Stablecoin trading amounted to $5 trillion in 2023.
Stablecoins have grown from effectively 0 to a $137 billion market in the past four years revealed by Bitwise Asset Management. Stablecoins are becoming more and more integrated into our everyday lives with global companies, including, J.P. Morgan (tokenized deposits), Citi (tokenized deposits), Visa and Checkout.com currently embracing the benefits and adopting stablecoins (or some form of it) as an alternative means for payment and settlement. Corporations and financial institutions need to explore this growing market as a viable avenue for transactions.
I very much agree with Simon Taylor , the curator behind “FinTech Brain Food”, who emphasises the transformative potential of stablecoins, highlighting that “Stablecoins offer faster, lower-cost, global, instant settlement rails that are upgradable, programmable, and permissionless.” Elaborating on his statement, the following section details a few use cases about how stablecoins are beneficial to businesses.
In the table below we see stablecoins escalating massively from 2017 to 2023, alongside Visa, one of the largest payment systems.
Use Case 1: Supplier Payments
While developing a settlement infrastructure leveraging blockchain payments at its core, we have come across more and more corporations that are being asked by their suppliers located in weak currencies countries to be paid in stablecoins. Indeed, for these suppliers it is a simple and natural way to hedge their currency risk and maintain a balance of USD equivalent which is easily accessible and usable. Obviously they still need to off-ramp part of that revenue into local currencies but they do control the weight allocated to it. For the payer it allows for some optimisation, especially in terms of speed of settlement which in the context of global trade means speed of getting the goods shipped.
Let’s keep in mind that according to the National Bank of Belgium and Swift BI Watch, over the past seven years, active relationships in the global correspondent banking network have seen a decline of 20% and the number of active corridors has fallen by roughly 10%, making it difficult to pay suppliers/clients in markets with inadequate financial infrastructure.
Stablecoins leverage blockchain networks, facilitating near-instant settlement times, reducing transaction costs, and extending the traditional market's reach for seamless entry into emerging markets. This enhances businesses' cash flow with instant transactions without delays and allows them to mitigate the risks and volatility associated with local currencies in emerging markets.
Use case 2: Pay ins in stablecoins
Numerous corporations face challenges in receiving timely payments from clients situated in regions such as Latin America, Africa, and Southeast Asia. Offering the option to pay your invoices in stablecoins to your clients reduces the transaction delays involved, positively impacting the day's sales outstanding component of your working capital requirement. It also reduces the counterparty risk that you have facing your clients. It is important to understand that the clients based in these regions may face extreme situations when it comes to payments. For instance, it is not unusual to see payers splitting the payments in 2 to 3 legs to eventually reach the payee with high costs and settlement delays attached. Bear in mind that when you use blockchain payments rails and that you stay in a digital currencies framework you have a settlement rail that is global by nature, point to point (no intermediaries in the middle), fully traceable and operating 365/7/24.
Use case 3: Cross border internal settlement
Whether you are a corporation or a financial institution with global exposure and idle funds in different local accounts, you may need to ensure fast circulation of the cash in order to improve the funding of your operations and to optimise your short term treasury yield, etc. Or you may even have trapped cash issues generating unsound exposure to volatile currencies. Stablecoin’s settlement speed can bring various benefits to the table, saving up to a couple of days for the physical delivery of cash.
What you can expect from using stablecoins:
- Cost -> Saving up to 80% in costs depending on the routes, the on/off ramp capabilities
- Speed -> Less than a day for fiat to stablecoins, otherwise depending on corridors and currency pairs can be up to 5x faster
- Transparency -> Fully traceable
- Operating time -> 365/7/24
- Reach -> Global
To conclude, blockchain payment rails and stablecoins are part of the future landscape of payments infrastructure. We do not believe this will replace existing infrastructure altogether, but it will bring a new palatable and advantageous way of transacting to the table that is available today.
Fipto offers instant B2B cross-border payments leveraging stablecoins. Contact us to get started with your account or request a free demo on our website.
