Key Takeaway: As big banks like Wells Fargo, JPMorgan offer stablecoin cryptocurrencies, and Facebook and Walmart reportedly plan theirs, smaller providers are plotting how to stand out in the rapidly evolving sector.

You can almost hear Morten Nielsen’s eyes roll when he discusses the pending launch of Facebook’s controversial stablecoin, Libra.

“Ah, another huge American company coming to tell us all how to run our finances,” said Nielsen, CFO and co-founder of Aryze, a Danish fintech company launched in 2017.

A year ago, the awareness of stablecoin — a cryptocurrency like Aryze’s Digital Cash that is pegged to an asset or fiat currency — didn’t extend far beyond the murky frontier borders of the crypto market.

That changed overnight when Facebook announced June 18 it would launch its own stablecoin. In August, Walmart filed a patent for one of its own. Then came the banks: Wells Fargo unveiled its Digital Cash stablecoin earlier this month; JP Morgan now has JPM Coin; and Deutsche Bank joined JPM’s Interbank Information Network, a global payment blockchain platform that boasts 320 member banks.

Now, smaller companies like Aryze suddenly find themselves in an increasingly crowded space, with products promising similar functionality competing for the same investors. These players are plotting a variety of strategies to differentiate themselves, from focusing on regional markets and specific uses to establishing networks early to become stablecoin providers for larger companies. 

And as Bitcoin continues to illustrate its volatility — dropping below $8,000 in value last week from a high earlier this year of $10,000 — the stablecoin concept is gaining traction.

But there are two 400-pound gorillas in the stablecoin room: Libra and Tether.

“…this is not just about cutting transaction costs. It opens up the doors for individuals and businesses to program their own things on top of a native digital currency. The potential of that is mind-blowing.”

With Facebook’s projected reach of 2.7 billion users, Libra could easily upend international currency markets. This is but one reason that the proposed stablecoin has faced fierce regulatory pushback. Germany and France announced this month they will ban Libra, viewing it as a threat to financial sovereignty, and on Friday, Reuters reported the planned June 2020 launch of the product may be delayed because of the regulatory concerns. 

Then there’s Tether, the world’s fourth-largest cryptocurrency. Tether dominates as much as 85% of the current stablecoin market, said Kory Hoang, CEO of the Seattle-based fintech firm Stably. Tether is dogged by controversy—New York’s attorney general accused Tether of improperly minting as much as $900 million for Bitfinex, one of the world’s largest cryptocurrency exchanges.

How to Compete?

Greg Diprisco, the head of business development for MakerDAO, told Karma his way to differentiate Dai, the company’s stablecoin, is to emphasize its stability and flexibility, achieved via an Ethereum-backed, decentralized blockchain platform.

“Libra is not innovating the current system at all,” Diprisco said. “It’s actually trying to replace the current middleman — commercial banks — with large tech companies. And those, as we all know, are not very well regulated.”

Though Stably offers its own stablecoin, USDS, Hoang sees no point in competing against the biggest players.

“We’re not placing our bet on creating our own brand, because that’s suicidal,” Hoang told Karma. “That’s setting yourself up to get eaten.”

Instead, Stably is establishing itself as an all-in-one solution for companies that want to create their own stablecoin brands. Hoang’s vision is one where major brands offer their own stablecoins — Walmart Cash, Amazon Coins — with benefit and perk programs similar to branded retail credit cards.

“I think this is going to pick up next year for this particular industry,” Hoang said. “When Amazon comes out with its own stablecoin, that’s when it will kick a lot of other players in gear.”

Real Service for the Developing World

The executives at Aryze see a different path for themselves. Nielsen and co-founder Carl Jenster view the stablecoins offered by banks as essentially bank-to-bank products designed to solve the pricing and speed issues surrounding monetary transfers. And they are skeptical of Facebook’s pitch that Libra will help serve the needs of the world’s 1.7 billion unbanked.

Jenster highlighted that much of the assets that would back Libra are U.S. dollar-denominated, and cited Ghana as an example of the obstacles that the stablecoin will face.

“Libra is a currency that might not include Ghana’s national currency, so what is that going to do for that economy? It introduces a risk to the local economy, whereas our model is a singular currency that can be replicated with all national currencies,” Jenster told Karma.

Nielsen and Jenster want Aryze to work with large companies to be part of their payment ecosystems. Take an international shipping firm like Maersk, which has employees sending cross-currency remittances back to their home countries. Aryze could function as part of a digital payment system, increasing speed and eliminating currency valuation risk, both men told Karma.

MakerDAO sees Dai having similar capabilities. The Santa Cruz, California-based company has partnered with Coinsource, the largest global Bitcoin ATM network, to bring a new stablecoin function to the world. Here’s how it works: You deposit your money in the ATM, it’s converted to Dai, which is then sent to an ATM in a country of your choice, where it can be converted to any local currency. This way, the user can avoid “the average cost of going to Western Union, which at 20% is just heinous,” Diprisco said.

“At the end of the day, this is not just about cutting transaction costs,” Jenster said. “Essentially through [stablecoin], we make money programmable. It opens up the doors for individuals and businesses to program their own things on top of a native digital currency. The potential of that is mind-blowing.”