Stablecoins are a frequent topic in business news today, generating both excitement and trepidation about a seemingly complex but promising form of digital currency. Stablecoins are digital assets designed to maintain a stable value by being pegged to an underlying asset, usually the U.S. dollar. Stablecoin issuers hold reserve assets — often cash or highly liquid securities — to back the stablecoins they issue.

For those in financial planning and analysis, stablecoins may seem exotic today, but they could soon become an everyday financial tool. They offer substantial potential benefits for businesses, but they also present challenges and risks that merit attention.

The Pros: Speed, Efficiency and More

Stablecoin proponents say the currency enables faster, more efficient, 24/7 payments and liquidity management at a lower cost than many traditional alternatives. Every stablecoin transaction is logged on a blockchain — a shared digital ledger — making them transparent and traceable. Payments settle nearly instantly and transfer directly from wallet to wallet, often for less than a dollar. If both parties have digital wallets, transactions can cross borders seamlessly. Stablecoins can even be programmed to automate actions like supplier payments or currency conversions.

Many of these benefits stem from the blockchain itself, so capturing them fully depends on transactions occurring “on chain” — that is, the transaction takes place on a blockchain network and is recorded on its public ledger. While on-chain transfers can be inexpensive, total transaction costs depend on the full payment flow, including on/off-ramp fees, exchange or payment provider fees, redemption fees and blockchain network transaction fees.

The Challenges: Unfamiliarity, Integration, Liquidity and Regulation

Stablecoins have disadvantages as well. As with any new technology, they need to be researched and vetted, which takes time. Moreover, integrating stablecoins with enterprise resource planning (ERP) systems and treasury workstations can seem daunting. Limited liquidity may hamper broader adoption, while regulator and compliance uncertainty may discourage companies from experimenting with the technology.

These challenges can be overcome or mitigated over time. As adoption grows, so will business knowledge and familiarity. Integration should become easier as technology matures, particularly when businesses work with banks and technology providers to establish connectivity. If liquidity is limited, companies can begin with closed environments or targeted use cases that require relatively little liquidity.

To address regulatory concerns, businesses can start with modest pilot programs in jurisdictions that have clear rules. Legal and accounting teams should be involved throughout the process, and companies should work only with trusted, regulated partners.

Important Risks

While stablecoins are generally considered to be one of the safest digital currencies, they are not without meaningful risks, including:

Reserve/issuer risk. This risk depends on who issues the stablecoin, the assets backing it and the transparency of the reserve structure. An issuer may lack sufficient liquid or accessible assets to support the tokens in circulation or meet redemption requests during periods of stress. Poor reserve management, bank or custodian failures, operational breakdowns, lack of transparency or regulatory disruptions can increase these risks.

• Market risk. Market conditions or liquidity disruptions can cause a stablecoin to "de-peg" from the value of its underlying fiat currency.
• Counterparty and platform risk. Although stablecoins remove some traditional intermediaries, they introduce others — such as wallets, exchanges, custodians and payment providers — that create new counterparty and operational risks.
• Issuance risk. Stablecoins vary significantly in reserve composition, transparency, governance and the availability of global on- and off-ramp services.
• Technology risk. Blockchain congestion, outages, transaction failures, software vulnerabilities or smart contract bugs can disrupt transactions.
• Regulatory risk. Legal treatment varies by jurisdiction and may change as regulations evolve.
• Irrevocability. Blockchain transactions generally cannot be reversed. If digital asset custody is compromised, assets may be permanently lost.
• Theft. As with any digital asset, private keys must be protected. Although many custodians offer secure storage solutions, the access points to those solutions could be breached.
• Fraud. Because stablecoin transactions settle quickly and may offer varying degrees of pseudonymity, they can be used to facilitate financial crime.

Moving Forward

Stablecoins may soon become a mainstream payment option, making it important for finance professionals to understand their benefits, limitations and risks while monitoring how the market evolves. Rather than rushing into adoption, treasury teams should consider starting with a limited pilot focused on a specific business need. Above all, decisions about stablecoins should be driven by business objectives — not the desire to follow the latest trend.

The AFP Payments Guide, Stablecoins and Treasury: What Financial Leaders Need to Know, dives further into this topic. The guide defines stablecoins, explains how they work, offers practical advice from practitioners, and provides use cases for financial professionals considering whether to add stablecoins to their treasury toolbox.