Stablecoins Power Cross-Border Payments, But Risks Remain
Stablecoins are digital currencies pegged to a reference currency, most commonly the US dollar. They're designed for cross-border payments and have been gaining traction in recent years.
The process of using stablecoins for international transactions is straightforward: a sender converts their local currency into a stablecoin, sends it to the recipient's blockchain address via a network, and then the recipient converts it back to their local currency. This method can be more efficient and cost-effective than traditional bank transfers.
Business-to-business payments are one of the largest use cases for stablecoins, followed by treasury management. Consumer remittances, on the other hand, make up a smaller percentage of transactions, with an average transfer size of around $47 compared to $250 for traditional remittances.
The biggest players in the stablecoin market include Tether's USDT and Circle's USDC, which account for over 85% of the total supply. The remaining 15% is split among other issuers, but these two dominate the market. Other notable players include Western Union, Bitso, Visa, Mastercard, and Stripe.
However, there are risks associated with stablecoin cross-border payments, including off-ramp liquidity and local FX issues, reserve and redemption risk, accounting and tax treatment complexities, and issuer concentration. Regulation is also a concern, with different frameworks in place for various jurisdictions, such as the GENIUS Act in the US and MiCA in Europe.