Stablecoins have seen a steady decline since TerraUSD lost its peg in May 2022, which caused a worldwide selloff from investors. Despite this, cross-border payments projects involving stablecoins have continued to hit the payments headlines in 2023, as seen below. MoneyGram, Noda and Visa have all announced projects this month.
Pegged 1:1 to fiat currencies, stablecoins have been touted as having the benefits of a digital currency system without the volatility of unpegged cryptocurrencies (though last year’s TerraUSD incident proved they can fail in a big way). From a cross-border perspective, this hypothetically means less costly, faster settlement across blockchain-powered rails that bypass intermediaries, offer more transparency and reduce the potential for fraudulent payments.
Despite a languishing stablecoin market, several leading payments companies are betting that there will be enough demand for stablecoin payments in the future to make them a worthy investment, so that they don’t miss out on revenues associated with stablecoin transactions. Continuing work it began in 2021, Visa recently expanded its stablecoin settlement capabilities, adding pilot programmes with Worldpay and Nuvei and integrating its services with the Solana blockchain, an alternative to Ethereum.
PayPal also finally released its stablecoin to much fanfare last month, but has reportedly seen slow adoption according to Paxos, the coin’s issuer. As of this week, PayPal USD’s market cap is at $44m, which is very low compared to leading coins USDT and USDC – with market caps of $83bn and $26bn respectively.
The majority of cross-border stablecoin projects revolve around USD-backed stablecoins, particularly Circle’s USDC, which is likely due to the overall resilience of the US dollar. However, projects in APAC and Europe are testing the potential of stablecoins across borders, while stablecoins continue to be of interest in emerging markets with a focus on financial inclusion.
Ultimately, stablecoins still have a number of challenges to overcome, the biggest of which is the risk of a coin becoming unpegged and losing its value. As lawmakers in the US and EU continue projects to regulate stablecoins, we will continue to track the space to see whether payments companies’ investment in the concept will pay off.