The crypto industry is experiencing renewed momentum. With increased regulatory clarity, spot EFT approvals and DeFi activities, and the expansion of DeFi crypto trading volume in 2024 was $18.4tn – the second-highest year on record.
More financial institutions are recognising the potential of digital assets, integrating them into payment systems enabled by technological advancements.
But despite the optimism, many cryptocurrencies remain volatile and prone to market fluctuations. Stablecoins, however, are different. By pegging their value to fiat currencies like the dollar or euro, stablecoins provide security, transparency, and reliability in financial transactions. As a result, they are increasingly viewed as a viable payment option for goods and services in the real economy.
Due to this design, brokerage firm Bernstein projects that the stablecoin market will hit $3tn by 2028. While concerns about viability remain, treasurers must anticipate and prepare for an increase in stablecoin adoption and usage in the year ahead.
Innovations in digital wallets now allow stablecoins to be stored alongside other assets like central bank digital currencies (CBDCs), offering treasurers greater flexibility
One of the biggest advantages of stablecoins is their ability to facilitate near-instantaneous cross-border payments with significantly lower fees.
Traditional payment methods with banks can take up to five days and involve multiple intermediaries. Stablecoins, through tokenisation, eliminate these inefficiencies, providing faster settlement and reducing costs.
Additionally, innovations in digital wallets now allow stablecoins to be stored alongside other assets like central bank digital currencies (CBDCs), offering treasurers greater flexibility. They also integrate into traditional banking practices and comply with current laws, simplifying and shortening complex bank transfers between businesses in different countries.
This is particularly beneficial for SMEs with global operations that often struggle with high international payment costs.
Large firms and institutions have taken notice. In late 2023, PayPal launched its own dollar-linked stablecoin, with Ripple Labs following suit last year. Stablecoins tied to local currencies have also proliferated, such as StraitsX’s XSGD, pegged to the Singapore dollar, which has gained traction in Asia. The UAE is set to follow with a dirham-backed coin, AE Coin.
The increasing adoption of stablecoins is prompting regulators to step in with new frameworks. While this offers a degree of legitimacy, the evolving nature of regulations also presents uncertainties that treasurers must navigate.
In the US, the regulatory approach is shifting, with policy-makers working on clearer guidelines. A stablecoin bill currently under discussion could provide the framework needed for broader institutional adoption. Similarly, in Europe, the EU’s Markets in Crypto-Assets (MiCA) regulation sets legal parameters for stablecoin payments, requiring issuers to partner with licensed financial institutions. The UK is also developing a regulatory framework for stablecoin issuance and staking, signalling a more structured environment.
While these regulatory developments are positive, they also introduce compliance challenges. Treasurers must assess how these rules impact their banking partners and virtual asset service providers (VASPs) to ensure seamless integration with existing systems.
Treasurers should consider the broader stablecoin landscape and security measures. Not all stablecoins are created equal, nor do they all offer the same level of security
While it’s too early to say whether stablecoins will fully replace traditional payment methods, adoption is accelerating. To stay ahead, treasurers must stay informed, assess the regulatory environment and evaluate the best partners and platforms for stablecoin transactions.
Treasurers should also consider the broader stablecoin landscape and security measures. Not all stablecoins are created equal, nor do they all offer the same level of security. Monitoring the quality of safeguarding arrangements for the fiat unit to which their stablecoins are tied is essential.
The financial landscape is evolving, and treasurers who understand and adapt to these changes will be better positioned to navigate the digital future.
Laurent Descout is co-founder and CEO at Neo, an FX and cash management services provider. Disclaimer: the views and opinions expressed in this article are those of the author and not necessarily those of the ACT.