Circle Internet Financial, the issuer of the USDC stablecoin, went public in New York on Friday, June 13, raising $1.1 billion in a deal that was oversubscribed 25 times. Talk about bumps: the stock nearly tripled on its first day of trading.
It seems that stablecoins’ moment has arrived. Circle’s IPO is regarded by industry boosters as anointing such tokens as the payments backbone of an emerging digital economy.
Stablecoins are privately issued digital assets riding blockchain rails, designed to maintain a stable value against a reserve asset, usually US dollars, thus mitigating the volatility of crypto coins like bitcoin.
They combine the features of a narrow bank, a money-market fund, and a payments token, which makes them exciting but also hard to define or understand. With the market presently valued around $240 billion and expected to reach $400 billion by Christmas, stablecoins are now an important focus of banks, fintechs, and regulators.
But are stablecoins fated to disrupt the entire global financial system, or are they likely to remain relegated to niche uses? This remains contentious. Some people fear a competing technology. Others are pumping the story along with their bags. DigFin has come up with three questions to help everyone think through the stablecoin debate.
Where do stablecoins deliver unique value?
There are two brewing use cases for stablecoins. One is for cross-border payments, be it wholesale or remittances. The other is as programmable money.
Most industry players agree that stablecoins don’t add value to domestic payments. That could change. Walmart and Amazon are exploring stablecoin partnerships as a way to bypass credit-card companies’ merchant fees, but this is probably more a search for market fit, rather than a sign that stablecoin-based payments are relevant to the everyday economy.
Ben Parkes of Similarweb says the overlap between Walmart and Amazon customers and Coinbase users (the best metric for the US) is slight: about 2 percent each. “That’s a relatively narrow slice, especially for companies with hundreds of millions of monthly visitors,” he wrote on LinkedIn.
On paper, stablecoins look attractive compared to card payments: lower fees, instant settlement, accessible to anyone with a mobile phone; and programmable. This will appeal to large, cross-border sellers. But that 3 percent Merchant Discount Rate pays for rewards, protection against fraud, the ability to reverse transactions, and mature regulation. Also, credit cards are ubiquitous in the developed world and among the wealthy segments of emerging markets.
The argument for cross-border payments is stronger, because the traditional correspondent banking network is slow. Fees to the least-served markets can be almost 14 percent of the transaction value. Stablecoins are near instant and cheap.
That is true for frontier markets. It’s not the case for G-10 currency corridors. Nor is it the case for the biggest non-G-10 currencies (China, South Korea, India).
A recent report by BCG notes that Ethereum gas fees are volatile, ranging from $0.02 to $3.33, versus FedNow’s stable $0.05 transaction fee. Moreover, there is the cost of off-ramping from a stablecoin to fiat. This can vary wildly, from 0.1 percent to 7 percent (!). Stablecoins only look competitive in emerging markets where wire transfers become expensive.
“Off-ramping from stablecoins to fiat is often more expensive than using the FX interbank market,” said Jack Zhang, co-founder of AirWallex, in a LinkedIn post.
“I don’t see how they benefit B2B transactions at scale,” he added, “unless you’re dealing with exotic currencies.”
Of course, emerging markets in Africa and Latin America are sizeable and growing. Sandy Peng, co-founder of Hong Kong-based Scroll, a blockchain company, says about 10 percent of the populations of countries like Kenya, Nigeria and South Africa are crypto users. These are places where a $200 remittance costs $13.24 in fees, or 6.62 percent. For these people, that’s a lot of money.
In absolute terms these can be lucrative markets for facilitating transactions. But in global terms, they are niche.
Stablecoins also bring technical benefits: smart contracts can condition when, where and to whom they pay in or out.
This automation should enable ways to make workflows more efficient. Transactions can settle regardless of time zone or working hours. Automation also allows stablecoins to play a role in emerging models of open banking, perhaps making it easier for users to move data and money together, or for banks and fintechs to design consensus mechanisms that are more secure and private than the current spaghetti bowl of APIs.
From this perspective, Circle and Tether are exporting US dollars in programmable format. The world has almost bottomless demand for US dollars.
This creates macro-stability hazards: emerging markets’ central banks fear losing control over local currencies as local money leaves their commercial banks in favor of stablecoin operators; and the idea of a vast, unregulated digital-eurodollar market should also raise worries at the Federal Reserve.
Which leads us to our next question.
Can regulation keep pace with innovation?
The United States has gone from crypto holdout to cheerleader. Two pieces of legislation are winding through Congress, which will be globally influential: the Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Act, and the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act.
These set out rules for licensing, ensuring full reserve backing, AML and compliance, and consumer protection rules. They are expected to ban stablecoins from paying interest, so they do not usurp bank deposits.
This follows on legislation in pioneering jurisdictions such as the United Arab Emirates, Hong Kong, and Singapore.
All of these regulations, while welcomed by the industry, raise questions, particularly as none are fully implemented or evolved. They are trying to strike a balance between sensible licensing and risk mitigation without unduly smothering innovation. In some cases, like Hong Kong and Singapore, retail access is likely to be narrow. The UAE is more open, but there is a confusing patchwork of regulators: the central bank, exclusive international zones in Dubai and Abu Dhabi (under their own regulators, DIFC and ADGM), and a bespoke crypto regulator, VARA.
