Stablecoins

Stablecoin Network

Stablecoins

For financial professionals, stablecoins represent an important development in the evolution of money. They combine the efficiency of digital assets with the stability required for corporate payments, liquidity management and cross-border transactions.

This page provides financial professionals with the foundation to understand what stablecoins are, how they work and why they matter.

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What Are Stablecoins?

Stablecoins are a type of digital currency designed to maintain a stable value. This is usually achieved by “pegging” the stablecoin to a traditional asset, such as the U.S. dollar or government treasuries. Unlike other cryptocurrencies, such as Bitcoin or Ethereum, which fluctuate widely in price, stablecoins provide consistency and reliability — qualities that are essential for corporate treasury and payments teams.

Every stablecoin transaction is logged on a blockchain (think of it like a shared digital ledger). This makes the transaction transparent, traceable and difficult to alter. The cost to complete a payment is minimal, and you can do so 24/7/365 — that means no waiting for bank cut-off times, and no unnecessary tying up of capital.

How Stablecoins Work (Tokenization Basics)

Stablecoins are “tokenized” representations of real-world assets. They are issued when someone deposits reserves (e.g., U.S. dollars or short-term government securities), and a digital token is created that matches its value, one-for-one.

Here’s a breakdown of the process:

  1. Reserve assets are set aside. The issuer denotes the backing asset(s), such as bank deposits or U.S. Treasuries, that guarantee the stablecoin’s value.
  2. Regulatory and legal checks are performed. The reserves and the issuing process are reviewed to ensure compliance with regulations and transparency requirements.
  3. Tokens are created and programmed. A digital token is minted on a blockchain, often with smart contract features that can automate actions like milestone-based supplier payments or currency conversions.
  4. Tokens are distributed to digital wallets. Once created, the stablecoins are issued to users, who hold them in digital wallets (the blockchain equivalent of a bank account).

Because stablecoins are programmable, they’re able to support more than simple payments. For example, a business could release partial payment to a supplier once delivery milestones are met, or automatically consolidate funds into a central treasury account when they reach certain liquidity thresholds.

Stablecoins vs. Other Digital Money

To see how stablecoins fit into the digital money sphere, it helps to compare them with other emerging forms:

  • Central Bank Digital Currencies (CBDCs): Issued directly by a government and fully backed by the state. CBDCs provide sovereign security, but carry with them concerns over privacy and competition with banks, so they’re developing at a slower pace.
  • Tokenized deposits: Digital versions of traditional bank deposits, issued by private banks. They offer many of the same benefits as stablecoins (programmability, 24/7 access) but are not yet widely interoperable.
  • Tokenized treasuries: Government bonds in tokenized form, which can potentially be used for payments or as collateral.
  • Tokenized money market funds: Blockchain-based digital representation of traditional fund shares.

The infrastructure for stablecoins is already here. Private companies like Circle, PayPal and Coinbase can issue them; all that’s required to transact is a digital wallet.

Benefits of Stablecoins

The value proposition for stablecoins is often summed up as: faster, cheaper and easier.

  • Speed: Transactions settle almost instantly, unlike traditional wire transfers that can take days.
  • Cost: Transfers can be completed for less than a dollar, compared to $10 to $25 for international wires.
  • Availability: Payments are available 24/7/365, unrestricted by banking hours or cut-off times.
  • Global reach: As long as both parties have a digital wallet, transactions can cross borders seamlessly. (More information about innovations in cross-border payments can be found in the AFP Payments Guide: Seismic Shifts Are Coming for Cross-Border Payments, underwritten by Wells Fargo.)
  • Flexibility: Stablecoins can support new liquidity models, such as lending them out for yield or using them as collateral.

Risks and Challenges of Stablecoins

As with anything, stablecoins are not without risks and challenges:

  • Liquidity gaps: Most liquidity is concentrated in U.S. dollar–backed stablecoins; other currencies are less supported.
  • Technology and integration: Corporates must ensure their treasury systems, ERPs and accounting platforms can connect to wallet providers and exchanges.
  • Regulatory uncertainty: While progress has been made, accounting bodies like FASB have not yet fully defined how stablecoins should be treated on balance sheets.
  • Counterparty risk: Treasurers must evaluate the trustworthiness of issuers and custodians.
  • Market risk: Factors such as market conditions and liquidity issues can cause stablecoins to depeg, i.e., deviate from the value of their underlying fiat currency.
  • Internal knowledge gaps: Boards, CFOs and finance teams often lack a clear understanding of how stablecoins work.
  • Cost: Converting fiat currencies to stablecoins (onramp) and converting stablecoins back into fiat currencies (offramp) typically involves transaction and redemption fees.

The first step is education: making sure all cross-sectional teams share a basic understanding before moving forward.

Regulatory Context of Stablecoins

The passage of the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) in the U.S. created the first federal framework for stablecoins. It requires issuers to operate under regulated standards, which lends legitimacy to stablecoins as a payment method and form of liquidity.

At the same time, the Stable Act at the state level covers smaller-scale issuers. Between the two laws, both federal and state regulation is covered. Other bodies, such as the IRS, OFAC and FASB, are expected to weigh in with rules for taxation and accounting treatment soon.

Globally, the European Union (MiCA), Japan, Singapore, Hong Kong and Brazil have all advanced their own stablecoin regulations. With the creation of a coordinated international framework, treasurers can feel more confident in adopting stablecoins for cross-border payments and liquidity management.

Learn More

What Treasury and Payments Professionals Need to Know About Stablecoins After the GENIUS Act
Stablecoins have been generating significant interest, particularly with the passage of the GENIUS Act. There are practical considerations that treasury and payments professionals should keep in mind when considering stablecoin adoption.

Stablecoin’s Role in Cross-Border Payments
Viewed as both a payment solution and a potential instrument on the balance sheet, treasury teams are seeing a lot of promise in stablecoins.

AFP Payments Guide: Seismic Shifts Are Coming for Cross-Border Payments
Innovations like stablecoins are redefining global payment infrastructure. Fill out the form below to download the AFP Payments Guide: Seismic Shifts Are Coming for Cross-Border Payments, underwritten by Wells Fargo, and discover why cross-border payments are at a turning point.