Stablecoin verticalization is imminent

Offering a digital token backed 1:1 by fiat is not a compelling enough alternative to current payment systems for many sophisticated users. Just as the payments world fragmented, enabled by new technology and industry specialisms, new industry champions need to emerge in stablecoin payment verticals that can unlock real value for larger segments of the economy.

Entanglement

Whilst the growth of stablecoin volumes has increased over the first 8-10 years of their existence, sitting currently at around $160BN issued to date, the number of net new, non- crypto/retail users has not increased commensurate with that.

“How can I trust a global payment system that is so entangled with retail and institutional trading systems?” That is a question I have heard from many would-be clients interested, but wary, of stablecoins. And there is some truth here: stablecoins are predominantly available on trading platforms and crypto exchanges; they de-pegged by 3% or more 1,914 times in 2023. Subjected to trading strategies, their value is regularly destabilised for profit. The regulatory and balance sheet treatment for these early versions of digital money also prohibit its use on a broader scale. As such, they still represent a market risk and remain largely incompatible with mainstream participants who seek more tailored innovation.

Retail adoption has also defined the market offering for today’s stablecoins. “I don’t use Paypal to settle with my counterparties so why should I use a stablecoin” is another common reaction from mainstream business operating b2b and cross border use cases, frustrated that their only alternative to retail stablecoins are bank-led offerings instead of innovative fintechs.

Specialist stablecoin verticals have not been launched yet. Stablecoins represent a new financial system that is both interoperable with SWIFT and a true “post-SWIFT” system, a global money distribution network deployable at a fraction of the cost of current systems and with the advantage of being “direct to customer,” irrespective of their location. A ground up approach for a stablecoin business, unencumbered by retail dynamics and trading systems, is therefore required to meet more sophisticated demands.

Stablecoin innovation is critical for broader payments innovation

Fundamentally, stablecoin verticals need to create a compelling alternative to using fiat flows and their associated processes, risks and cost structures. They should be intrinsically linked to the business drivers of their client and clearly lay out benefits over and above “instant settlement”.

We know cross border payments remain inefficient and banks’ risk protocols often restrict payments and collateral arrangements. In our work with mainstream and regulated B2B clients, there are 2 key factors about stablecoins that are highly valued but poorly understood. 1) They enable a greater access to counterparties and 2) they deliver higher security and control over global cash flows. Both enable powerful new ways to manage capital flows.  In traditional financial markets, instant settlement has profound implications on the amount of capital used to support trading or conversely the speed at which capital can be recycled to expand trading.

The work required to deliver cohesive vertical payment solutions with stablecoins is significant. However, as we unlock higher value use cases, so we can deliver higher value services. Haycen has been working with corporations and the SME market to develop a B2B stablecoin payment and accounts solution to meet the commercial and funding demands beyond banks´current capabilities. For more information on Haycen’s business, please stay in touch with any of our team or subscribe to receive regular updates.