Stablecoin: The Emerging Force Reshaping the Payment Industry

Chapter 1: Overview of Stablecoins

Stablecoins are a type of digital currency linked to specific assets, designed to provide a relatively stable store of value and medium of exchange. Compared to more volatile crypto assets like Bitcoin or Ethereum, stablecoins have unique advantages in global payments, cross-border transactions, and decentralized finance.

The concept of stablecoins originated in the early development of the cryptocurrency industry. As Bitcoin became the dominant force in the digital asset market, people realized that its price volatility severely hindered everyday payment applications. The introduction of stablecoins is essentially a correction to the limitations of Bitcoin, aiming to retain the advantages of decentralization while providing a stable valuation and trading tool.

The design mechanism of stablecoins determines their stability and market acceptance. The most common are fiat-collateralized stablecoins, such as USDT and USDC. Their value is backed by reserves of dollars or other fiat currencies, with a corresponding amount of dollars held in regulated institutions for every stablecoin issued. This model has high transparency, making it easy to verify the adequacy of reserve assets and gaining wide recognition within the legal and regulatory framework.

However, fiat-collateralized stablecoins also have the drawback of relying on traditional financial systems. They require banks or financial institutions as reserve custodians, which undermines the decentralization characteristic to some extent. If regulatory agencies block a stablecoin's bank account, its stability may be impacted. Furthermore, this model has high operational costs, requires regular audits, and may face liquidity crises in extreme market conditions.

In contrast, crypto asset collateralized stablecoins (such as DAI) offer a more decentralized solution. These stablecoins support their value through over-collateralization of crypto assets, typically requiring users to deposit assets worth more than the value of the issued stablecoins into a smart contract to ensure their stability. This mechanism does not rely on bank accounts and operates entirely on the blockchain, providing stronger censorship resistance. However, there is also the risk of forced liquidation due to sharp declines in the price of the collateralized assets.

In addition, there are algorithmic stablecoins (such as UST and FRAX) that use mathematical models and market adjustment mechanisms to maintain coin value stability. However, algorithmic stablecoins carry greater risks, as their stability relies on market confidence. In the event of a large-scale sell-off, it could lead to a death spiral, causing the stablecoin to completely collapse.

From the perspective of market size, stablecoins have become an important part of the cryptocurrency market. The total market value of global stablecoins has reached the hundred billion dollar level, with USDT and USDC dominating the market. The trading volume of stablecoins even surpasses that of many mainstream crypto assets, and they are widely used in payments, lending, decentralized exchange liquidity provision, and various other fields.

The success of stablecoins aligns with the global payment market demand. Traditional cross-border payment systems face issues such as high fees, slow settlement times, and complex intermediary processes, while stablecoins, based on blockchain technology, enable low-cost, real-time global transfers. In regions where fiat currencies are subject to capital controls or where banking systems are unstable, stablecoins have also become an important hedging tool.

Chapter 2: How Stablecoins Restructure the Payment Industry

Stablecoins are profoundly changing the global payment industry. As a bridge between blockchain and traditional financial systems, stablecoins provide efficient, low-cost, and borderless payment methods, gradually replacing some functions of traditional payment systems, particularly playing an increasingly important role in areas such as cross-border payments, corporate settlements, e-commerce, remittances, and payroll payments.

Pain points of traditional payment systems

In traditional payment systems, the flow of funds must go through multiple intermediary institutions, such as banks, payment processors, clearing agencies, etc. Each layer of intermediaries charges fees, resulting in higher overall payment costs. For example, credit card payments typically incur a transaction fee of 2% to 3%, and international wire transfer fees can be as high as $20 to $50. Third-party payment platforms may charge an additional fee of 2.9% to 4.4% when processing international transactions, along with currency conversion fees, making global payments expensive.

Cross-border payments often take several days or even a week to complete, due to traditional banking systems relying on centralized clearing networks such as SWIFT and ACH, which consume a significant amount of time in transaction verification, fund settlement, and compliance checks. For instance, a cross-border transaction from the United States to Africa may involve multiple institutions, such as U.S. banks, international clearing banks, and local banks, with each institution requiring KYC and AML reviews, which increases transaction time and uncertainty.

More than 1.5 billion people around the world still do not have access to bank accounts or basic financial services, primarily located in developing countries and remote areas. These populations find it difficult to access international payment systems due to factors such as lack of credit history, geographical limitations, and government policies, which also hinders their ability to smoothly conduct e-commerce transactions, receive salary payments, or make cross-border remittances.

International payments involve currency exchange, and the instability of exchange rates can lead to increased transaction costs, especially in countries with severe inflation. For example, in countries like Argentina and Venezuela, the rapid depreciation of fiat currency means that businesses and individuals often have to pay additional foreign exchange conversion fees when engaging in international trade or cross-border payments, as well as bear the economic losses caused by exchange rate fluctuations.

Traditional payment systems are strictly controlled by regulations in various countries, especially regarding the requirements of AML and KYC policies. For countries or regions under economic sanctions, international payment channels may be completely blocked, making it difficult for businesses and individuals to engage in legitimate transactions.

advantages of stablecoin payments

Stablecoin payments do not rely on traditional banking systems, but are based on a blockchain peer-to-peer network, allowing for transactions to bypass expensive intermediaries and achieve lower costs. For example, using USDT (the TRC-20 version based on the Tron chain) for cross-border transfers may cost as little as $0.1, while traditional bank wire transfer fees typically range from $30 to $50 and can take several days to process. The confirmation time for stablecoin payments usually ranges from a few seconds to a few minutes, greatly enhancing liquidity.

