The Stablecoin Revolution: Financial Disruption or Hype?

Foundational financial infrastructure is being rearchitected with new modern digital primitives - blockchain technology as a new global transparent ledger and currency backed stablecoins as the medium for value transfer. Stablecoins promise an instantaneous, inexpensive and unrestricted means to transact anytime and anywhere using a currency-backed token. Still, despite growing optimism, stablecoins today remain largely dependent on the same legacy financial rails it claims to disrupt, and the competitive advantages or value propositions vary between geographic regions and transaction types. 

While the vision for a decentralized, high-throughput, global network remains compelling, the industry is still in its formative phase, remains highly fragmented and lacks regulatory guardrails. Realizing their full potential will require advancements in interoperability, compliance solutions, harmonized regulations and seamless liquidity. Having personally been involved in the launch of several of the first currency-backed stablecoins as early as 2018, I see the vision and potential of stablecoins finally being recognized, but much is still needed to unlock its transformative potential.

Faster, Cheaper & More Reliable? Not yet. 

Stablecoin transaction volumes surpassed $27 trillion in 2024, exceeding the combined annual volumes of Visa and Mastercard. And this is just the beginning. The value proposition for the payment and financial services is the ability to move value on a single transparent ledger for significantly reduced cost, settlement times and restrictions compared to traditional financial rails. On paper, that’s true, but only if the transaction is limited to a wallet-to-wallet transfers on-chain. But comparing traditional payment costs (wire, ACH, etc.) to blockchain network fees is misleading. Today’s stablecoin transactions require an onramp fee (converting from fiat to stables), onramp compliance costs (onboarding AML), network or gateway intermediary technology fees, blockchain network fees, offramp conversion (converting from stables to fiat), offramp compliance (AML) and finally, transfer to a local bank account for daily consumer use. Until stablecoins are imbedded into daily consumer transactions and replace fiat, stablecoin rails will continue to be intertwined and reliant on traditional financial rails and banking services. 

The current stablecoin ecosystem is deeply fragmented in several other ways including:  

• Stablecoins being spread across multiple chains (Ethereum, Solana, Tron, etc.) with complex interoperability or cross-chain liquidity.

• Multiple stablecoins being used with dominance varying across geographic regions.

• Liquidity is fragmented among limited institutions across geographic regions with varying compliance and commercial requirements (onramp and offramp/last mile).

• Identity verification and costs associated with varying compliance requirements are often duplicative.

• Layers of intermediaries, gateways, technology provider and referral fees driving up costs (limited ‘bear metal’ provider access).

• Navigating global regulations and restrictions is complex (i.e. travel rule, unhosted wallet compliance, geographic reserve requirements, tax etc.).

Stablecoins also currently lack many of the consumer protections and legal safeguards embedded in traditional financial infrastructure. In the United States, consumers transacting through conventional banking channels benefit from robust protections which provide recourse for unauthorized transactions, fraud or simple human error. In contrast, smart contracts underpinning most stablecoins offer minimal to no protection in the absence of traditional financial intermediaries. In the event of an unauthorized transaction or human error, there is no undo button. Larger institutions have expressed concerns that stablecoin-based settlements may effectively shift counterparty risk from central banks to private issuers with varying degrees of regulatory oversight and reserve backing. Yet, new stablecoin regulations coming into effect will go a long way in providing legal certainty on key issues such as maintaining of reserve requirements, redemptions and anti-fraud safeguards.

The value proposition is much greater in emerging markets where stablecoins solve for currency risk (high inflation), antiquated payments systems and unreliable banking networks. For emerging markets, blockchain technology offers the opportunity to leap ahead generations of infrastructure development to real-time payments, accelerating financial inclusion with just a cellphone, internet connection and wallet to access instantaneous transactions, as well as access to USD for storing of value. This, of course, is not without concerns. Namely, the creation of “shadow banking systems” outside of the control and oversight of central banks. While the US correctly acknowledges that stablecoins are a means to accelerate the export and dominance of the US Dollar, I expect we will see sovereigns take action to preserve the dominance of their own local currencies. 

Smart (Contract) Money 

Stablecoins are often thought of as digital dollars, but they are much more. Stablecoins are also software – self executing smart contracts. While today’s generation of smart contracts have basically the same functionality, there is a unique opportunity to program features that can mirror existing consumer guardrails such as identity verification, compliance restrictions, transfer restrictions, recall functionality, interoperability and more. Smart contracts also carry unique cybersecurity risks that can threaten the ecosystem and depeg (value is no longer 1 token to $1 in reserve). Competition among issuers will in the long term go beyond access or geographic distribution and be focused on smart contract features, consumer protection and cybersecurity. ERC 1400, a security token standard, is a great example of the unexplored potential and where I see the future of programable digital money. In other words, we’re still in the MS-Dos or Windows 1.0 of stablecoin smart contract development.

A Stablecoin Future 

With increasing regulatory clarity, growing institutional adoption, and rising investment into purpose-built platforms, stablecoins are poised to bring about a transformative impact on the global financial system. It is a pivotal moment to be engaged in reshaping foundational financial infrastructure and to contribute to the broader benefits of financial accessibility and inclusion that will follow.