The Stablecoin Era: A New Wave of Crypto Adoption

Corporations are in an arms race to provide immediate 24/7 global settlements, and stablecoins are the solution


Blockworks Exclusive Art by Axel Rangel


key takeaways

  • Stablecoins may provide the settlement technology that powers mass institutional crypto adoption
  • now offers merchants an around-the-clock stablecoin settlement solution

Stablecoins have the potential to offer the same level of mass blockchain adoption that NFTs offered Web3, but instead of consumers on OpenSea and Rarible, these adopters will be institutions. Supply chains are increasingly global, and with the changing economic environment and rising interest rates, the world now more than ever needs cost-efficient means of settling instant B2B payments across borders — stablecoins can be a powerful solution.

Despite this pressing demand, these institutions are at a crossroads as they wait on regulatory guidelines from Treasury Secretary Janet Yellen and others by the end of 2022. Group Treasurer Wolfgang Bardorf offered Blockworks insights on the opportunities of high-quality stablecoins and obstacles to institutional adoption.

Distinguishing high-quality stablecoins from the others

The word “stablecoin” has been at the center of controversy the past few weeks, mainly due to the collapse of the now infamous algorithmic stablecoin TerraUST. Many like Ethereum’s co-founder Vitalik Buterin argue that the phrase ‘algostable’ is a ‘propaganda term used to legitimize uncollateralized stables by putting them in the same bucket as collateralized ones.’ And for this same confusion, Bardorf emphasizes the importance of distinguishing the high-quality stablecoins from the others:

“High-quality stablecoins tend to be issued by reputable companies and assurances that they are backed 1:1 by the named currency or asset and will be very reliable and transparent. Specifically, these high-quality coins tend to be backed 1:1 by fiat cash or very high-quality liquid assets and, as such, represent a digital, tokenized means of settling payments at fiat value using blockchain infrastructure.”  

The stablecoin opportunity

One of the significant drawbacks of the use of bitcoin in payments is its volatility. Stablecoins instead focus on making the infrastructure features available without the volatility. The high-quality collateralized stablecoins are resilient to price volatility yet can immediately settle payments 24/7. According to Bardorf, this is a big deal for the tech industry: 

“There is currently something of an ‘arms race’ among tech companies and ecommerce companies — and indeed any business for whom liquidity and working capital are vitally important — to achieve faster settlements and 24/7 settlement capabilities.” 

Bardorf points out that 24/7 settlement is “something that remains unachievable in many fiat transactions.” Establishment banks rely on the SWIFT payments network for international payments. This legacy infrastructure can involve up to four intermediaries. With each intermediary comes cost implications, with the knock-on effect of high fees and a delayed transfer process.

Settlement times can extend to as many as five days. When it comes to the international remittances sector of the payments industry, costs can range from 5% to 10%. The remittance market, in particular, is ripe for disruption by stablecoin-based solutions. In 2021, transaction volume relative to cross-border remittances amounted to $589 billion. 

Corporate treasuries and stranded liquidity

The role of a corporate treasurer is not an easy one. Cross-border movement of funds can implicate FX risk, high fees and other complexities. Bardorf emphasized that “the current system also leads to centralized bottlenecks which trap liquidity. Stablecoins provide a solution to this problem.”

In a recent report, the Federal Reserve recognized the role that stablecoins can play in this scenario, referring to the greater efficiency in reducing the time frame for transfers and direct real-time settlement. 

Scaling and regulatory obstacles to stablecoin adoption 

Bardorf argues that the first obstacle in institutional adoption is stablecoin scalability:

“Stablecoin utility starts to stall if participants can’t monetize it easily. That is to say, if a business cannot pay its suppliers in stablecoins, then they will need to go through the process of converting back to fiat before they can make any use of their money. This hurdle binds them by the constraints of the fiat currency infrastructure. The total utility of stablecoins for corporate treasury depends upon a widespread adoption at the wholesale level.

But scaling isn’t the only obstacle. Bardorf states that corporate treasurers “have to consider credit, regulatory and system risk before implementing new infrastructures.” It’s all about long-term viability. Bardorf notes that “any change in the payment system and infrastructure at the corporate level will be an operational upheaval,” so regulatory clarity isn’t optional.

Overcoming institutional obstacles 

Despite these obstacles sounding like a chicken or egg problem, Bardorf reassures that industry leaders can address them through building corporate treasurer trust:

“I predict that the treasury community is likely to help us get to a point where the regulators can say confidently and comfortably, ‘This is something we can live with,’ especially with an open and honest dialogue about the benefits and regulatory risks.”  

Bardorf argues that because “corporate treasurers don’t want to work with non-transparent versions of stablecoins, they will be driving very clearly towards high-quality, robust, and transparent stablecoins, and if anything, the corporate treasurer’s demand will be helping to forge ever-better, more reliable stablecoins.’ 

Ultimately it is the corporate arms race to provide immediate 24/7 global settlements that will push institutions and central authorities to stablecoin adoption. In fact, recently announced a major milestone in that race. They now offer merchants an around-the-clock stablecoin settlement solution powered by Fireblocks’ new crypto payment technology. Jess Houlgrave from stated that the near-instant 24/7 settlement of fiat transactions in stablecoins will include “weekends and holidays — increasing access to cash flow and significantly reducing operational costs for businesses in the digital economy.”

There is no question that blockchain technology succeeded in providing a digital store of value. With it came programmable currencies and DeFi. The next paradigm shift is the ability to transact and settle digitized value on a global scale. Regulated stablecoins with the help of institutional adoption can achieve that vision. And it won’t just bring cost efficiency to the worldwide payment system. It has potential to usher in even greater web3 adoption by providing industry-compliant payment channels to GameFi, SocialFi and the metaverse.

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