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Original title: A guide to stablecoins: What, why, and how; Source: a16z crypto editorial department; Translation: bitchain hozou
Stablecoins may be the first “killer app” of cryptocurrencies.Released by our end of 2024“Crypto Industry Status Report”The Chinese government pointed out that with the expansion and upgrading, the cost has been greatly reduced, and stablecoins have achieved product market compatibility.Its trading volume reached a historical peak of $1.82 trillion in March this year.But stablecoin activity is extremely correlated with crypto market cycles – its non-speculative organic use continues to expand even during trading volume fluctuations.
Without a deeper look at the impact of stablecoins on users, builders, and businesses, it is easy to underestimate their potential.As a trading medium that does not require payment to the Internet or centralized gatekeepers other than cash and gold, stablecoins are already one of the lowest-cost methods of US dollar transfer (200 US dollars cross-border transfer to Colombia costs less than US$0.01).But the breakthrough of stablecoins is not only in fee reductions: they are programmable and scalable without permission.This means developers can finally easily integrate globally available, fast and nearly free stablecoin infrastructure into products, while building new fintech capabilities – companies from Stripe to SpaceX have begun adoption.
Why can stablecoins subvert the global payment industry?Who will benefit the most from it?How should builders and enterprises make arrangements?This article summarizes the series of views released by a16z crypto, starting from the clarification of the definition of stablecoin to the concept of currency reconstruction based on the first principles, and fully presents the industry development trend.
1,Macro picture: Stablecoins are currency”WhatsApptime”, almost free instant cross-border transactions
For the first time, stablecoins make currency open, instant and borderless like email.
Before WhatsApp came out, each cross-border text message was paid 30 cents.Today, Internet communications have achieved instant and free global transmission.The payment system is in the stage of communications industry in 2008: it is subject to high costs of borders, intermediary exploitation and deliberate design.Stablecoins will completely change this situation.
The current international remittance fee is as high as 10% (the average remittance cost of US$200 in September 2024 is 6.62%.These expenses are not only friction costs—but also disguised accumulative tax on the world’s poorest workers.Enterprises are also trapped in inefficient global payments: B2B transactions on specific channels need to be liquidated for 3-7 days, and every $1,000 transaction costs $14-150, and up to five profit-sharing intermediaries are handled during the period.Stablecoins can bypass traditional clearing systems such as SWIFT networks, making transactions almost free and instant.
This is not a theoretical deduction: SpaceX has used stablecoins to manage funds (including withdrawal from currency fluctuating countries such as Argentina and Nigeria); companies such as ScaleAI have used this to achieve rapid and low-cost compensation payments to employees around the world.
For more information, please see“WhatsApp Moment of Stablecoins”
2,The essence of stablecoins: two major types and common misjudgments
The stablecoin layout needs to be clearly divided.The history of banking industry – including success and failure lessons – provides an excellent reference system for understanding its design space.
We expect stablecoins to accelerate the reenactment of banking history.Just as US currency begins with simple bank bonds and then expands supply through complex credit, stablecoins will undergo a similar evolution.This historical perspective helps us establish a comparative framework between stablecoins and banking systems, helping builders avoid the shortcomings and inefficiencies of traditional institutions.
Existing analysis often describes stablecoins from two dimensions: degree of collateral (under/over) and degree of centralization.This is of great value for understanding the correlation between technical structure and risk.On this basis, we draw on the perspective of retail banking and propose two types of stablecoins and a common misjudgment:
Fiat currency collateralized stablecoin
Bank vouchers operating in a similar way to the National Banking Era (1865-1913): Users can directly redeem trusted fiat currency.Its value is anchored to the underlying currency, but the trust depends on the issuer’s reputation and the convenience of redemption on exchanges such as Uniswap.Currently, this type of stablecoins accounts for more than 90% of the total supply.
Asset mortgage stablecoin
Arising from on-chain loans (CDPs), imitating the process of banks creating currency through partial reserve systems.When banks use mortgages, corporate loans, etc. to create currency, the lending agreement uses on-chain assets as collateral to generate such stablecoins.As economic factors continue to be on the chain, it is expected that: 1) More assets will become qualified collateral; 2) This type of stablecoins will occupy a larger proportion of the on-chain currency.
Strategy for synthesis of USD (SBSDs)
This type of token that anchors $1 combines collateral assets and investment strategies (such as income generation or basis trading), which is essentially different from real stablecoins.SBSDs are essentially hedge fund shares, with audit difficulties, centralized exchange risks and asset fluctuations, so they do not have the core functions of stablecoins as a store of value and trading medium.
As the history of the U.S. banking industry shows, we expect the on-chain dollar to continue to innovate to improve its security, transparency and capital efficiency.
For more information, please see“Looking at the future of stablecoins from the history of US Bank’s development”
3, The widespread adoption of stablecoins can significantly reduce corporate costs
Transaction fees erode the bottom line of profits of many companies.Reducing these fees through stablecoins can unlock huge profit margins for companies of all sizes.To illustrate this more vividly, we selected three listed companies’ fiscal year 2024 data to simulate the effect of reducing payment processing costs to 0.1%.[To simplify the calculation, this assessment assumes that these companies currently pay a comprehensive payment processing cost of 1.6% and that fiat channel costs are negligible.]
Data for 2024 show:
WalmartAnnual revenue of US$648 billion and profit of US$15.5 billion.Its credit card fees cost about $10 billion.If payment fees are eliminated, the profit margin can be increased by more than 60% only through cheaper payment plans without changing other conditions.
