The Future of Payments via Stablecoins

The global payments revenue pool is to reach $2.2 trillion by 2027, owing in part to transaction fees. Of the amount of money traded and transferred worldwide on a daily basis, a considerable sum does not end up in the pockets of those who we send money to, whether they are individuals or businesses.

On the other hand, stablecoins have gained the attention of different governments drawing regulatory frameworks to secure crypto asset trading, as well as being increasingly adopted by forward-looking companies. For those who seek to overcome certain barriers traditional financial infrastructure have in terms of remittances or per-transaction fees for merchants, stablecoins offer a secure, cost-efficient and time-efficient alternative. 

In this article, we delve into the potential stablecoins have in improving existing financial infrastructure and EZO’s vision for a seamless payment experience benefiting users first and foremost.‍

Current Payments Landscape

In 2022, $831 billion were sent around the world as remittances. This number refers to the funds migrants send from their countries of adoption to their countries of origin as a form of aid to the communities “back home”. Such international wires cost on average 6.65% of the amount sent, to the benefit of a payments industry now worth trillions.

Often, international transfer of funds through bank international wires or even mobile money service providers are additionally subjected to high exchange rate markups. As a result of these two considerations, there is less money to alleviate the financial stress at both ends of the international flow of remittance funds. Additionally, the volume of these global money transfers is limited and they have to pass through different banking institutions before reaching the intended recipient, which adds to the processing time.

These problems are also faced by businesses and their customers. For in-store customer-to-business transactions using credit or debit cards, merchants pay substantial fees on each sale. Credit card issuers incentivize the use of credit cards in customers for that reason, through cashback or accumulated points—all in all, very few benefits for customers compared to the gains banks make. Transactions paid using a credit card also take a few days to land in a business’ account, as the bank acts as an intermediary between the client and the business.

To account for interchange and other operational fees, businesses have to raise their prices, which in turn affects the clients’ wallets. The Retail Council of Quebec (CQCD) calls these interchange fees a “disguised tax” impacting both retailers and their clientele.

On the other hand, at the macro level, the finance world is witnessing growing security risks brought by the recent transition to online services, which fraudulent actors are taking full advantage of. In 2016, the central bank of Bangladesh, through the main global electronic payment messaging system SWIFT, lost $81 million to hackers. Similar cases were seen in India in 2018, and Malaysia the same year, though the Bank Negara Malaysia heist was fortunately successfully thwarted.

Introducing Stablecoins

What Are Stablecoins?

Stablecoins are a type of cryptocurrency. Instead of  having a volatile value based on a number of factors, the value of a stablecoin is tied to that of another asset, like a fiat currency. Each USDC stablecoin, for example, is tied to a real U.S. dollar kept in a reserve held in short-duration U.S. Treasuries and cash deposits. As such, they are among the most stable cryptocurrencies out there. Due to this characteristic of theirs, they serve as more convenient mediums of exchange than other cryptocurrencies.

There are different types of stablecoins based on what they are backed by—fiat currencies, such as the aforementioned U.S. dollar, commodities, such as gold, other cryptocurrencies, such as Ethereum, or even by an algorithm. Regulations exist since 2023 in Europe banning under the Markets in Crypto Assets Regulation (MiCA) algorithmic stablecoins. Instead, 1:1 ratio liquid-backed reserves are mandated. Stablecoins have also captured the attention of American policymakers, with proposed legislation regarding reserve, custody and disclosure among other concerns in an effort of protecting consumers.

Companies are also growing interested in stablecoins. Reportedly, SpaceX uses them to receive and send payments. Stablecoins allow SpaceX to save on foreign exchange risk and fees, as well as avoiding other risks that come with international wires according to Chamath Palihapitiya.

Although cryptocurrencies are still a long way from entering the mainstream, the use of stablecoins could prove to benefit more than just SpaceX. Smaller companies from more or less developed traditional financial systems and both individual remittance senders and receivers could gain from participating in the trade of stablecoins. Here is how.

5 Big Advantages of Stablecoins

1. Payment Processing Time

Transactions of stablecoins, as do other types of cryptocurrencies, are recorded within minutes on the blockchain according to the time it takes to validate the transaction. For those who often make global money transfers, this represents considerable time saved, as typically, international wire transfers and remittance service transfers take up to five business days to settle. The peer-to-peer model for crypto transactions eliminates the need for and the wait time associated to intermediaries like banks.

Shorter payment processing time improves the impact and efficiency of remittances, as well as the efficiency of a business’ operations.

2. Blockchain allows for traceability

A blockchain acts as a decentralized ledger where data for each transaction, including timestamps and addresses, is recorded within a block and linked to the previous block using a hash, in effect forming a chain. This information is publicly available using a “blockchain explorer”.

