Stablecoins have yet to take off outside of the cryptoverse, but that's not for a lack of trying.
Stripe, Ripple and Circle in the past few days have made major bets on an eventual crypto-based payments market to reach consumers who are more comfortable with cash and plastic.
Stripe, a company best known for its global payments platform, on Monday agreed to acquire stablecoin platform Bridge. Terms of the deal were not disclosed, but multiple media outlets reported the price was $1.1 billion, which would make it Stripe's largest acquisition and one of the biggest crypto-related purchases.
Stripe's deal closely follows a partnership between cryptocurrency company Circle and payments technology developer BVNK to expand Circle's USDC stablecoin and a series of collaborations between Ripple and cryptocurrency exchanges to distribute Ripple's new stablecoin.
All three companies are trying to succeed where earlier efforts to bring stablecoin to the mainstream have sputtered or failed.
Stripe has been accelerating its
Bridge, which was founded in 2022, sells software that enables businesses to accept stablecoins for payments and positions itself as a future rival to traditional networks such as Mastercard and Visa.
Merchants will likely not directly accept stablecoins or other forms of crypto at the point of sale, so firms such as Bridge convert crypto to traditional currency in real-time before payment. Bridge reports it processed about $5 billion in payments in 2023.
Stripe did not comment on its Bridge acquisition, which is scheduled to close in the next few months and is subject to regulatory approval. In a social media post, Stripe co-founder
Why stablecoin payments struggle
Stablecoins are a type of cryptocurrency that is backed by a reserve of traditional currency, such as U.S. dollars or euros, to achieve the processing speed of digital currency while avoiding the volatility of bitcoin, ether and other crypto. But the reliability and long track record of existing payment options in markets such as the United States have
Stablecoins have also been stung by the high-profile failure of Diem, the Facebook-affiliated stablecoin that drew
The environment for independent technology firm-led stablecoins has not improved much since the Diem debacle, according to payment experts.
"Stablecoins are largely an opportunity for international money movement. It is hard to see compelling use cases for the number of stablecoins in the market," said Tony DeSanctis, a senior director at Cornerstone Advisors. "There will likely be a few survivors but at this point, it is unclear who that will be."
Where is the niche?
BVNK is looking outside of domestic transactions as a starting point. BVNK will integrate Circle's USDC into its payments technology, enabling businesses to speed global payroll for contractor, employee and supply chain payments. BVNK earlier this year similarly
BVNK co-founder Chris Harmse acknowledged there is a lack of an argument for stablecoins for domestic payments but said there are use cases for international payments and a future need to support transactions in a fragmented real-time processing environment.
"You don't really need stablecoins in the U.S. or U.K.," Harmse said. "Payments work, and people trust that. Stablecoins get interesting in emerging markets, where there is a lack of trust in economic policies or local currencies."
The expansion of real-time payments to include cross-border transactions would supply another option for U.S. firms to embrace stablecoins, according to Harmse, noting the lack of interoperability between real-time processing networks in different countries.
The stablecoin, and the underlying blockchain, can provide a bridge between real-time networks in different countries by avoiding correspondent banks and foreign exchange steps that add time and fees to payment processing.
"All of these countries innovate at different paces. There is no global unified rail for real-time payments," Harmse said. "A stablecoin allows these real-time rails to link together."
A third payments technology firm, Ripple, recently enlisted a group of cryptocurrency exchanges to boost distribution for its own
"A robust distribution network ensures that RLUSD is readily accessible to a wide range of users and can be easily integrated into various venues and applications," said Jack McDonald, senior vice president of stablecoins at Ripple. "This, in turn, drives adoption and liquidity, which are essential for RLUSD to meet its potential."
For stablecoins to grow, mainstream companies must find value in using a stablecoin and be 100% confident in its stability, that is, zero risk of a de-pegging event, said Alenka Grealish, a principal analyst at Celent, speaking of the fear that a stablecoin will lose its one-to-one reserve ratio, leaving its investors insolvent.
"Currently, these prerequisites are not being met," Grealish said, adding
The niche for stablecoin issuers will likely come from users that do not require or have the resources to use bank-supported options, such as
Stablecoins primarily serve entities lacking the financial clout of major banks like JPMorgan to create traditional-currency-backed digital tokens, according to Enrico Camerinelli, strategic advisor for Datos Insights.
As the digital asset space matures, larger financial institutions are poised to dominate with their own tokenized deposit assets, according to Camerinelli.
"While these advanced tokens may challenge current stablecoins, the future likely involves coexistence of various digital token types. These non-bank players are attempting to carve out a market niche," Camerinelli said.
