Introduction

Traditional finance is beginning to incorporate stablecoins, and stablecoin volumes are growing. Stablecoins are already the best way to build a global fintech because they’re fast, nearly free, and easily programmable. The transition from old to new tech means adopting fundamentally different approaches to how we’ll do business — and the transition will also see the rise of new kinds of risk. After all, a self-custodial model denominated in digital bearer assets instead of registered deposits is a radical departure from the banking system that has been evolving over centuries. 

Stablecoins are the fastest growing digital asset. They’ve attracted interest and investment from the likes of Visa and PayPal, and they’ve been called the next frontier in cross-border payments by industry analysts. 

So, what’s all the fuss about – and how are fintechs using them? In this article, we’re going to look at the use cases of stablecoins for fintechs, their infrastructure, capital efficiency and custody. Stablecoins, for example USDC and USDT, are digital currencies, but unlike others, their value is pegged to a fiat currency like the US dollar. 

The influence of stablecoins on the global money movement is growing. Today they account for a high percentage of transactions on the blockchain, eclipsing more established digital currencies like bitcoin.

How can they be used by fintechs?

Firstly, stablecoins make a great high-speed rail for cross-border payments. Which is why many fintechs use them as an alternative to the Swift banking system. For example, rather than sending money from Asia to Europe using Swift, you could do it on the same day and likely for lower fees, by converting the Asian currency into stablecoins, and those stablecoins into Euros. Secondly, because they’re efficient, stablecoins are now used to settle business payments.

As a B2B fintech, giving your merchants access to stablecoins means they can:

1. accept and send payments in new markets where other options might be slow or expensive.
2. hold funds in stablecoins to reduce their exposure to currency risk.

So effectively, doing this helps you become a one-stop shop for your merchants’ payment needs. While navigating regulation and compliance can be complex, there are now simpler ways to deliver stablecoin services in partnership with licensed providers like Transfi which provide a fuss free platform for you to conduct these transactions and holdings.

That means you can offer these services in your own platform using a proven API layer and without taking on the technical or compliance overheads, or compromising on the customer experience.

Adoption of Stablecoin and current market status

So far, stablecoin adoption has grown most quickly where fiat systems are clearly broken, functioning well neither as a store of value, nor a mode of transfer. Emerging markets with volatile local currencies, remittances, high-risk verticals, and global payroll for freelancers have all been natural entry points in this first wave.

But moving forward, there is a massive opportunity for stablecoins to assume an important role in the cross-border B2B payments market, if their potential to reduce costs and complexity in international trade and treasury management is unlocked. This market is still so often beset by multiple intermediaries, compliance and operations bottlenecks, and limited payment windows that create 2–5 business day settlement times and 4–6% effective transaction costs.

Of course, from a customer standpoint, the right payment rail is simply the one that optimizes accessibility, cost, speed, reliability, and complexity. For the time being, fiat-based payments are still in many cases a better solution. Fiat-based aggregators like Wise, Airwallex, Rapyd and Thunes have already gone some distance in disrupting correspondent banking networks. As they have scaled their liquidity networks, they have massively reduced effective transfer costs and settlement speeds for many currencies and corridors. They represent stiff competition.

Even at this stage, stablecoin-enabled cross-border payments providers are regularly outperforming on settlement speeds in more challenging corridors across Latam, Southeast Asia, MENA and Africa, and supporting weekend transfers.

But speed alone won’t be enough to drive wider adoption. For stablecoins to become a preferred rail on a wider variety of use cases, they must more clearly and more consistently outperform fiat-based solutions on each vector of accessibility, cost, speed, reliability, and complexity. They must also interoperate seamlessly with existing fiat systems. This is the opportunity and the challenge for infrastructure providers emerging in the space.

Infrastructure of Stablecoin

The landscape of providers is certainly evolving at an astonishing rate. Today, categories are fluid and we see companies also vertically integrating to varying degrees either building in-house or through acquisition.

At a very high level, this evolving landscape has been quickly lowering the barriers to entry for businesses and PSPs to take advantage of stablecoins and blockchain. They are starting to make stablecoins feel just like any other currency and payment, so that customers aren’t aware or thinking about whether a transaction happened to be fiat or stablecoin-enabled.

B2B payment infrastructure platforms in particular are emerging as a connective tissue: under the hood they are providing fiat and digital wallets, sourcing liquidity for FX through exchanges and broker partners, optimising on-chain transfers and settlements, connecting with local banks and fiat systems, providing control with compliance automation, risk monitoring and regulatory licenses. 

