Payment Stablecoin

While most cryptocurrencies are relatively volatile in price, stablecoins aim to provide a predictable means of exchanging value on the blockchain. These assets began primarily as trading tools in the crypto space, but in recent years have been increasingly integrated into major payment networks.

Issuers of stablecoins typically sit atop significant reserves of U.S. dollars and/or dollar equivalents. Issuers create new stablecoins when customers deposit assets into this reserve pool, then redeem them in reverse when customers exit. This two-way issuance and redemption process keeps the stablecoin pegged to the underlying asset’s value.

By dealing in payment stablecoins onchain, users can bypass reliance on traditional banking and payments networks. This is especially useful for international remittances, which often rely on a chain of costly intermediaries to settle balances. Payment stablecoins can also cut settlement times dramatically: blockchain transactions typically settle in a matter of seconds, rather than the several days required for traditional banking settlement.

USDC and USDT, the two largest stablecoins by value and transfer volume, are examples of dollar-pegged payment stablecoins. USDC issuer Circle operates under the United States’ regulatory framework, and so is increasingly being integrated into institutional settlement, while Tether’s USDT is more widely used around the globe for everyday payments, cross-border transfers and trading.

As institutional and enterprise stablecoin payments volumes grow, regulators around the world are developing frameworks around their issuance, reserve management and consumer protections. These aim to protect holders from risks such as depegging — when the price of the token decouples from its reference asset — and issuer insolvency.

Ultimately, the reliability of stablecoins as payment tools relies on the quality of these protections.