From: allin
The Emergence of Stablecoins
Stablecoins are digital currencies designed to minimize price volatility, typically by being pegged to a stable asset like the U.S. dollar. They are seen as a significant development in the cryptocurrency space, with the technology now considered “really good” [00:07:22], especially when built on platforms like Ethereum L2 or Solana [00:07:23].
In contrast, Bitcoin, while good as a store of value or a gold substitute, proved to be less effective as a payment method due to slow and expensive transactions, and its value not being denominated in dollars [00:07:07].
Stripe’s Foray into Stablecoins
Stripe, a major payment processing company, has recognized the utility of stablecoins and followed their development since the Bitcoin white paper was released in 2008 [00:06:58]. The company acquired Bridge in late 2023, with the aim of building “the Stripe of stable coins” [00:07:29]. This move helps Stripe expand its services beyond traditional payments to include lending, card issuance, treasury, money storage, and cross-border money movement [00:06:39].
The All-In podcast, for example, could accept payments in stablecoins (specifically USDC) via Stripe with just a simple button click [00:11:30].
Key Use Cases and Global Adoption
The most significant adoption of stablecoins is currently seen in cross-border transactions [00:08:10]. This includes managing corporate treasury globally and sending remittances to people in other countries [00:08:15].
One major driver of this adoption is the demand from consumers in countries with less stable or inflationary local currencies who wish to hold U.S. dollars [00:09:50]. For instance, in Nigeria, where the currency has devalued significantly, stablecoins allow individuals to store dollars, a product previously inaccessible to them at low transaction sizes [00:10:07]. This phenomenon is likened to the Eurodollar system of the 1970s and 80s, which allowed companies to store dollars for stability, but with a high minimum transaction size of around a million dollars [00:10:21]. Now, a consumer in Ecuador can hold a $1 USD balance using stablecoins [00:10:38].
While systems like UPI in India and Pix in Brazil, which are government-run payment solutions, have emerged in emerging markets, similar innovations have not yet taken hold in the US and Europe [00:08:33].
Impact on Global Financial Systems
The growing use of stablecoins in cross-border transactions could further solidify the dollar’s status as the world’s reserve currency [00:10:48]. By allowing global access to dollar balances through regulated stablecoins like USDC, the U.S. can maintain its financial influence, as these regulated stablecoins often back their value by buying U.S. treasuries [00:11:15].
Comparison to Traditional Payment Networks
Challenging the Visa and Mastercard duopoly is complex [00:07:51]. A significant portion of interchange fees charged to merchants flows back to issuing banks and then to consumers in the form of lending and card rewards [00:09:01]. Card programs are not major profit centers for most large banks [00:09:20]. Therefore, any substitute for these networks would involve trade-offs, potentially reducing consumer rewards or protections [00:09:30].
Fraud and Efficiency
While stablecoins offer real-time payments any hour of the day [00:17:55], a major challenge in online payments remains fraud [00:18:16]. Companies like Stripe act as a “reputation network” [00:18:22] across the internet economy, enabling merchants to trust end-users, as 93% of cards seen by Stripe have been seen before [00:18:29]. Fraud is a “huge economic cost” for businesses, and its problems are “getting worse and harder” due to factors like ML, AI, and globalization [00:19:49].
B2B transactions are also inefficient, with companies potentially losing 1-3% of revenue to accounts payable and receivable due to “baroque inefficient processes” [00:13:23]. Stablecoins could be part of the solution, but broader software solutions like Stripe Billing are also addressing these issues [00:13:51].
Regulatory Considerations
The legality and regulation of stablecoins in the United States are crucial [00:11:02]. Regulated stablecoins often require backing by treasuries, which further supports dollar supremacy [00:11:18].
Contrast with Meme Coins
While stablecoins aim for utility and stability, meme coins are viewed negatively. They are often seen as akin to gambling [00:48:49] and not productive for the financial system [00:47:52]. The rapid digital frenzy they create, amplified by social feedback loops, can lead to significant losses for many while a few make large profits [00:47:30]. The “rugging dynamic” – where creators or early investors quickly sell off their holdings, causing the price to crash – is considered particularly “pernicious” [00:51:26].