Blockchain, tokenisation and cryptocurrencies could underpin the most significant evolution in market infrastructure since SWIFT replaced the Telex messaging in the 1970s, according to Insight Investment.
In a new report, head of currency solutions Francesca Fornasari said while the ecosystem is still evolving, these technologies promise major gains in efficiency, speed and cost-effectiveness across financial markets.
Speaking with Investor Daily, she said people are excited about stablecoins for a range of reasons but the real revolution lies in the transformation of payment infrastructure.
“It’s not necessarily the currency that we use, but more the infrastructure. It’s probably more of a blockchain revolution.”
“If you think about what it’s like to move money from one country to another, the way that payments are made is quite inefficient. You’re having much more efficient payments, where you have instantaneous movements of not just payments, but also assets, is a really big deal.”
What makes the shift particularly compelling, she said, is not only the payments side, but the broader movement of goods, services and financial activity.
“If you think about the assets, in terms of asset management, what it’s like if you go and you want to invest into a fund, you got to take your money, you got to move your money to the person that is going to manage your fund. That person needs to be invested. It’s a whole plumbing issue which is just not particularly efficient and somewhat error prone,” Fornasari said.
She added: “Sometimes things don’t go the way that you want them to. This is an infrastructure that will make that a lot more efficient and a lot safer in many different ways. I think that that’s the revolutionary part of it.”
But an efficient payment mechanism is critical for the system to work effectively.
“There’s no point in having this very efficient plumbing if it takes me T+2 to actually get my money. The payment system needs to go along with it – so stable coins and digital payments, I think, are going to be coming our way.”
Fornasari said stablecoins dominate much of the discussion around digital payments, but the category is far broader.
“There is the CBDC [central bank digital currencies] which depend on the jurisdiction that you’re in, different countries are in different states of development.”
She said China appears to be among the most advanced in CBDCs, alongside Europe and the US.
Fornasari recently authored a paper on the future of stablecoins, arguing their appeal lies in near-instant settlement, 24/7 global reach, programmability, transparent on-chain auditability and low transaction costs.
As digital assets and services become increasingly embedded in global finance, stablecoins are expected to play an important role in the transition – although jurisdictions are pursuing different priorities.
“The United States now leads both in issuance and regulatory clarity, driven by the GENIUS Act and broader political support for dollar-denominated digital money. Europe, the UK, and Asia are developing their own divergent regulatory regimes, reinforcing a multipolar digital-currency environment rather than a global standard,” the paper, titled Getting Up To Speed On Stablecoins, said.
“The second part is going to be stablecoins. Then there’s a third part, which people refer to as ‘the sleeping giant’ – is effectively the digitalised deposits. If you think about the difference between a stablecoin and a digital deposit, that stable coin effectively, it’s like a digital money market fund, which is very efficient in many ways, but it can pay yield at the moment, and you also are exposed to the credit risk from the fund itself.”
With digital deposits, Fornasari said the existing banking infrastructure remains intact.
“You’ve got bank accounts in a particular bank and whatnot. It’s just the payment. Instead of having to go through the SWIFT messaging sector, it goes through a blockchain sort of system. When I speak about revolutionary, it’s more the blockchain, and how it will move to a much more digital marketplace, then we’ll have to have digital payments and the stablecoin is one part of it. My personal view is that the market’s perhaps a little bit too excited about what that will mean.
“People sort of talk about [stablecoins] will be the main source of payments for the future through this digital world. I suspect that they underestimate how digital deposits and the digital currencies are going to play a much bigger role. I don’t necessarily think that stablecoin is going to take over all forms of payments for a host of different reasons.”
Some forecasts suggest the stablecoin market capitalisation could surge from about US$300 billion today to as much as US$4 trillion by 2030 under bullish scenarios.
Insight Investment, however, believes their shortcomings, combined with intensifying competition from tokenised deposits, make such projections less likely. Still, the firm sees stablecoins as having the potential for the greatest macroeconomic impact among digital payment models.
“That doesn’t have any of the safeguards that the CBDCs have, because they’re privately held. So if you wanted to, you could take all your money out of the bank and put it into stablecoin. Nobody’s really going to stop it … What impact is that going to have on government bonds and government bills, more particularly?”
Insight Investment believes that while stablecoins could support greater financial inclusion, the rise of competing issuers risks fragmenting the market rather than unifying it.
“While stablecoin usage will continue to grow, we remain cautious about the more optimistic projections.
Their shortcomings, ranging from regulatory uncertainty to questions around reserves and risk transmission, combined with intensifying competition from tokenised deposits, limit the likelihood that they reach the most bullish projections,” the report said.
