The third wave of payments innovation 

With $230 billion of stablecoins in circulation and $6 trillion of payment volume in 2024, stablecoins are gaining momentum. As a new global payment rail, they represent a fundamental innovation, said Diogo Mónica, General Partner at Haun Ventures and Co-Founder of Anchorage Digital:

“We've had these innovations before – first payments cards, then the rise of fintechs creating all these different products. Now we have a third wave. The excitement of entrepreneurs building on top of stablecoins is palpable. It really feels like there's been a starting gun, and everybody's rushing to see what they can do with these rails.”

Reaching escape velocity 

Stablecoins were designed to combat the volatility of other cryptocurrencies like Bitcoin, by pegging their value to assets like the US dollar.

They were first used by crypto traders who wanted to move in and out of the trading positions without having to offramp and leave the crypto ecosystem. Over the last few years though, uses cases have evolved, said Jesse Hemson Struthers, Co-Founder & CEO of BVNK:

“We’re seeing this move towards payment use cases... From a top down perspective, that’s being driven by clearer rules and greater regulatory acceptance for stablecoins, enabling enterprise businesses, banks and financial institutions to get involved. At the same time, we’ve seen this grassroots usage of stablecoins building up in emerging markets. We’ve now reached this inflection point where those two worlds are meeting, and there's enough volume in terms of liquidity in these use cases to reach escape velocity.”

Growing utility 

Coinbase is one of the largest global crypto exchanges, so most stablecoin usage on its platforms is related to trading. But, the utility of stablecoins is increasing agreed Alec Lovett, Head of Stablecoins at Coinbase:

“At Coinbase, we’re seeing stablecoins being used as a highly efficient yield-bearing store of value – basically a USD savings account you can access anywhere. Our platform stablecoin balances have grown really significantly on the consumer side.”

Coinbase offers its users the ability to send and receive stablecoins via the Coinbase wallet or its retail app. This is a growing use case, said Alex: “There are still a number of missing pieces when we think about scaling consumer to merchant payments. BVNK is doing a lot of work to kind of bridge the gap between what merchants need and what consumers need to drive more commerce. But we already see significant value transfer on our P2P networks today, which I think is an early indicator of where this is headed.”

Business use cases

Coinbase’s financial institution clients are already using stablecoins as a settlement mechanism, reported Alec – and interest is also increasing among other businesses:

“All that buildup and all that liquidity for stablecoins that has developed in the market for trading and savings use cases has discovered new product market fit. Every time I talk to a corporate, they’re trying to figure out their stablecoin strategy – that's changed pretty significantly over the last couple months.”

One use case for stablecoins that is attracting attention from banks and financial institutions is the 'stablecoin sandwich', said BVNK’s Jesse Hemson Struthers:

“There's now this opportunity to do a true cross border payment with stablecoin in between in what we call a stablecoin sandwich... we're seeing significant interest from some of the world's largest banks and institutions to launch that use case which is essentially cross-border payments powered by stablecoin.”

Barriers to adoption

The value of stablecoins is clear, said our panellists, but questions and challenges remain.

Interoperability between blockchain and fiat rails is still a barrier today, said Jesse Hemson Struthers: “It’s key we make those two worlds work together seamlessly – this is the main unlock in terms of reaching critical scale with stablecoins. That’s where BVNK is focusing also, for example with our embedded multicurrency wallet, to solve this problem for fintechs who want to enter the stablecoin world.”

An evolving ecosystem 

Despite the excitement around stablecoins today, the future may look different, said Christian Catalini, Co-Founder & Chief Strategy Officer, Lightspark:

“There's a few things that are working today for stablecoins that will not work at scale. That doesn't mean that the technology is not interesting and will not have a massive impact. For example the idea of a ‘USD*’ account that anyone across the globe can access. It sounds wonderful, but I can tell you from having interacted with central banks across the globe when we tried to launch Libra, that central banks and regulators don't want extreme dollarization.”

As the stablecoin ecosystem scales, it will mature, added Christian: “Think of those USD* accounts like the early days of YouTube, where you had pirated content. That was fine in the early days… it's inevitable that a new technology trying to disrupt the status quo works at the boundaries, and then eventually evolves.” 

So what will this evolved ecosystem look like? “There will be local stablecoins that are interoperable with USD stablecoins,” said Christian “and when we succeed with all of this, people will think of stablecoins as programmable or self driving dollars. They will not think of them as USD-ABCDX. In the same way we don't think of our dollars at BOA or Chase as different dollars. Of course, there's nuance on the regulatory side, on the legal protections around those tokens, but the future will look a lot more like the current system.”

We’ll also see new players and incumbents entering the market, added Christian: “Many of them will realize that stablecoins are really an interesting new way.”

The next trillion dollar fintech 

Our panel agreed that today the pyramid of value capture for stablecoins favours issues, but this is likely to change. 

Diogo Monica commented: “Issuers will get compressed, as this service is commoditized.. the ‘routers’ that have created added-value services as well as the apps will make more money.”

We’re already seeing signs of this with the Global Dollar Network, which pays 97 percent of value to the application layer. There is a huge opportunity for fintechs to capture volume and value, "if they can incorporate stablecoin into their payment flows," added Jesse Hemson Struthers: "we could see the first trillion dollar fintech business.”

Lightspark’s Christian Catalini added: “The winners will be those who create a new operating system for money… I don't think we know the contours of that or how traditional players will play into it yet, but there's clearly a big opportunity to scale on a global dimension that is quite novel.”