bitcoin, stablecoins offer price stability, making them an attractive option for investors looking to park their funds during bear markets or for those who seek to avoid the dramatic price swings associated with traditional cryptocurrencies.
This stability, combined with the inherent benefits of blockchain technology, has made stablecoins a versatile tool not just for trading but also for various financial applications. For instance, they are increasingly used in decentralized finance (DeFi) platforms for lending, borrowing, and earning interest, providing a reliable alternative to traditional banking. Stablecoins also facilitate faster and cheaper cross-border transactions compared to conventional money transfers, making them a preferred option for international remittances.
When it comes to online activities, the appeal of stablecoins extends beyond just trading and investing. For example, many use them to play casino games online, where they can know the value of their winnings before cashing out. When playing games like Bitcoin blackjack, the value of any winnings can fluctuate significantly, which some see as an advantage, while others prefer the known value of stablecoins like USDT. The surge in popularity of stablecoins is driven by the privacy, security, and convenience that cryptocurrencies offer, allowing users to make transactions without revealing sensitive financial information. On top of this, the low transaction fees and fast processing times of these coins make them ideal for microtransactions in gaming environments.
Stablecoin’s Stability
The stability of stablecoins has, in some ways, held this type of cryptocurrency back. Most investors head to the crypto market exactly because of its volatility. It carries a lot of risk, but, equally, it has a lot of upside potential.
Stablecoins don’t offer this upside potential, and accepting stablecoins is rife with obstacles for businesses. As such, uptake by retailers has been slow. So, while Stablecoins now have a market cap of around $170 billion, this is less than 0.5% of the total cryptocurrency market.
The Project Pax Platform
Project Pax hopes to increase the utility of stablecoins to benefit banks and businesses. The program has been launched by Progmat and Datachain. They will use the existing Swift payment messaging system to initiate payments but combine this with blockchain payments utilising regulated stablecoins. The result will be cross-border payments that are much quicker to resolve and cost less than under the existing system.
Cross-Border Payment Solutions
In 2022, the cross-border payments market processed $182 trillion in payments. However the G20 identified cost, speed, access, and transparency as needing significant improvements. Stablecoins, running on blockchain, address these areas.
Blockchain payments have a fraction of the costs of traditional payment methods, and payments can be finalised in a matter of seconds. Because transactions are recorded on the blockchain, there will also be much greater transparency with senders and recipients able to track payments as they are made and processed.
Access to the network will be managed by Project Pax and will use Swift’s existing API. Neither the sender nor the recipient will know they are even using stablecoins for the transaction, except when they see the benefits.
Project Pax Rollout
Initially, the project will start in Japan but the group hopes that the initial prototype will see increased uptake from institutions around the world. Their target is to offer a commercial platform by 2025. The platform supports coins that are tied to major currencies including the Japanese Yen, US Dollar, and the Euro.
Regulated Stablecoins
The group has said they will use regulated stablecoins for the transactions. Countries around the world, including the UK, are making moves to regulate fiat-backed stablecoins. This means they will fall under the protection of financial authorities in their respective jurisdictions. Therefore, as well as enjoying price stability, they will also have the kind of secure backing that fiat currencies have.
Japan has already launched stablecoin regulations. Progmat, which was formed by Mitsubishi UFJ Trust and Banking. The group recently announced that it was partnering with Binance Japan to launch several new stablecoins tied to major currencies, tying in perfectly with the launch and expansion of the new platform.
