Why stablecoins are the future of cross-border payments

If we're to believe some of the more hysterical stories out there at the moment, it's End of Times for crypto. The media loves a good fall from grace, and for many commentators the recent turbulence seen in the crypto markets is a sign that the bubble has well and truly burst and that decentralised currency is, as they always hoped, a flash in the pan.

The truth of the matter is that the crypto ecosystem is simply going through a necessary period of creative destruction, and one that's common to all disruptive innovations in their early days. Times are tough for investors, but the crypto sector will rebound and in the process rid itself of weak links in the chain. Just as the dotcom crash of the 90s laid the foundations for the modern internet, so too will a stronger, more resilient, and better crypto market emerge from the current challenges.

The role for stablecoins 

What will this new world look like? Stepping away from crypto as an investment vehicle, one thing seems clear: in the months and years ahead, crypto-based stablecoins will emerge as the de facto currency for cross-border payments. 

Stablecoins are cryptocurrencies that peg their value to another currency, commodity, or financial vehicle. While in some cases this link is established through algorithms, the best approach for cross-border payments is to use regulated, centralised stablecoins where there is the necessary transparency, liquidity, and stability. 

The future of payments

Already, and despite what's happening on the cryptocurrency markets, we're seeing on the ground how interest in stablecoins as a payments vehicle is growing day by day. Major Payment Service Providers (PSPs) are increasingly using stablecoins to settle with their merchants, due to the faster processing times and lower costs compared to using traditional fiat settlement rails. For their part, merchants are choosing either to settle directly in stablecoins or to off-ramp onto fiat.

These innovative PSPs are also exploring whether they can onboard crypto payments into their own service wrappers. For many PSPs the aim now is to be able to integrate cards, alternative payments, and crypto payments in a single API. 

The settlement rails of the internet 

It's early days, but as stablecoin liquidity increases and the use case evolves, this technology will soon become the primary settlement rails for the digital age In the process, the whole nature of how money moves around the world is being transformed, with the legacy SWIFT infrastructure giving way to blockchain infrastructure. 

The benefits to PSPs and merchants from this change are clear. Rather than having to wait days or even weeks for FX payments to settle, settlement takes place within hours. And with a significantly reduced need for intermediaries and high service fees, the costs of making cross-border payments are slashed. Given these significant benefits, it's only a matter of time before demand for stablecoin-based payments reaches a tipping point. 

This transition is arguably the most disruptive and successful impact of cryptocurrencies and certainly one of crypto’s ‘killer apps’. Forget crypto as a speculative investment; with stablecoins blockchain is becoming embedded in the global financial system and driving deep, structural change. Long after the current market turbulence is a minor footnote in the history of crypto, stablecoins will lie at the heart of a new, real-time, decentralised, and cost-effective global payments infrastructure. 

The internet survived the dotcom bust and rallied to become one of the most revolutionary innovations in human history. The same will be true of crypto!