Once a block is created and has entered the continuous chain, the information it contains cannot be modified. The traceability blockchain offers is important for financial transparency and for monitoring illegal activities. All stablecoin and other cryptocurrency users benefit from a transparent and regulations-compliant environment. Traceability also fosters trust among potential users, and in turn, greater adoption.

3. Security and guarantee of delivery

The immutable nature of the blockchain, updated to reflect any new transactions within ten minutes on average, provides traceability and transparent proof of delivery for users. Transactions on the blockchain are irreversible once confirmed.

The peer-to-peer network eliminates security or delay risks associated with entrusting delivery of funds to a third party. Transactions are made across borders with minimal friction.

4. Low fees

Fees (gas fees) for transferring stablecoins are extremely low compared to any other transaction method, costing a cent if not less. This is true even for international transactions that would normally cost upwards of $30 using wire transfers or approximately 6.65% with remittance services.

Lower fees via the blockchain means more for the people and businesses trading stablecoins, both saving a considerable sum in fees over the course of a year. 

5. Polyvalent and high capacity

Stablecoins are a bridge between traditional finance and the world of crypto, combining the stability of fiat currencies to the efficiency of cryptocurrencies. Unlike other cryptocurrencies with volatile values, stablecoins’ match that of a fiat currency, making it more suitable for everyday transactions, like buying lunch or paying a monthly invoice.

Aside from being more stable than other cryptocurrencies, and as such, more akin to fiat currencies, stablecoin transactions are not limited by ceilings imposed by banking infrastructure. Blockchain technology’s high capacity, paired with the stability of stablecoins specifically, make stablecoins an excellent choice for high volume transactions.

The Stablecoin Revolution

Stablecoins combine the best of both worlds: the resilience of fiat currency and the ability of cryptocurrency. While cryptocurrency has made quite some noise since its start in the 1990s with eCash and even more prominently in 2009 with Bitcoin, it is not yet at the stage where most people are ready to adopt it for everyday use.

On one hand, the blockchain learning curve is steep and perhaps scary for many. On the other hand, people are wary of the volatility of this asset class, or the lack of clear government regulations protecting users and the trading environment. Stablecoins, due to being collateralized by either tangible assets or fiat currencies, bypass these two difficulties. 

A potential stablecoin revolution is under way, and it would lay much of the groundwork for financial empowerment—not just that of multinational companies like SpaceX but also that of individuals and small businesses everywhere in the world. At the heart of the mission of introducing crypto in the world is to promote financial autonomy from costly intermediaries and decentralization.

The stablecoin revolution would in effect enable users making and receiving payments in USDC to save on intermediary fees and, with more money in their wallets, improve their quality of life or business profitability. Stablecoins are not reserved to high-networth-individuals making hefty transactions. They can change lives starting from the smallest transaction at the grocery store or sending money to support your family abroad.

EZO’s Vision

These principles at the heart of the world of crypto align with our values here at EZO. We believe in financial inclusion across borders and across means and in saving our users as much money as it is viable for us to do. The immense potential that lies in stablecoins as an alternative to current costly payment rails is unmistakeable, but replacing such mainstream networks is no easy feat. Furthermore, cryptocurrency is still an obscure topic for many, and it is undeniably a complex one. How do we overcome this?

The transition to day-to-day stablecoin trading must be done while integrating it within current payment solutions. When embedded with simple and straightforward payment solutions, such as EZO Pay, the benefits of using stablecoins over other payment rails will speak for themselves, saving users money and time, while being highly secure.

Users across the world who are familiar with a financial app should find it no harder to trade stablecoins than fiat currency, while recognizing this alternative as highly advantageous for their wallets, their families or their businesses. The stablecoin revolution must come with accessibility, ease of use and financial education in the mind of its pioneers. We want to be a part of this endeavour, bringing together the worlds of traditional finance and cryptocurrency.

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Frequently Asked Questions

What Are Stablecoins?

Stablecoins are cryptocurrencies which are pegged on a 1-to-1 basis to a tangible financial asset, like a fiat currency or gold. The USD Coin (USDC) is an example of a strong stablecoin tied to the U.S. dollar.

Why Use Stablecoins?

Stablecoins are much more stable than other cryptocurrencies, while sharing the advantages of lower fees, fast processing time and transparent traceability. Furthermore, they offer guarantee of delivery, are highly secure and polyvalent in what they can be used for.

How Will Stablecoins Change the Payments Industry Landscape?

Stablecoins as an alternative to traditional payment rails will enable users to save on fees by eliminating the need for intermediaries to process payments. For the same reason, transactions will also take much less time to land in the pockets of blockchain users. These changes would be extremely meaningful for remittance users and small businesses.