Improving access to financial services has long been the goal of institutions across the digital assets industry. One of the main selling points of tokenised assets was that the reduction of fees that came with trading on-chain could open the door to a new wave of investors who were previously underserved if they weren’t able to afford investment services.
In today’s market, cross-border payments are slow, costly and restricted by time zone cut-offs and business hours. These factors have a particularly significant impact in less accessible, emerging markets.
“In many growth markets, the domestic movement of money is not the core constraint,” Felipe Hillard, chief commercial officer at RTGS.global, said. “The bigger question is how institutions bridge out of that market into other markets in a way that is efficient, trusted and scalable.”
Historically, very few organisations have thought about those connections. Instead, performance is usually measured by how many accounts were opened or the number of individuals banked. For emerging markets, these metrics are not always the best measure of success.
What role can digital assets play?
For companies, and individuals, in emerging markets, volatility in that market’s primary currency, limited access to the US dollar and weak or fragmented payment rails are major barriers to growth. Of the roughly $290 billion of current global stablecoin supply, it is estimated that approximately 66% is held by individuals in emerging markets, according to Goldman Sachs.
“Digital assets become most relevant where local, institutional and traditional rails are weakest,” Hillard said.
However, despite strong adoption among consumers, Hillard emphasised that institutional adoption will be crucial in order for digital assets to have a significant impact on emerging market growth.
“What is often missed in the digital assets conversation is that consumer adoption is only one part of the story,” he said. “The institutional layer matters first. Much of the conversation is still consumer-focused, but it is the institutional layer that will determine whether digital assets move from speculative instruments into credible settlement infrastructure.”
“Once the institutional use case is established, digital assets can move from speculation into settlement infrastructure.”
Trading between institutions
Initially, partnerships between individual institutions across different emerging markets will need to be formed in order for cross-border payments infrastructure to develop at scale.
“The key is the institution-to-institution relationship,” Hillard said. “One regulated institution does not need to underwrite an entire country. It needs to assess and manage a specific counterparty, a specific flow and a specific risk. That is where digital assets can become highly relevant.”
By utilising digital assets, which can be packaged in different ways compared to fiat currencies, and establishing a trust corridor between the two institutions, the assets can be moved and settled at a faster pace.
“The opportunity is not to solve for an entire country at once,” he said. “It is to connect institutions that are ready to transact, and give them the rails to do so safely, transparently and efficiently.”
As these rails are built, more traditional financial players will be open to working in emerging markets.
“Market risk frameworks are often built through the lens of developed markets, which can make growth markets look riskier than they are in practice,” Hillard said. “For some traditional financial players, certain growth markets sit completely outside their risk appetite.
“As a result, growth markets are too often given access to global financial markets by exception, not by design.”
Stablecoins: Can we move beyond the US dollar?
With more than 95% being pegged to the US dollar, stablecoins are not yet having a significant impact on cross-border payments.
“The world remains deeply reliant on the US dollar for foreign exchange,” Hillard said. “For stablecoins to become more useful in cross-border settlement, the market needs credible, regulated options beyond dollar-pegged assets.”
“Our role is not to take the market’s risk. Our role is to provide the infrastructure through which regulated entities can agree price, asset mix and settlement terms with greater transparency and control.”
