Hot Features
Premium
Trade like a pro: Leverage real-time discussions and market-moving ideas to outperform.
Stablecoins mark the most groundbreaking innovation in payment systems since the advent of credit cards. They revolutionize how money flows, offering low-cost cross-border transactions, near-instant settlements, and access to globally coveted currencies. These features position stablecoins as a powerful tool to modernize the financial ecosystem while also providing lucrative opportunities for entities managing the reserves that underpin these digital assets.
Currently, the global stablecoin market exceeds $150 billion. Five major stablecoins boast over $1 billion in circulation: USDT (Tether), USDC (Circle), DAI (MakerDAO), First Digital USD (Binance), and PYUSD (PayPal). The future likely holds even greater diversity, with financial institutions increasingly launching their stablecoins.
From a consumer and merchant perspective, stablecoins should function seamlessly, mirroring the usability of traditional dollars. However, behind the scenes, each stablecoin issuer operates differently. These variations stem from differences in issuance and redemption protocols, reserve compositions, regulatory oversight, audit frequency, and more. Addressing these complexities will create significant opportunities for businesses that can bridge these gaps.
A Parallel Between Credit Cards and Stablecoins
We’ve encountered a similar system with credit cards. Consumers make purchases using assets that approximate dollars but aren’t entirely fungible—credit card transactions represent loans, and the terms of those loans vary based on individual credit scores. Payment orchestration is managed by networks like Visa and Mastercard, and the key stakeholders in the system—consumers, consumer banks, merchants, and merchant banks—mirror those likely to emerge in stablecoin ecosystems.
Imagine paying for dinner at a restaurant with your credit card. How does the money reach the restaurant’s account?
1. Transaction Authorization: Your bank (the card issuer) approves the transaction and transfers funds to the restaurant’s bank (the acquirer).
2. Payment Facilitation: An interchange network, such as Visa or Mastercard, processes the payment and collects a small fee for its services.
3. Fund Deposit: The acquirer deposits the funds into the restaurant’s account after deducting its fee.
Now imagine paying for dinner with stablecoins. Your bank, Bank A, issues the AUSD stablecoin, while the restaurant’s bank, Bank F, only accepts payments in FUSD. Although both are dollar-backed stablecoins, they are not directly interchangeable. How does your payment in AUSD become FUSD for the restaurant?
The process would likely resemble the flow of credit card networks:
1. Authorization: The consumer’s bank (which issues AUSD) approves the transaction.
2. Orchestration: A third-party service facilitates the conversion of AUSD to FUSD and collects a small fee for its role.
3. Settlement: The restaurant’s bank receives FUSD and deposits it into the restaurant’s account, potentially after deducting a fee.
This comparison offers insights into potential opportunities for innovation in the stablecoin ecosystem. In credit card networks, major businesses have emerged in areas like payment orchestration, issuance, and new payment technologies. Stablecoins could unlock similar opportunities.
Orchestration, in particular, represents a lucrative space. Moving money is a massive industry—Visa, Mastercard, American Express, and Discover collectively represent over $1 trillion in value, with multiple networks thriving simultaneously. This equilibrium suggests robust competition and a large market capable of supporting significant players.
Stablecoin orchestration could follow a similar path, especially as the infrastructure matures. Although we’re only 1–2 years into having the foundational systems needed for stablecoins to scale effectively, there remains ample opportunity for startups to innovate and capture value in this emerging market.
Issuance is another promising avenue for innovation. Just as business charge cards have gained popularity, we may see a rise in corporations creating their white-labeled stablecoins. By controlling the unit of spend, businesses could streamline expense management, simplify cross-border transactions, and better navigate foreign tax obligations.
This trend could become a core offering for stablecoin orchestration networks, or it might open the door for entirely new startups—similar to how companies like Lithic revolutionized card issuance. The ripple effects of corporate demand for stablecoins could, in turn, inspire even more new business models and ventures.
Conclusion
These interconnected trends are likely to fuel one another’s growth. Increased variation in stablecoin issuance will drive demand for advanced orchestration services. As orchestration networks evolve, they’ll lower the barriers for new issuers, fostering further competition and innovation.
The opportunities in this space are enormous, with the potential to develop into trillion-dollar markets capable of supporting numerous major players. This is an exciting time for startups to enter the field and help shape the future of finance.
Learn from market wizards: Books to take your trading to the next level
