There are few technologies currently seeing greater attention in the world of payments than stablecoins. From digital disruptors to traditional players, companies across the industry are exploring – and in many cases adopting – the technology, while stablecoin-focused majors are gaining increasing attention and value.
A form of digital currency with a value that is fixed 1:1 with its associated fiat currency, most commonly US dollars, stablecoins are gaining popularity for combining the potential speed, transparency and cost benefits of blockchain technology with the stability and reliability of ‘real money’. Backed by real-world assets, typically cash and Treasury bills, their use in mainstream finance remains fairly limited – but many see enormous potential.
Stablecoin issuer Circle’s blockbuster IPO in June saw it enter the market at more than twice the price-per-share Circle had set as investors rushed to get a piece of the company behind the second-largest stablecoin by circulation, while still-private players such as Fireblocks and BVNK are seeing their volumes and third-party valuations climb. Payment processing giant Stripe, meanwhile, signalled the start of a rush from mainstream players when it paid $1.1bn for stablecoin infrastructure player Bridge at the end of last year.
But this month saw the biggest vote of confidence for the industry yet, with the passing of the US’s GENIUS Act. Creating a framework for how stablecoins can be issued, used and maintained in the US, it is set to open the floodgates to a host of new stablecoins in the country, with everyone from traditional banking majors such as Bank of America to retail giants such as Amazon and Walmart said to be exploring the technology.
However, as much as players in the US are fueling hype around stablecoins, the genuine impact, and where the biggest potential is set to be for some time, is further afield. Stablecoins are already seeing powerful adoption in key emerging markets across Latin America, Africa, Southeast Asia and beyond, and there is far greater opportunity ahead.
Stablecoins versus traditional cross-border payments: Separating truth from fiction
For the last few years, the narrative from many in the stablecoin space has been that the technology is inherently cheaper and faster than established cross-border payments solutions. Comparisons are regularly made to correspondent banking, with many citing the inefficiencies and lack of transparency that can be found in such traditional infrastructure. However, the reality is a bit more complicated.
Yes, moving money when it is stored as a stablecoin across a blockchain is cheap and near-instant, but that is only part of the process. In most use cases, the money needs to first be converted into a stablecoin on the send side and then converted back into the recipient’s fiat currency on the receive side.
This process, known as on- and off-ramping, can incur significant costs, and can in some cases add delays, particularly if there is little demand for the stablecoin in question from people with the currency the recipient needs to be paid out in. Many players in the stablecoin industry have worked hard to overcome these frictions, largely through local partnerships and growing local liquidity, but it remains a challenge that needs to be overcome on a market-by-market basis.
Meanwhile, comparing stablecoins to the correspondent banking network ignores efficiency gains in many regions, as well many far faster and more sophisticated network solutions available for different use cases. There are many parts of the world where conventional cross-border payments are already cheap and near-instantaneous, giving little room for stablecoins to confer an advantage.
The result of this is not that stablecoins are never the better option, nor that they always are. Instead, they have immense potential in markets where the local financial infrastructure is poor, while having little additional benefit in regions where there are already strong options for senders.
Why stablecoins are an emerging markets opportunity
Stablecoins are providing their biggest benefits in markets where there is a need to move money across borders for a variety of reasons, but where the local infrastructure makes this costly and unreliable. And for the most part, these are regions across the Global South – and in many such areas, stablecoins have been quietly building a following for some time.
In markets such as Argentina where the local currency is volatile, US dollar-denominated stablecoins gained initial popularity as a means of holding a proxy for the dollar, particularly as it is often easier to and cheaper to buy and hold locally than dollars themselves.
This spurred demand for remote workers in such markets, as well as those with poor infrastructure but more stable currencies, to be paid in stablecoins. And as this proliferated, solutions to spend locally using the technology also developed.
Meanwhile, as more people in such markets held the technology, this increased the local demand for stablecoins and so increased the amount of stablecoin that could be easily redeemed for the local currency, addressing the liquidity problem. More liquidity enables greater amounts to be sent and received using the technology, which is helping to push the use cases into the business world and into larger businesses. SMEs were joined by corporates, who are now being joined by enterprises.
Today, in some parts of the world, major international businesses such as airlines, telecoms providers and even fast-moving consumer goods players are all using stablecoins to move value in and out of emerging markets, with far more expressing interest as awareness and industry sophistication grows.
How big is the potential cross-border payments market for stablecoins?
At present, stablecoins account for less than 1% of the money moved across borders each year, but the potential is significant.
In a recent report on the use of stablecoins in cross-border payments, my company FXC Intelligence identified the base non-wholesale total addressable market for stablecoins to be cross-border payments from non-G20 countries, which we estimate at $16.5tn in annual flows. However, expanding this to all non-G10 countries – the upside case – brings this total to $23.7tn, more than half of the money moved across borders for non-wholesale transactions each year.
This doesn’t mean that senders and recipients will necessarily be aware of whether their payment is being sent using stablecoins or not. With many payments being converted from and to fiat currency at each end, there are many scenarios where this is simply an infrastructure change that only those in the industry need to be aware of, but it does represent a potentially vast change in flows for the sector.
However, for those unsure of how much stablecoins are really needed by US consumers, it highlights that even if they are correct, there is still immense opportunity in this emerging field.