Despite the arrival of crypto into the mainstream, the application of crypto assets by businesses not native to the Web3 ecosystem has yet to take off. Yes, there are a few notable exceptions, but generally, businesses remain unclear as to how these technologies can benefit them and their customers.
I don't expect it'll stay this way for long, however, especially if we consider the utility of stablecoins—digital assets pegged to a fiat currency—and their ability to empower businesses to benefit from quicker, more reliable and lower-cost financial transactions.
If we look at the existing banking infrastructure, there's obvious room for improvement. Wire transactions, for example, can take three to five business days and allow very little tracking data—the merchant doesn't always know if the account details match a real account until the money arrives. There is no weekend or real-time settlement, no instant authorization, no auditable record and proof of receipt—and the payment may well command a fee over $30. In the case of domestic clearing houses, the situation is a little better. Asynchronous settlement of funds with little merchant protection if consumers reverse a transaction, something increasingly seen with 'friendly fraud' on the rise.
Comparatively, stablecoin payments alleviate many downsides of working with the legacy banking system.
Security: The underlying tech that powers stablecoin transactions is incredibly robust and secure - you cannot alter a transaction once it is recorded on-chain.
Speed: Blockchain transactions are close to instant.
Cost: It's very efficient to run transactions peer-to-peer with a single network intermediary - especially when using a proof-of-stake protocol, reducing the cost to a negligible amount.
Availability: Blockchain transactions take place on bank holidays and weekends. If you're a retailer, you can send those goods straight away, and if you're a financial institution, you can deploy those funds - no matter where the transaction occurs.
The bottom line is that stablecoin-powered transactions are faster, cheaper and more secure. These benefits could usher in a paradigm shift for many Web2 business models while at a minimum enhancing the quality of life for others.
How it works in practice
Let's look at a few real-world examples to understand why stablecoin settlement can change the game for businesses. Last year, Moneygram announced that they were planning to allow customers to send and receive USDC. But these remittance services that enable customers to send between currencies and jurisdictions could be doing much more behind the scenes with stablecoins. Typically, money remittance services rely on balancing liquidity pools worldwide—say, 50 different bank accounts with 50 different currencies and 50 entities associated with them to comply with 50 different regulators. A lot of overheads, both in initial sunk costs and ongoing maintenance.
One possible use case is for money remitters to avoid using SWIFT by using USDC (or other stablecoins) to send funds between users "on-chain". The 3-day settlement timeline becomes real-time; the $30 wire fee becomes $0. Indeed, it's possible that remitters could decide not to even use the liquidity pool model, with all the management that this requires, and instead centralize their operations and improve economies of scale by efficiently managing transactions through stablecoins in one jurisdiction alone.
This is just one example of the possibilities for FinTech with stablecoins: many benefits will apply to other FinTech such as brokerages and neobanks, where efficient cash flow is vital. Stablecoins offer the ability to receive and/or deploy funds instantly.
Another example is gig economy networks and marketplaces, where—for example—freelancers can offer their skills to clients worldwide. You might find a coder in Kenya offering their services to an SME in the US, where that same web development would be more expensive to source domestically. Typically the intermediary platform will hold the agreed fee (likely in USD) in escrow until the job is finished—meaning that the Kenyan freelancer has to pay a conversion fee, the wire fee and wait several days for the money to come through after finishing the job.
Imagine, instead, that the freelancer can simply give their public wallet address to receive USDC, which costs nothing to send to and settles in seconds. Everyone benefits: the freelancer gets a greater dollar amount for doing the same work, and the platform creates a superior customer experience.
Stablecoin settlement also allows freelancers to keep their money in USD (beneficial in jurisdictions suffering from local currency inflation, for example) outside of low trust banking systems, which may lock up funds arbitrarily. Financial inclusion and self-determination for those who need it most is yet another way that we could see stablecoin settlements positively impacting the world.
There are business-to-business use cases also. Supply chain payments, for instance, are an emerging area where the unique characteristics of stablecoins can dramatically improve the flow of funds through the supply chain. This will enable buyers to enjoy lower translation costs and gain more control over cash and liquidity. While sellers can benefit from the more immediate settlement of funds, providing them instant access to liquidity.
What are the current obstacles?
Currently, the most significant obstacles to stablecoin adoption by Web2 businesses are regulation, consumer adoption, and first mile ("on-ramping") and last mile ("off ramping") enablement. While much can be done with stablecoins in their current format, easing conversion to and from fiat currencies will exponentially increase these real-world possibilities.
This requires regulation—and we see positive movement in this area in Europe and the US. Still, without an officially agreed definition of what a stablecoin is, many grey areas make organizations cautious about embracing this powerful technological shift.
There is also a cultural mindset that needs to change—consumer confusion creates a level of uncertainty; uncertainty leads to inaction. Consumers' confidence will increase as they become more empowered and well-educated about digital assets and blockchain. It's important to remember we are early, but the user CAGR shows us the trend is clear and will only strengthen as more use cases emerge and UX steadily improves.
Any technology works best when it solves tangible real-world problems. Stablecoins have the potential to solve many of the banking system's current issues, making them an excellent option for businesses looking for the first step into this new realm.