Stablecoins : The trojan horse that could reshape Modern banking as we know it
The Law of Unintended Adoption: How Government Regulations are Quietly accelerating Stablecoin Growth
Stable coins are cryptocurrencies that as the name suggests are expected to stay stable with dollar , the largest ones like USDT / USDC are issued with backing form US treasures. Stable coins are one of the fastest growing financial instruments over the last 5 years.
At this rate, stablecoin could soon touch a trillion dollars even multiple trillions eventually.
Stablecoins are permission less in nature unlike a typical bank account which requires kyc and AML checks.
The interesting thing about persmissionless nature is they can work worldwide without any controls experienced by Fiat currencies by their respective central banks.
Since stablecoins can be freely transferred across borders they have become attracitve in places that have restrictive regulations in places like India, Pakistan,Nigeria, Argentina etc and the intersting thing is stable coins in these countries typically sell at a premium compared to their officical dollar price.
As shown in the table above, stable coins trade a significant premium in countries with Financial controls, this happens because stablecoins become scarce domestically and this premium changes behaviour.
Remittances Become More Attractive
Once overseas workers discover that sending stablecoins consistently delivers more value to their families than traditional remittance channels, Economic incentives quickly become obvious.
Families receiving stablecoins every month naturally learn:
* Digital wallets.
* Blockchain transfers.
* Self-custody.
The remittance itself teaches millions of people how digital assets work. The education remains long after the original transaction.
Most discussions about stablecoins focus on technology. Some argue that stablecoins are faster; others emphasise lower transaction costs, 24/7 settlement, or programmability. While these advantages matter, they are not the primary reason stablecoins achieve widespread adoption.
A more unexpected reason exists, Government regulation itself
Regulations no matter how well intentioned create economic friction. Whenever that friction becomes sufficiently big, markets search for alternative ways to reduce it.
Stablecoins are increasingly becoming one such alternative.
Examples include:
* Sending money abroad.
* Receiving international payments.
* Accessing dollar-denominated assets.
* Lower-cost remittances.
* Faster settlement.
* Global commerce.
Capital Controls Create Demand
India ( and other countries on the list) has strict capital controls under a regulation called FEMA which restricts both the inflow and outflow of money to India. They are created to helping preserve monetary stability and regulate cross-border capital flows, but as with every regulation, there are unintended consequences and these restrictions create economic demand for globally transferable digital dollars. Since most indians cannot transfer money freely ( due to various regulations) some have started invested in Stable coins as means to invest globally.
Gambling Regulations Can Produce Unexpected Spillovers
India has adopted increasingly stringent taxation and enforcement measures relating to offshore real-money gaming.
Many international platforms that target indian users now, rely heavily on stablecoins.
Excessive Taxation
As they say taxes and death are unavoidable, but tax collection now has become largely accounting driven
Most tax inspectors rarely step out of their AC cabins and solely rely on bank statements.
Modern Digital banks have inadvertently become the biggest tax enforcers
Now stable coins flip the enforcement economics , it makes it far far costlier which means collecting tax from most small businesses wouldn’t be worth it
Other categories
Everyone from freelancers to exporters to importers prefer stable-coins because the settlement is instant and transparent and more importantly permission-less.
Every Regulation Adds Another User Group
Initially, the stablecoin is simply a payment method. Later it becomes a savings tool. Then a remittance tool. Eventually it becomes part of everyday finance.
A policy aimed at one industry unintentionally teaches users a general-purpose financial technology.
The “death by a thousand cuts” effect
The most powerful driver may not be any single regulation.
Imagine:
- FEMA contributes 1million users.
- Remittance savings contribute another 5 million.
- Offshore gaming contributes 1 million.
- Freelancers contribute 2 million.
- Exporters contribute 2 million.
- Investors contribute 4 million.
No single category dominates.
Collectively, they build a large installed base of wallet users.
Once that ecosystem exists, network effects begin to matter more than the original reasons for joining. At that point, stablecoin adoption is sustained not by one regulation but by the cumulative effect of many independent sources of demand.
The Network Effect Changes Everything
Technology adoption rarely grows linearly.
Every new participant increases the usefulness of the network.
Every new merchant increases consumer demand.
Every new consumer increases merchant demand.
Every overseas worker teaches another family.
Every business teaches another supplier.
Eventually, adoption becomes self-reinforcing.
The original reason for joining no longer matters.
The network itself becomes the reason.
The Premium Becomes a Market Signal
If stablecoins consistently trade above their underlying dollar value, something profound has happened. The premium is no longer just a price difference. It becomes a market measurement of financial friction. It represents what individuals are willing to pay for easier access to global liquidity. In effect, the market begins pricing the cost of regulatory friction itself.
why cant RBI or other central banks allow Indians to invest abroad and capture the stable coin arbitrage and destory the demand for Remittance market ?
In Theory they could, but they would have to rethink and restructure the entire cross-border transfer mechanism which today depends on ‘Corresponding banking’ relationships that country’s top banks developed over decades and these guys don’t want to give up on lucrative fees they earn ( Banks collectively earn some 15,000 Crore on cross border transfer fees ) without a fight.
If stable-coins removed all friction, the transfer fees drop to zero which isn’t acceptable to your beloved banks, so they will fight hard to prevent you from transferring your hard earned wealth to buy stable coins and capture that arbitrage until millions of users start using stable coins en-masse for cross-border transfers.
Removing the demand for stable coins and bitcoin at large needs governance changes that are politically impossible
Cut inflation to zero
Stop digital tax enforcement
Remove fema regulation
Remove all other aggressive kyc aml regulations
Rolling these regulations back as discussed is politically impossible.
The real super power of Stable coins is not just friction-less cross border transfer, its providing a double digit dollar yield which is unheard of in regular bank accounts.
Why yeild tokens like APYX Could become the World’s Largest Stablecoin issuers
welcome to the future of banking !
Stablecoins : The trojan horse that destroys Modern banking as we know it was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
