Stablecoins: the ‘killer app’ of the financial world? (Part 1)

Stablecoins have become a game-changer in digital finance - powered by blockchain technology - to offer a faster and cheaper alternative, especially for cross boarder payments. Potentially, however, the fact that they enable programmability offers a genuine alternative to the way we pay for goods and services. And, unlike cryptocurrencies which can fluctuate wildly, stablecoins are typically pegged to assets such as the US dollar, Euro, gold, in fact the backing of a stablecoin is unlimited. Initially used for trading and lending on crypto exchanges, stablecoins’ purpose has now broadened considerably.

In today's financial landscape, stablecoins are redefining global payments by offering instant and affordable transfers that sidestep the limitations of traditional banking. They also provide an avenue for financial inclusion, allowing those without bank accounts to participate in global markets accessing lending and borrowing facilities in ways that historically had not been possible. Furthermore, as the use of stablecoins expands, they are helping merge traditional finance (TradFi) and decentralised finance (DeFi) whereby sparking innovation in global payments. McKinsey has reported that: “In 2023, the global payments industry handled 3.4 trillion transactions, accounting for $1.8 quadrillion in value and generated of $2.4 trillion of revenue globally, which ius expected to expand to $3.1 trillion, by the end of 2028. That’s 35 percent of the total banking revenue pool…” Stablecoins have a total market capitalisation of approximately $204 billion and, as the above highlights, the six largest ones have typically enjoyed significant growth in the last month as well as continuing to see high levels of turnover. In essence, stablecoins enable the execution of smart contracts, facilitate automated payments and provide escrow services, which significantly enhances their utility. Visa reports that stablecoin transaction volumes reached $5.4 trillion in 2024, reflecting a 33% increase compared to the previous year. Whilst still in the process of adoption, stablecoins are already making substantial strides, indicating their expanding influence in global finance. But, this begs the question: are stablecoins a “killer app” in finance?

The six biggest stablecoins

Source: Coingecko/TeamBlockchain

What are stablecoins and how do they work?

Stablecoins are digital currencies created to maintain a stable value, typically linked to fiat currencies such as the US dollar. Stability is achieved through three main mechanisms: fiat-backed models supported by reserves (e.g. USDT, USDC); crypto-backed models that are often over collateralised to reduce volatility (e.g. DAI); and algorithmic models, where smart contracts regulate supply and demand to sustain the peg (e.g. GHO). Stablecoins now serve as a critical foundation of the crypto ecosystem, driving two thirds of all on-chain activity, and they help alleviate market volatility so acting as a “safe haven” for investors and ensuring smooth trading operations. Their inclusion on platforms such as PayPal and Stripe has also made blockchain technology more accessible, enabling users to engage with digital payments without the need for specialised technical knowledge. Furthermore, stablecoins’ ability to enable fast, low-cost transactions is revolutionising remittances and cross-border payments particularly in regions facing currency instability, such as Asia and Africa. By bridging the gap between traditional and decentralised finance, stablecoins foster financial inclusion and efficiency, positioning themselves as a key force in the evolution of global finance and their broad appeal to both seasoned crypto users and newcomers continues to drive widespread adoption.

Solving volatility and bridging financial systems

Cryptocurrencies have long struggled with volatility, which makes them unsuitable for everyday transactions. Stablecoins, however, offer a solution by maintaining price stability whilst still providing greater transparency that blockchain technology affords. But unlike traditional cryptocurrencies, stablecoins achieve stability by holding reserve assets such as fiat currencies or commodities (collateralised stablecoins) or using algorithms to regulate supply and demand (algorithmic stablecoins). This stability makes stablecoins a trusted medium of exchange and store of value which is vital for greater adoption.