Fast food chain brandChipotleAnnual revenue of $9.8 billion, and a credit card fee of $148 million may be paid on an annual profit of $1.2 billion.Just reducing payment processing fees can increase its profit margin by 12%.
American supermarket chainKrogerWill benefit the most because of its lowest profit margins (as below 2% as most grocers).What’s amazing is that its net profit is almost the same as the cost of payment.Paying with stablecoin may double its profits.
Note: Retailers and payment processors are not in opposition here, they jointly fight against high-rate payment plans.Payment processors are also low-margin businesses, with most of their profits being seized by credit card organizations and issuing banks.For example, Stripe charges a fee of 2.9% + $0.3 when processing online retail payments, but more than 70% of them need to be paid to Visa and the issuing bank.
Stablecoin transactions bring higher profits to payment processors, lower rates and no need to pay network gatekeepers.Stripe has taken the lead in charging only 1.5% for stablecoin payments (more than 50% discount to credit card rates).To support the business, Stripe completed its largest acquisition in history – the acquisition of Bridge.xyz, a stablecoin payment platform.
As more payment processors such as Block (formerly Square), Fiserv, Toast and other payment processors adopt stablecoins, competition is expected to further lower the fee rates and promote the popularization of stablecoins in business scenarios.
For more information, please see“How Stablecoins Will Eat the Payment Industry”
4, SMEs will be the first to abandon credit cards
On the surface, it seems that the Internet native companies such as social platforms and paid games are the most likely to be the first to adopt stablecoins.But physical merchants who are actually sensitive to rates—restaurants, coffee shops, convenience stores, etc.—can obtain greater benefits by accepting stablecoins.These companies are most affected by transaction fees, but rarely use additional features that credit card companies make justified by high rates.
Typical scenario: When a customer pays $2 to buy coffee, the coffee shop receives only $1.7-1.8.Nearly 15% of the amount flowed into the pockets of intermediaries such as credit card companies.
But in this scenario: consumers do not need fraud prevention functions (having received physical coffee) nor credit services (using only $2).Coffee shops also have extremely low demand for compliance and bank integration.If there are cheap and reliable alternatives, such merchants will definitely actively adopt them.
Stablecoins can help small businesses recover their profit losses.Of course, there is a cold start problem: the current stablecoin user base is limited.However, due to the strong relationship between community merchants and customers, brands with regional influence are likely to become the first wave of forces to promote the popularization of stablecoins.
For more information, please see“14 crypto-Big Ideas that excite us in 2025”
5, Beyond Payment: Stablecoins as public goods give birth to new paradigms of software
Traditional finance is built on private closed networks.The Internet has shown us the power of open agreements such as TCP/IP, email, etc. to promote global collaboration and innovation.
Blockchain is the native financial layer of the Internet, with the composability of public protocols and the economic efficiency of private enterprises.They are trustworthy, auditable and programmable.After joining the stablecoin, we have gained a truly open monetary infrastructure for the first time—like a public highway system: private companies can still build vehicles, commercial facilities and roadside attractions, but the road itself remains neutral and open to everyone.
Stablecoins will not only subvert the payment industry due to the reasons mentioned above, but will also empower new software categories:
Programmatic payment between machines:Imagine AI agent-driven market automatic coordination of computing power and other resource transactions.
Content creation micro payment:Automatically allocate media, music and AI contribution rewards through a “smart” wallet that sets simple rules.
Full audit transparent payment:Potential solutions to government spending tracking systems.
Global trade without redundant intermediaries:Almost zero-cost instant international settlement has been achieved.
Blockchain networks and stablecoins are ushering in a historic moment: the coordination of technology, market demand and political will is making these applications a reality.Cryptotech is about to cross the gap—changing from a financial experiment for a few to a pillar of infrastructure for most people, and stablecoins will lead the process.
For more information, please see“Whatsapp moment for stablecoins”
6, Decentralized stablecoins: the cornerstone of digital native currency
Stablecoins allow financial system designers to reconstruct currency from first principles.The core principle is control – that is, which entities create and regulate the supply of money.
The current monetary system is based on the close symbiotic relationship between the Ministry of Finance, the central bank and commercial banks.This system has gradually exposed fundamental limitations such as risk management defects and inefficient governance, and it is difficult to adapt to the increasingly digital economic needs.
As mentioned earlier, stablecoins will reshape the entire financial intermediary system.However, when solving pain points such as international payments, many centralized stablecoins still rely on traditional reserves and currency creation mechanisms, and follow the inefficiency and vulnerability of the existing system.
Decentralized stablecoins with algorithmic anchor prices show better characteristics.Overall, DeFi has multiple advantages over traditional financial frameworks:
Anti-fragility:Eliminate the risk of single point of failure through distributed network issuance.
Improve transparency:The audit trajectory of reserve assets that can be checked in real time on the chain empowers regulators and market participants.
Efficiency revolution:Modularity and programmability bring capital efficiency optimization, and counter the trend of centralized profit grabbing.
Future compatibility:As a digital native financial tool, it is more suitable for consumer-grade financial application development than the old banking API.
Decentralized stablecoins are building a reliable, efficient, trust-free monetary system: anyone can issue highly transparent currency forms through a license-free/semi-licensing mechanism.These systems aim to rebuild a value-anchored check and balance mechanism, directly connect assets (reservations) and liabilities (tokens), thereby creating a true digital native currency.
Please participate in more“Why do we need decentralized stablecoins”
