“If you’re paying a vendor in an emerging market where the local currency is losing value rapidly, stablecoins can allow transactions to settle quickly in a more stable currency, such as the U.S. dollar. This reduces foreign exchange risk and helps vendors preserve value.”
— Kammy Tsang Head of Global Cash Management, PayPal
STABLECOINS VERSUS OTHER CRYPTO OR DIGITAL CURRENCIES
Stablecoins’ predictable value is mainly what sets them apart from other digital and cryptocurrencies, but there are other differences, too, like their low volatility, their fiat backing, and their private issuance. In comparison:
- Tokenized deposits are digital versions of traditional bank deposits and thus a liability of the issuing bank. They offer many of the same benefits as stablecoins — such as programmability and 24/7/365 availability — but are not yet widely interoperable across institutions and networks. With the same regulatory oversight as traditional deposits, they have lower structural risk than stablecoins, but they are tied to a specific bank. Larger global banks are pursuing this model.
- Cryptocurrencies like Bitcoin have no issuer and are on a decentralized network. There is no backing asset; value is driven by supply and demand. They are highly volatile and are designed to be a store of value, not a payment mechanism (although some use them as such).
- Tokenized real-world assets are real-world assets represented on a blockchain, such as treasuries and money market funds. Tokenized treasuries are government bonds in tokenized form that could potentially be used for payments or as collateral. Tokenized money market funds are blockchain-based digital representations of traditional fund shares.
- Central bank digital currencies (CBDCs) are issued directly by a government and fully backed by the state. CBDCs provide sovereign security, but concerns about privacy and competition with banks are slowing their development, especially in the U.S. Stablecoins and tokenized deposits both represent digital forms of money existing on blockchain, but they differ fundamentally.
Stablecoins are more flexible than tokenized deposits under current models, but they require confidence in the issuer and structure. Tokenized deposits are bank liabilities tied to a trusted bank and are subject to existing bank regulation and protections, such as FDIC insurance.
Currently, tokenized deposit use cases are better suited for interbank settlement, while stablecoins work best for payments across parties that are not within the same institution, particularly cross-border payments. Many banks are piloting consortium and network models for tokenized deposits, however, so these conditions could change.
WHY STABLECOINS MATTER TO TREASURY
Stablecoins offer advantages that could be useful in a number of treasury use cases. Many of these benefits stem from the blockchain itself, so capturing them fully depends on transactions occurring “on chain” — meaning that the transaction or activity happens directly on a blockchain network and is recorded on its public ledger. Integration into existing systems and processes, as well as on/off-ramping to/from stablecoins using existing payment rails, introduces additional considerations.
Stablecoins’ main features and benefits include:
- Speed. Transactions settle nearly instantly.
- Cost. Transfers directly from wallet to wallet can be made for less than a dollar, compared to $10 to $25 for international wires. While on-chain transfers can be low-cost, total transaction costs depend on the full payment flow, including on/off-ramp fees, transaction and redemption fees from intermediaries such as exchanges or payment providers, and network transaction fees (“gas fees”), which may vary.
- Availability. On-chain payments can be transacted 24 hours a day, seven days a week, 365 days a year.
- Global reach. As long as both parties have a digital wallet, transactions can cross borders seamlessly.
- Transparency and traceability. Since they are held on a blockchain, every stablecoin transaction is recorded and traceable.
- Programmability. Stablecoins can be programmed to automate actions like supplier payments or currency conversions.
Arnold Koga is Senior Treasury Operations Analyst at Taptap Send, a mobile app that allows users — mostly immigrants and expatriates — to send money internationally quickly and securely at competitive rates. He extolls the speed, lower costs and continuous availability stablecoins offer for settlement and liquidity management.
“We don’t have intermediary banks involved in these payments, so once we initiate a payment and send the transaction hash to the partner, the transaction can often be completed within five minutes,” he reports.
“That means we don’t have to chase down banking partners or wait for confirmations. We can also unlock funding more quickly from our liquidity partners because they’re comfortable funding once they know settlement will happen almost immediately.”
— Arnold Koga Senior Treasury Operations Analyst, Taptap
POTENTIAL USE CASES
The strongest use case for stablecoins thus far is cross-border payments and settlement, including global supplier and vendor payments, payroll and remittances. With stablecoins, users could make and receive near real-time payments in emerging markets where traditional channels involve multiple intermediaries, foreign exchange drag or currency controls. Costs would be lower, and access broader.
In commercial payments and liquidity management, stablecoins could allow corporates to move cash more efficiently, optimize working capital and transact seamlessly into short-term investments. For intraday liquidity and settlement timing, stablecoins could be used to pool cash across borders without waiting for bank cut-off times. Operational cash could also be parked temporarily in stablecoins.
Another use case is funding subsidiaries or counterparties across jurisdictions. Stablecoins in this use case would reduce friction in vendor payments or contractor payouts by enabling instant supplier payouts — including milestone, escrow-based smart contracts that release funds automatically when predefined conditions are met.
For capital markets, stablecoins’ near-real-time settlement reduces counterparty risk and shortens settlement cycles. Tokenized assets — such as tokenized money market funds and stocks — could be accessed and settled seamlessly using stablecoins. Through tokenized funds, stablecoins could be used to pay dividends to investors automatically or reinvest dividends into the funds without moving money through banks.
And finally, stablecoins could support agentic AI, in which agents use stablecoins for instant, global and programmatic payments, such as autonomous payments, micropayments and machine-to-machine transactions.