In all of these markets, treatment of foreign stablecoins is vague. Each market is pressing for use of stablecoins in their local currency, which raises questions of which global providers can operate where. There is a risk of fragmentation and regulatory arbitrage in what is meant to be a decentralized, global system.
And because crypto is global and decentralized, these regulators risk having their rules be neutered. The US, for example, is legislating against yields on stablecoins. But the biggest use case in current tokenization markets is for ‘private credit’, which is a catchall for various financial engineering that ultimately rests on top of a stablecoin.
Smaller jurisdictions have already found it impossible to effectively stop overseas fraudsters from selling crypto schemes to their residents. All of this suggests regulation will continue to evolve, and the industry’s proclaimed desire for ‘regulatory clarity’ won’t be realized yet.
Meanwhile, most commercial banks are going to remain wary of anything crypto. They will be suspicious of stablecoins that threaten their deposit bases (and their transaction banking businesses). Only the biggest banks will be able to stomach the legal uncertainty and AML/KYC risks. This suggests stablecoin reserves (perhaps in the form of tokenized deposits) will concentrate among a handful of global banking giants. Is this an improvement over the status quo, with more than 11,000 banks participating in the SWIFT network?
Is the infrastructure ready for prime time?
In 2024, total stablecoin transfer volumes reached $27.6 trillion, surpassing the combined volumes of Visa and Mastercard. This figure has convinced many in the industry that stablecoins are ready to scale.
That may not be the case. Most of that volume is not related to commerce, like a card payment network. Stablecoins are used for digital commerce, yes, but they are also used for tax evasion, money laundering, and wash trading. We don’t know the extent of this (the folks behind Tether, the largest stablecoin, have yet to agree to a proper audit), but anecdotes suggest it’s in excess of the commercial uses, far more than can be said of credit cards.
Moreover, large fintechs and public infrastructure is also moving a considerable amount of money. Domestic real-time processors such as India’s UPI and Brazil’s Pix processed $6.8 trillion in 2024, according to BCG. That’s real commercial transactions, made by people and merchants in the emerging markets that stablecoins are meant to serve. Right now these are domestic flows, but both central banks and the likes of Visa and Mastercard are working on solutions to connect these across borders.
There are several areas where the infrastructure for stablecoins is a work in progress. The most obvious is the off-ramp: turning the stablecoin into fiat money that people and businesses can spend.
Many big banks are working on tokenization projects, but for stablecoins to realize their promise requires a network effect: everyone needs to agree on the same means of communicating value and data. Banks are too territorial.
Solutions could come from TradFi: the reach of Visa and Mastercard is still unparalleled, and they are working with stablecoin issuers to support money movement.
Visa, for example, allows customers to use their credit card to buy crypto and spend in crypto, with Visa converting into fiat at the local point of sale. The company says it has facilitated $95 billion of crypto purchases and $25 billion of spending into fiat, in partnership with companies such as Crypto.com and Coinbase, as well as StraitsX in Singapore.
“Stablecoins have the potential to modernize the world’s money movement and payment infrastructure,” said TR ‘Ram’ Ramachandran, senior vice president at Visa in Singapore. “The use cases seem endless.”
These solutions are only partial, however, as they don’t address problems within the financial system that pose challenges to stablecoin adoption.
Banks have spent decades addressing some of the faults in global payments, including upgrading technical standards. One of these, ISO 20022 for payment messages, was introduced in 2004 but only became widely adopted by around 2023. This standard wasn’t designed for digital assets and is effectively out of date.
Akhil Rao, Dubai-based managing director of Nth Exception, a payments fintech, said several aspects of stablecoins can’t be shoehorned into the ISO 20022 framework.
There’s no tag for on-chain settlement, meaning banks and corporate treasurers can’t tell if a transaction settles on blockchain, on traditional payment rails or through a traditional clearing system. There’s no support for wallet addresses using public keys or smart contracts. And there’s no metadata about the issuer, so recipients using ISO 20022 can’t tell who issued the token or on what chain; same for burning tokens.
If stablecoins are to be a mainstream instrument, it is important that financial institutions can operate them, and these details matter. For now, banks are using ad hoc workarounds, which creates fragmentation and inconsistencies, which gives way to errors.
“Without proper standardization, we risk undermining compliance, automation, and the very interoperability ISO 20022 was meant to deliver,” Rao said on LinkedIn.
This take appreciates the enormous amount of buy-in that financial institutions have put into these standards. If one approach is to keep working on those standards, another is to create market infrastructure bespoke for digital assets.
One such initiative is Ubyx, still in conceptual form, being pushed by Tony McLaughlin, a former Citi executive.
The Ubyx white paper says: “Stablecoins will reach their full potential as peer-to-peer, digitally-native money when the option to redeem them at par value on demand is ubiquitous. Ubyx delivers this through a clearing system that solves the many-to-many problem between issuers and accepting institutions, enabling anyone to deposit stablecoins into existing financial accounts (held at banks and regulated non-banks) at full value.”
