Can Stablecoins Really Revolutionize Cross-Border Payments?

The idea that stablecoins are necessary for cross-border payments has been widely accepted in the crypto industry. However, this notion may not be entirely true.

Proponents of stablecoins claim they can improve transfer speed and reduce costs when sending money across currencies. But a closer look reveals that fintech companies have long achieved low-cost and efficient services without relying on stablecoins.

The traditional correspondent banking system operates by connecting banks through a larger bank, known as a correspondent bank. This process is costly and slow due to the multiple layers of intermediaries involved, with an average cost of 15% and transfer times ranging from 1-5 business days.

Enter fintech companies like Wise, which have innovated this model by using their own currency reserves to facilitate cross-border payments. This approach eliminates the need for correspondent banks and reduces costs significantly, with Wise boasting a blended fee of just 0.52%.

The stablecoin sandwich model, where users convert their funds into stablecoins before sending them across the blockchain network, has been touted as an improvement over traditional systems. However, this process still involves converting the stablecoins back into fiat currency, which can incur significant expenses due to exchange rates and fees.