More than merely a tool to tame volatility, stablecoins act as a bridge between TradFi and DeFi and an alternative payment mechanism in our ever-digitising lives. In the world of TradFi, they simplify remittances and cross-border payments, offering a faster and cheaper alternative to conventional methods. Meanwhile, in DeFi, stablecoins power lending, borrowing and trading platforms, so enabling users to participate in the digital economy without worrying about price swings. Their dual role is reshaping financial systems, making it possible to blend the reliability of traditional banking with the innovation of blockchain technology. As stablecoins continue to evolve, they hold the promise of creating a more inclusive and efficient global financial landscape, connecting diverse financial ecosystems like never before.

Enabling global financial inclusion

By providing a bridge to financial services for millions of unbanked and underbanked individuals, stablecoins are revolutionising financial inclusion. In many areas, access to traditional banking is either limited or unaffordable. Stablecoins, however, only require a smartphone and internet connection whereby eliminating the need for paperwork, bank branches and hefty fees. They unlock essential financial services such as saving, sending and receiving funds; remittances are a prime example of stablecoins’ impact. Globally, remittance flows were estimated at USD 857 billion in 2023, highlighting their importance to families worldwide, yet, the average cost of sending $200 remained stubbornly high so reducing the amount of cash intended for loved ones. Stablecoins reduce these costs by enabling near-instant transfers at a lower fee, making a tangible difference in people’s lives, especially in regions where every dollar counts. Indeed, some are questioning: “With the arrival of stablecoins, is it time to pay farewell to traditional payment rails?” Mobile payments powered by stablecoins are growing in popularity therefore revolutionising how transactions occur in areas where cash has long been the norm. Stablecoins simplify peer-to-peer transactions by eliminating intermediaries, making stablecoins secure, affordable and easy to use. The societal impact is equally significant, empowering individuals to take control of their financial future and promote economic resilience and independence. As adoption continues to rise, stablecoins could fundamentally reshape global finance, creating a more inclusive system that is accessible to all, regardless of location or income.

Driving innovation in DeFi and efficiency in settlements

Stablecoins are transforming financial infrastructure, particularly in the DeFi and international payments. Their instant settlement capability is driving innovation in payments and foreign exchange (FX) transactions, offering a more efficient alternative to legacy systems such as SWIFT and continuous linked settlement (CLS), the global payment system used by over 11,000 financial institutions. With the launch of ISO 20022 global financial messaging is now aligned with blockchain’s potential, opening doors for stablecoins to integrate into mainstream finance seamlessly and help financial markets achieve delivery v payments - i.e. almost real-time settlement. Standard Chartered and Zodia Markets foresee stablecoins comprising up to 10% of US M2 and FX transactions, a significant leap from the current 1%. This shift could be fuelled by regulatory clarity in the US, with bipartisan efforts expected to bring stability and trust to the market. The appeal lies in their T0 settlement - instantaneous and independent of traditional banking hours. Recent trials between USD (USDC) and AUD stablecoins demonstrated FX trades outside business hours, underscoring their flexibility and global reach. Beyond merely trading collateral, stablecoins are finding use in payroll, trade settlements and remittances, particularly in emerging markets such as Brazil, Turkey and Nigeria. Users value the ability to hold tokenised fiat without relying on local banks, whereby boosting financial inclusion. And, as stablecoins continue to disrupt traditional models, they are poised to redefine the very foundations of global finance.

In essence, stablecoins are emerging as a transformative force in global finance, bridging the gap between traditional systems and decentralised innovation. By offering speed, cost-efficiency and programmability, they are reshaping payments, enabling financial inclusion and driving efficiency in areas such as remittances, settlements and FX markets. Their ability to function as a stable store of value whilst enabling real-time, low-cost transactions, positions them as a viable challenger to legacy financial infrastructure. Yet, their rise sparks critical questions: could stablecoins signal the end of traditional payment rails such as SWIFT? And, will their seamless integration into DeFi and mainstream finance redefine monetary systems, or will regulatory hurdles stifle progress? As stablecoins continue to disrupt global finance, they may not just be an alternative - they could become the foundation of a faster, more inclusive financial future. The real question remains: are we ready for it?