Stablecoin Payment: Reshaping the Payment Industry, Opening a New Era of Borderless Finance

Chapter 1: Overview of Stablecoins

Stablecoins are a type of digital currency that is pegged to a specific asset, designed to provide a relatively stable store of value and medium of exchange. Compared to volatile crypto assets like Bitcoin or Ethereum, stablecoins significantly reduce value volatility, giving them unique advantages in areas such as global payments, cross-border transactions, and decentralized finance.

The concept of stablecoins originated in the early development of the cryptocurrency industry. At that time, people realized that the severe price volatility of Bitcoin significantly hindered its use in everyday payments. The introduction of stablecoins is essentially a correction to the limitations of Bitcoin, aimed at providing a stable valuation and trading tool while retaining the advantages of decentralization.

The most common stablecoins are fiat-collateralized stablecoins, whose value is backed by reserves of US dollars or other fiat currencies. The advantage of this model lies in its higher transparency, as users can more easily verify the adequacy of its reserve assets. However, fiat-collateralized stablecoins still rely on the traditional financial system, which somewhat undermines their decentralized nature.

Cryptocurrency-backed stablecoins provide a more decentralized solution. The value of these stablecoins is supported by over-collateralized cryptocurrency assets, usually requiring users to deposit assets worth more than the value of the issued stablecoin into a smart contract to ensure its stability. This mechanism does not rely on bank accounts and operates entirely on the blockchain, offering stronger resistance to censorship. However, it also comes with certain risks, such as a sharp decline in the price of collateralized assets that may lead to user fund losses.

Algorithmic stablecoins use mathematical models and market adjustment mechanisms to maintain stablecoin value. However, algorithmic stablecoins carry greater risks because their stability relies on market confidence, and a large-scale sell-off could lead to collapse.

From the perspective of market size, stablecoins have become an important component of the cryptocurrency market. The total market capitalization of global stablecoins has reached the hundred billion dollar level, with USDT and USDC dominating the market. The trading volume of stablecoins has even surpassed that of many mainstream crypto assets, and they are widely used in various areas such as trading, hedging risks, payments, lending, and providing liquidity for decentralized exchanges.

The success of stablecoins aligns with the demands of the global payment market. Traditional cross-border payment systems have high fees, slow settlement times, and complex intermediary processes, while stablecoins, based on blockchain technology, can achieve low-cost, real-time global transfers. Furthermore, in areas where fiat currencies are subject to capital controls or where banking systems are unstable, stablecoins have become an important hedging tool.

Chapter 2: How Stablecoins Reshape the Payment Industry

The rise of stablecoins is profoundly changing the global payment industry. As a bridge between blockchain and traditional financial systems, stablecoins offer an efficient, low-cost, and borderless payment method, gradually replacing certain functions in traditional payment systems, especially in areas such as cross-border payments, corporate settlements, e-commerce, remittances, and payroll payments.

pain points of traditional payment systems

In traditional payment systems, the flow of funds requires passing through multiple intermediary institutions, resulting in higher overall payment costs. For example, credit card payments typically charge transaction fees of 2% to 3%, and international wire transfer fees can be as high as 20 to 50 dollars. Cross-border payments often take several days or even a week to complete, due to the reliance of traditional banking systems on centralized clearing networks, which consume a lot of time for transaction verification, fund clearing, compliance checks, and more.

More than 1.5 billion people around the world still lack access to bank accounts or basic financial services, primarily located in developing countries and remote areas. These groups find it difficult to access international payment systems and cannot smoothly conduct e-commerce transactions, receive wage payments, or make cross-border remittances.

International payments involve currency exchange, and the instability of exchange rates can lead to increased transaction costs, especially in countries with severe inflation. For example, the rapid depreciation of fiat currency in countries like Argentina and Venezuela often requires businesses and individuals to pay additional foreign exchange conversion fees when conducting international trade or cross-border payments, as well as bear the economic losses caused by exchange rate fluctuations.

Traditional payment systems are subject to strict control by regulators in various countries, especially regarding anti-money laundering and know your customer policies. For some countries or regions under economic sanctions, international payment channels may be completely blocked, making it difficult for businesses and individuals to conduct legitimate transactions.

advantages of stablecoin payments

Stablecoin payments do not rely on traditional banking systems but are based on a peer-to-peer network using blockchain, allowing transactions to bypass expensive intermediaries and achieve lower costs. For example, using USDT for cross-border transfers can have transaction fees as low as $0.1, while traditional bank wire transfer fees typically range from $30 to $50 and can take several days to settle.

Another core advantage of stablecoins is financial inclusivity. As long as one has an internet connection and a digital wallet, anyone can create a cryptocurrency account and start making global payments. This model greatly lowers the barriers to financial access, allowing unbanked populations around the world to obtain payment and deposit services.

Compared to cryptocurrencies like Bitcoin and Ethereum, stablecoins have very little price volatility, as their value is typically pegged 1:1 to the US dollar or other fiat currencies. This makes stablecoins a reliable medium of exchange, allowing merchants and consumers to accept stablecoin payments without worrying about sudden drops in value.

Stablecoins are based on blockchain smart contracts, enabling automated payments and programmable fund management. For example, businesses can use stablecoins for smart contract salary payments, allowing wages to be automatically disbursed to employees monthly; cross-border trade companies can set conditions to automatically trigger payments upon the delivery of goods.

main application scenarios

1. Cross-border remittances: The total amount of money sent home by global immigrants and overseas workers exceeds $600 billion each year, while traditional remittance channels often charge fees as high as 5%-10%. Stablecoins provide a cheaper and faster alternative.