Key Considerations When Implementing Stablecoins for Fintechs

Adopters of stablecoins will need to make an initial decision of whether to implement via a service provider like Transfi or to use a cryptocurrency wallet to make payments themselves. The former may offer a more user-friendly and smoother transaction, but will likely take a fee. Use of the latter option will require follow-on decisions, including selecting a wallet, making decisions about the level of security desired, and finding an exchange that can provide the "on-" and "off-ramps" that allow users to transfer fiat currency into stablecoins. It may also subject adopters to greater regulatory oversight and compliance obligations.

Use of a cryptocurrency wallet has security implications: a "hot" wallet that is essentially a computer program can allow the user to transact easily, but can be less secure than a hardware "cold" wallet that is not connected to the Internet (using a cold wallet for routine transactions may introduce frictions to those regular operations, however). Because cryptocurrency transactions are essentially irreversible, cybersecurity is vital: businesses that opt to custody their own stablecoins (rather than keeping them in a custodial wallet) must scrupulously protect the private key(s) associated with their wallet(s).

Finally, there are various ramp options for converting fiat currency to stablecoins. Considerations when selecting a ramp include any fees charged, the range of assets or different stablecoins available, and usability.

What’s next for stablecoins?

Stablecoins have become an integral asset class of cryptocurrencies. However, they face various integration hurdles such as regulatory scrutiny, consumer protection concerns and transparency issues.

In recent years, governments have been developing and implementing regulatory frameworks on the use of stablecoins and cryptocurrencies at large. Experts note that while patchwork and contradictory regulations can hinder the market, clear and uniform rules can help expand the use of stablecoins. 

Stablecoin payments, crypto conversions and exchange of stablecoins made easy with Transfi, click to find out more!

Conclusion

The blockchain and crypto ecosystem still remains a new technology, with limited but rapidly growing uptake, especially in the developing world as they skip a technological step. There are many reasons why adoption of this technology is growing, but largely because it fills a need that traditional fiat currencies and financial systems are struggling to meet, whether for transactions or for a store of value. As adoption continues to grow, the risk of macro instability will also increase due not only to the lack of visibility but also the lack of control by authorities over this new technology. Nevertheless, there are several ways to mitigate the rising risk, most notably through improving regulation, but also by improving external buffers and credible economic policy. Authorities face not only risks surrounding this technology, but also opportunities from the more speculative side, such as bitcoin mining all the way to central bank digital currencies (CBDCs). 

Stablecoins aren’t just a new financial product, they’re a new format for money or the new digital dollars. They keep the stability of the dollar, add the speed of the internet, and open the door to programmable finance that works across borders and time zones. Understanding them is crucial for businesses and individuals having operations globally as in the new digital economy, dollars don’t need to be printed to move. They just need a network. Platforms like TransFi are making the use of stablecoins easier than ever by providing the necessary infrastructure. By using TransFi you can make cross-border payments in real-time, at low-cost and that too in a fully compliant and secure manner. The stablecoin era is here and its adoption is must to grow in the current digital landscape.

Also read: Real Estate And Stablecoin Payments: Lightning Fast Settlements And On-Chain Escrow

Frequently asked questions (FAQs)

1. What are stablecoin rails?

A stablecoin payment rail is the underlying network or infrastructure that allows all digital transfers to be made between the payer and payee. 

2. How can stablecoins be used by fintechs?

Firstly, stablecoins make a great high-speed rail for cross-border payments. Which is why many fintechs use them as an alternative to the Swift banking system. Secondly, because they’re efficient, stablecoins are now used to settle business payments.

3. Why is understanding the stablecoin ecosystem important?

Stablecoins are already changing how people and businesses move money. If you understand how they work, you can save time, avoid high fees, and make better financial decisions. 

4. What is the current status of stablecoin adoption?

Stablecoin adoption has grown most quickly where fiat systems are clearly broken, functioning well neither as a store of value, nor a mode of transfer. Emerging markets with volatile local currencies, remittances, high-risk verticals, and global payroll for freelancers have all been natural entry points in this first wave

5. What is the viable future for stablecoins?

In recent years, governments have been developing and implementing regulatory frameworks on the use of stablecoins and cryptocurrencies at large. While patchwork and contradictory regulations can hinder the market, clear and uniform rules can help expand the use of stablecoins.