Stablecoins have yet to catch on outside of the crypto world, but it’s not for lack of trying.
Stripe, Ripple and Circle have been betting big in recent days on the eventual creation of a crypto-based payments market to reach consumers accustomed to cash and plastic.
Stripe, the company best known for its global payments platform, agreed on Monday to acquire stablecoin platform Bridge. Terms of the deal were not disclosed, but multiple media outlets reported the price was $1.1 billion, making it Stripe’s largest acquisition and the largest cryptocurrency-related acquisition.
Stripe’s deal closely aligns with 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 previous efforts to bring stablecoins into the mainstream have either failed or failed.
Stripe has been accelerating its investments in stablecoins over the past two years, after being out of the market for four years because it believed there was a lack of payment use cases at the time. Stripe said it will return to cryptocurrencies in 2022, citing the growth of alternative ways to access payments and banking, such as decentralized finance. Stripe partnered with crypto company Coinbase earlier this year to expand the scale of payments and make it easier to buy crypto with credit cards and Apple Pay.
Founded in 2022, Bridge sells software that allows businesses to accept stablecoins for payments, and is positioning itself as a future rival to traditional networks such as Mastercard and Visa.
Because merchants likely won’t accept stablecoins or other forms of cryptocurrency directly at the point of sale, companies like Bridge convert cryptocurrencies into traditional currencies in real-time before payment. Bridge reported processing approximately $5 billion in payments in 2023.
Stripe has not commented on the Bridge acquisition, but the deal is expected to close in the coming months and is subject to regulatory approval. “Stablecoins are room temperature superconductors for financial services,” Stripe co-founder Patrick Collison said in a social media post. “Stablecoins are a room-temperature superconductor for financial services. They will benefit from improved speed, coverage and cost improvements.”
Why stablecoin payments are struggling
Stablecoins are cryptocurrencies backed by reserves of traditional currencies such as the US dollar or euro to achieve the processing speeds of digital currencies while avoiding the volatility of Bitcoin, Ether, and other cryptocurrencies. It is a type of currency. However, the reliability and long track record of existing payment options in markets such as the US has limited stablecoins to investment options or technology-focused users.
The stablecoin is also a Facebook-owned company that drew political ire for years before a Facebook Group-led consortium sold Diem to Silvergate Bank, a cryptocurrency-focused financial institution that collapsed in 2023. It is also plagued by the high-profile failure of stablecoin Diem.
Payment experts say the environment for stablecoins led by independent technology companies has not improved much since the Diem scandal.
Tony DeSanctis, Senior Director at Cornerstone Advisors, said: “Stablecoins are primarily an opportunity for international capital transfers. It’s hard to find examples.” “There are probably some survivors, but we don’t know who they will be at this point.”
Where is your niche?
BVNK is looking outside domestic trade as a starting point. BVNK will integrate Circle’s USDC into its payments technology, enabling businesses to accelerate global payroll for contractor, employee, and supply chain payments. Earlier this year, BVNK also partnered with PayPal to bring PayPal’s stablecoin to the mainstream business market.
BVNK co-founder Chris Harms acknowledged that there is a lack of arguments in favor of stablecoins for domestic payments, but there are use cases for international payments and future use of fragmented real-time He said it is necessary to support transactions in a processing environment.
“There is no real need for stablecoins in the US or UK,” Harms said. “Payments are working and people trust them. Stablecoins will have interest in emerging markets where there is a lack of trust in economic policy and local currencies.”
Harmse said the expansion of real-time payments, including cross-border transactions, will provide U.S. companies with new options to adopt stablecoins, addressing the lack of interoperability between each country’s real-time processing networks. pointed out.
Stablecoins and their underlying blockchains can bridge real-time networks in different countries by bypassing correspondent banking and foreign exchange steps that add time and fees to payment processing.
“All of these countries are innovating at different paces. There is no globally uniform rail for real-time payments,” Halmse said. “Stablecoins allow these real-time rails to be linked together.”
A third payment technology company, Ripple, recently enlisted a group of crypto exchanges to increase circulation of its own new stablecoin. Ripple plans to combine RLUSD with the XRP ledger, which uses blockchain to support transactions such as cross-border payments.
“Our robust distribution network makes RLUSD easily accessible to a wide range of users and easily integrated into a variety of venues and applications,” said Jack MacDonald, Ripple’s senior vice president of stablecoins. “This will drive recruitment and liquidity, which is essential for RLUSD to meet its potential.”
For stablecoins to grow, mainstream companies need to see the value in using them and have 100% confidence in their stability, i.e. zero risk of a depegging event. Stablecoins lose their 1:1 reserve ratio and investors become insolvent, said Alenka Grealish, Principal Analyst at Celent.
“Currently, these prerequisites are not met,” Grealish said, adding that tokenized deposits, another new form of digital asset linked directly to regulated bank accounts, are using stablecoins. He added that it reduces the value of
The stablecoin issuer niche likely comes from users who don’t need or don’t have the resources to use bank-supported options such as JPM Coin.
According to Enrico Camerinelli, a strategic advisor at Datos Insights, stablecoins are primarily used by companies that don’t have the financial clout of large banks like JPMorgan to create digital tokens backed by traditional currencies. It is said to be useful for creating.
As the digital asset space matures, big financial institutions are poised to gain an edge with their own tokenized deposit assets, Camerinelli said.
“While these advanced tokens may compete with current stablecoins, it is likely that different types of digital tokens will coexist in the future. These non-bank players are carving out a niche in the market. “We’re trying to do that,” Camerinelli said.