2. International Payment and Settlement for Enterprises: Globalized enterprises need to frequently conduct international payments, while traditional bank settlement times are long, procedures are cumbersome, and costs are high. By using stablecoins, enterprises can bypass the banking system, conduct B2B settlements directly, and improve cash flow management efficiency.

3. E-commerce and Digital Payments: With the globalization of e-commerce, stablecoins are becoming a popular choice for cross-border e-commerce payments. More and more e-commerce platforms, subscription services, and gaming platforms are starting to support stablecoin payments to attract global customers.

4. Payment of salaries to freelancers and remote workers: The global freelance economy is booming, but traditional payment methods have high transaction fees and settlement delays. By using stablecoins to pay salaries, remote workers can receive funds instantly and freely exchange them for their local currency or spend directly.

5. Travel and Consumption Payments: In the tourism industry, stablecoins are becoming a new payment method. Some merchants have started accepting stablecoin payments, allowing tourists to make seamless payments using stablecoins and avoid the currency exchange fees associated with traditional credit cards.

6. Decentralized Finance and Smart Payments: Stablecoins are an important component of the decentralized finance ecosystem, allowing users to perform operations such as deposits, lending, and liquidity mining using stablecoins. Additionally, DeFi protocols can provide automated payment solutions, such as recurring payments and insurance payouts based on smart contracts.

With the maturity of blockchain technology and the popularity of stablecoins, they are reshaping the global payment industry, providing individuals and businesses with faster, cheaper, and fairer payment methods. In the future, stablecoins are expected to become an important part of the global payment system, driving further development of digital finance.

Chapter 3: Compliance Challenges and Policy Evolution of Stablecoins

Stablecoins, as an important innovation in the blockchain field, have not only had a profound impact on payment and financial services but have also been a topic of high concern for the market and regulatory authorities due to their technical architecture, innovation, and compliance challenges. The core value of stablecoins lies in their ability to maintain price stability and provide users with convenient payment methods. However, achieving this goal is not an easy task, as it involves complex technical systems, innovative mechanisms, and a constantly changing regulatory environment.

The technical architecture of stablecoins mainly covers multiple aspects, including asset collateral mechanisms, smart contracts, and decentralized governance. Different types of stablecoins have differences in design and implementation. As the stablecoin market continues to expand, governments and financial regulatory agencies in various countries have begun to layout regulations for stablecoins. The compliance issues of stablecoins mainly focus on anti-money laundering and know your customer requirements, transparency, cross-border payments, financial stability, and other aspects. The regulatory attitudes of different countries vary, which poses significant challenges to the cross-border application and globalization development of stablecoins.

The anonymity of stablecoins poses potential compliance risks in cross-border payments. While the decentralized nature of stablecoins provides a high level of privacy protection, it also makes them susceptible to illegal activities such as money laundering and terrorist financing. To address this issue, regulatory authorities in various countries require stablecoin issuers to comply with strict KYC/AML policies to ensure the authenticity and compliance of their users' identity information. For example, the Financial Crimes Enforcement Network in the United States requires stablecoin issuers to register as money service businesses and fulfill related anti-money laundering obligations.

The transparency issue of stablecoins has always been a focus of regulatory agencies, especially for fiat-collateralized stablecoins. Since the value of these stablecoins is supported by custodied fiat reserves, stablecoin issuers must conduct regular financial audits and publicly disclose the specifics of their reserves to ensure that every stablecoin is backed by an equivalent amount of fiat currency. Otherwise, the market trust in stablecoins could be questioned, potentially leading to market instability. To address this issue, some stablecoin issuers have taken proactive measures to enhance transparency.

Stablecoins also face enormous challenges in international regulation. Due to the differing regulatory requirements for stablecoins in each country, the cross-border flow and application of stablecoins may be constrained by various legal frameworks. For example, China has comprehensively banned the issuance of private cryptocurrencies but is promoting central bank digital currency as an alternative to legal stablecoins. The United States is actively advancing the construction of a regulatory framework for stablecoins and pushing for the introduction of the Stablecoin Transparency Act. Europe, on the other hand, requires the disclosure of reserves for stablecoins through the Markets in Crypto-Assets Regulation and implements regulation at the EU level. The differing attitudes towards stablecoins among various countries and regions also pose many challenges to the global application of stablecoins.

In terms of compliance, stablecoin issuers also face challenges in adapting to regulatory frameworks. The policy differences among countries around the world require stablecoin issuers to maintain operational flexibility and market competitiveness while meeting legal requirements in various regions. To address these challenges, stablecoin issuers often choose to collaborate with traditional financial institutions, leveraging their existing compliance experience and infrastructure to reduce compliance risks.

In the future, the technology and compliance pathways of stablecoins may undergo profound changes. With continuous technological advancements and the ongoing development of decentralized finance and privacy protection technologies, the application of stablecoins will become more widespread, and their security and efficiency will further improve. At the same time, the coordination and cooperation among countries around the world in compliance will be crucial for the sustainable development of stablecoins. To achieve widespread application globally, stablecoins not only need to rely on technological innovation but also require regulatory coordination on a global scale to ensure compliance under different legal frameworks.

Chapter 4: Future Development Trends

With the rapid development of blockchain technology and the application of stablecoins, stablecoins will play an increasingly important role in payments, financial services, and several other industries in the future. From technological advancements to market demand.