Regulation is calling for stablecoin issuers to fully reserve them, so these tokens can be treated as cash equivalents. Another way of stating this is that accountants and regulators need money to be fungible – to have ‘money singleness’.
Under international accounting standards, stablecoins held by a treasury do not count as ‘cash equivalent’, because the various issuers have their own terms and conditions (for example, the stablecoin may be a claim against the issuer in one case, or against underlying assets in another). From the point of view of a regulator or a bankruptcy court, these are merely ‘financial instruments’.
And treasury teams and businesses don’t like dealing with financial instruments, which bring about compliance and operational headaches. They can’t be sure a financial instrument can be realized at full value in fiat. What they want is to treat stablecoins as cash equivalents.
Ubyx’s clearing house would treat every dollar-backed stablecoin as a dollar-backed stablecoin. It would require pre-funded accounts, redemption standards, and factual evidence to show that these tokens are indeed cash equivalents.
This is one example of frictions that corporate treasurers face when it comes to stablecoin adoption.
Thomas Kang, San Francisco-based co-founder of Finmo, a payments fintech, says, “This enthusiasm masks fundamental risks that corporate finance leaders must confront before diving headfirst into the stablecoin pool. As CFOs and treasurers, it’s your job to look past momentum and guard what matters most: capital preservation, liquidity, and regulatory compliance.”
Writing on LinkedIn, Kang notes that the biggest stablecoin issuer, Tether, has never completed a full reserve audit, while USDC still lacks universal standards. Stablecoins are an untested market, and a bank-run scenario could freeze access to corporate funds. Blockchains remain technically susceptible to outages and cyber threats. These networks haven’t been through the fire of a real crisis.
Indeed, they are vulnerable to minor threats: DigFin reported how First Digital, a Hong Kong-based issuer of stablecoins, saw its coin, FTUSD, knocked off its peg in the wake of allegations against it on X (Twitter) by crypto investor Justin Sun. First Digital met its redemptions and the crisis abated, but the affair raised questions about the reliability of products that are supposed to be as rock-solid as money-market funds.
The fact is that stablecoin infrastructure has been engineered to suit crypto natives. It isn’t ready for corporate treasurers. Treasury enterprise systems aren’t built to accommodate tokenized assets. Crypto involves fussing with wallets, seed phrases, and higher custody burdens.
These are are solvable, but such changes happen only gradually. And in markets where real-time systems are already functioning well, we can expect progress toward mainstreaming digital asset to be slower.
Leverage the niches
Stablecoins are game changers for financial infrastructure, but only over a longer time scale. They add value in specific areas: 24/7 settlement, cross-border efficiency, programmability.
A few crypto-forward companies such as SpaceX are already accepting payments via stablecoins from Starlink clients in countries like Argentina and Nigeria. How long before this becomes mainstream?
“The value isn’t universal,” said Monica Jasuja, Delhi-based ambassador for Emerging Payments Association Asia, “but cross-border treasury and operations and programmable money present significant opportunities for emerging use cases.”
Emphasis on emerging.
Stablecoins are being adopted for cross-border supplier payments in countries with poor access to banks. They can help with digitalizing trade documentation, and automate parts of treasuries. It makes sense for corporate treasurers to experiment with different ideas on different chains, working with regulated partners like banks, and to figure out how to manage risks such as chain outages and business disruption.
The biggest question is whether stablecoins will replace existing rails for moving money, or if they will cater exclusively to the digital economy. Money on the internet still struggles to be compliance-ready, trusted, and interoperable.
Who can provide that for stablecoins at scale? Fintechs such as Wise, Revolut and Airwallex are one answer. Payment processors such as Visa is another. Crypto-native solutions such as Ubyx could become universally trusted clearers, or a company like Ripple could become the leading provider of interbank payments. Or perhaps the winner will be a hybrid, such as Bridge, the stablecoin issuer acquired by payments giant Stripe, which says it is building emerging-market use cases on top of credit cards, not in competition with them.
The biggest name in stablecoins are, of course, the issuers: Circle and Tether, and many more. Tether has amassed unbelievable wealth for its small team of operators by collecting interest on the $120 billion of US Treasuries it says it now holds in reserve. No wonder so many companies are keen to get into the game, from PayPal and Walmart to banks and fintechs.
But these issuers, while they do face customers, are only one layer of trust required in the secure, reliable movement of money. Stablecoins also require infrastructure players that can embed stablecoins into their products, convert in and out of fiat, create yield products on top, and build businesses around interchange fees. And they need a network that can reach everyone, everywhere.
Stablecoins aren’t ready for prime time today. Their demand and usage will prove lumpy across geographies, with frontier markets the epicenter, but inevitably to be overtaken by the major economies. That will require clear regulation – which is now becoming a reality, but with more to do – along with important but gradual changes to standards and infrastructure, both by revising what we have and inventing new ways.
Sandy Peng noted it took 52 years for money-market funds to reach more than $7 trillion of assets. Stablecoins hit $235 billion in six years. She asks whether it will take stablecoins five decades to be a $7 trillion market. The answer is obviously no.