Stablecoins lower the financial entry barrier, allowing anyone with an internet connection and a digital wallet to create a cryptocurrency account and start global payments. This enables unbanked populations to access payment and deposit services, and especially in regions such as Africa, Southeast Asia, and Latin America, stablecoins have become an important tool for people to combat local currency inflation.

Compared to cryptocurrencies like Bitcoin and Ethereum, stablecoins have very little price fluctuation, usually pegged 1:1 to the US dollar or other fiat currencies. For example, the price fluctuations of stablecoins like USDC and USDT typically do not exceed ±0.5%, which is far lower than the high volatility of assets like Bitcoin. This makes stablecoins a reliable payment medium, allowing merchants and consumers to confidently accept stablecoin payments without worrying about sudden drops in coin value.

Stablecoins are based on blockchain smart contracts, enabling automated payments and programmable fund management. For example, businesses can use stablecoins for smart contract salary payments, allowing wages to be automatically distributed to employees on a monthly basis; cross-border trade companies can set conditions to trigger payments automatically once goods are delivered. The programmable payment feature gives stablecoins great potential in areas such as supply chain finance and smart settlement.

main application scenarios

1. Cross-border remittances: The total amount of money sent home by global immigrants and overseas workers exceeds $600 billion each year, while traditional remittance channels often charge fees as high as 5%-10%. Stablecoins provide a cheaper and faster alternative. For example, a Filipino worker in the United States can transfer money to their family in the Philippines within minutes using USDT or USDC, with transaction fees only a few cents.

2. International Payments and Settlements for Enterprises: Global enterprises need to frequently conduct international payments, while traditional banks have long settlement times, cumbersome procedures, and high costs. By using stablecoins, businesses can bypass the banking system and settle B2B transactions directly, thereby improving cash flow management efficiency. For example, a Chinese manufacturer can use USDC to pay an American supplier without going through foreign exchange conversion and bank intermediaries, thus reducing settlement costs and time.

3. E-commerce and Digital Payments: With the globalization of e-commerce, stablecoins are becoming a popular choice for cross-border e-commerce payments. For example, an online store in Europe can accept USDT payments, avoiding high credit card processing fees while providing a convenient payment method for consumers from around the world. More and more e-commerce platforms, subscription services, and gaming platforms are starting to support stablecoin payments to attract global customers.

4. Payment of Salaries for Freelancers and Remote Workers: The global freelancer economy is booming, but traditional payment methods have high fees and settlement delays. By using stablecoin to pay salaries, remote workers can receive funds instantly and freely convert them into their local currency or spend directly. For example, a freelance designer working in India can directly receive salary in USDT from an employer in the United States without worrying about bank fees or exchange rate losses.

5. Travel and Consumption Payments: In the tourism industry, stablecoins are becoming a new payment method. For example, some merchants in Dubai, Thailand, and Japan have begun accepting USDT and USDC payments, allowing tourists to make seamless payments with stablecoins and avoid currency exchange fees associated with traditional credit cards. In the future, as more merchants accept crypto payments, stablecoins may become the standard option for international travel payments.

6. Decentralized Finance and Smart Payments: Stablecoins are an important component of the decentralized finance ecosystem, allowing users to perform operations such as deposits, lending, and liquidity mining. Moreover, DeFi protocols can provide automated payment solutions, such as recurring payments and insurance payouts based on smart contracts, further promoting the development of the payment industry.

As blockchain technology matures and stablecoins become more widespread, they are reshaping the global payment industry, providing individuals and businesses with faster, cheaper, and fairer payment methods. In the future, stablecoins are expected to become an important part of the global payment system, driving further development of digital finance.

Chapter 3: Compliance Challenges and Policy Evolution of Stablecoins

Stablecoins, as an important innovation in the blockchain field, have their technological architecture, innovation, and compliance challenges highly关注的议题 by the market and regulatory agencies. The core value of stablecoins lies in maintaining price stability and providing users with convenient payment methods. However, achieving this goal involves a complex technological system, innovative mechanisms, and a constantly changing regulatory environment. Therefore, the success of stablecoins relies not only on the continuous evolution of technology but also on meeting the compliance requirements of various countries.

The technical architecture of stablecoins mainly covers asset collateral mechanisms, smart contracts, decentralized governance, and other aspects. Different types of stablecoins vary in design and implementation. As the stablecoin market continues to expand, governments and financial regulatory agencies around the world have begun to establish regulatory frameworks for stablecoins. The compliance issues of stablecoins mainly focus on anti-money laundering (AML) and know your customer (KYC) requirements, transparency, cross-border payments, financial stability, and other aspects. The regulatory attitudes of various countries are inconsistent, posing significant challenges to the cross-border application and globalization of stablecoins.

The anonymity of stablecoins presents potential compliance risks in cross-border payments. Although the decentralized nature of stablecoins offers a high level of privacy protection, it also makes them susceptible to illegal activities such as money laundering and terrorist financing. To address this issue, regulatory agencies in various countries require stablecoin issuers to comply with strict KYC/AML policies to ensure the authenticity and compliance of their users' identity information. For example, the Financial Crimes Enforcement Network (FinCEN) in the United States requires stablecoin issuers to register as money service businesses (MSBs) and fulfill related anti-money laundering obligations.

The transparency issue of stablecoins has always been a focus of regulatory agencies, especially for fiat-collateralized stablecoins. This is because the value of these stablecoins is backed by custodial fiat.