The (Faster Payments) Deal with Stablecoins

Barbara Hudgins, Director, Payments Education, ePayResources

Stablecoins have become big news. From the January Executive Order on digital assets to recent Congressional momentum around the GENIUS Act to talk of institution-level coins within banks and retail organizations, stablecoins have emerged as the financial services topic du jour—and with good reason. Stablecoins hold the capacity to introduce a more efficient, faster financial services environment, both globally and domestically. But for stablecoins to be successful, they have to be strategically assessed and thoughtfully applied on a global scale.

What’s stable got to do with it?
Successful stablecoin implementation must begin with a firm understanding of what stablecoins are and how they align with industry needs. While they are digital assets, because they are tied to another currency, they offer a degree of certainty not accessible in the more volatile cryptocurrency market. In essence, stablecoins combine the benefits of digital assets with the price stability of traditional currencies.

Within that more consistent stablecoin infrastructure there are four ways to back the digital asset, creating four types of stablecoins:

  1. Fiat collateralized – This type of stablecoin is backed (1:1) by fiat currency (e.g., USD, EUR) held in reserve. This is the least risky stablecoin offering, and 85% or more of today’s fiat collateralized stablecoins are tied to the U.S. dollar.
  2. Commodity collateralized – These stablecoins are pegged to commodities like gold or oil, with reserves backing the value. They are the second least risky option.
  3. Crypto collateralized – In this scenario, the stablecoin is backed by other cryptocurrencies and is often over-collateralized. They are generally backed by well over a 1:1 ratio to allow for the volatility associated with cryptocurrencies.
  4. Algorithmic – This type of stablecoin uses an algorithm to control supply and demand. They are not fully collateralized, making them the riskiest of all stablecoin types. They have lessened in popularity in recent years, due to the widely documented failure of the Terra algorithmic stablecoin.
What’s the industry business case for stablecoins?
Despite their newness to modern payments systems, industry leaders have recognized the opportunities stablecoins create on a global scale. As the industry explores modernization—from more transparent payments to global interoperability to instant settlement—digital currencies provide promise, and stablecoins offer a less volatile method of exchange.

First, consider that stablecoins introduce a bridge between traditional finance and increasingly in-demand cryptocurrencies. When implemented, they can serve as a translation layer between traditional finance and blockchain, which allows access to crypto services without exposure to volatility, and enables settlement without fiat conversion.

In addition, stablecoins address the limitations of fiat-based infrastructure. Today’s legacy payment systems have challenges with speed, transparency, and global efficiency. Stablecoins provide an alternative to those constraints as they are programmable, internet-native, and accessible globally. Ultimately, stablecoins introduce opportunity for financial innovation and broader inclusion via a new digital-first payment option.

Stablecoins also fill the industry need for price-stable digital assets. Vacillating cryptocurrency values limit their potential as industry-wide payment options. Stablecoins introduce predictability that leads to greater usability and makes them more viable, practical digital assets to address industry needs.

Perhaps one of the most end-user centric arguments for stablecoins is that they enable faster, global, always-on transactions. In today’s immediate gratification society, the demand for near-instant, 24/7 global transfers is real. Enter stablecoins with lower fees and easier remittances, and suddenly businesses are seeking them for global payroll, cross-border commerce, and beyond.

What’s the faster payments connection?
This use case for faster global payments has been fueling stablecoins’ popularity and intersects with the goals of the U.S. Faster Payments Council (FPC). In fact, the FPC’s Digital Assets Work Group recently discussed that stablecoins are central to modernizing payment systems under the U.S. Path to Faster Payments initiative. Their work points to stablecoins’ instant 24/7 settlement at low cost, and by leveraging instant and real-time payments rails in the U.S. and around the globe, stablecoins create a new path toward innovation.


These attributes open new doors for a faster payments future grounded in digital assets with fiat currency support. While much work remains to ensure the creation of properly regulated stablecoins that are fully backed by safe, liquid assets, they offer great potential as the industry formulates the next era of payments on a global scale. And if today’s interest is any indicator, stablecoins will continue to be a priority area of exploration for the global financial services industry.

For more information on stablecoins and how they support faster payments momentum in the U.S., visit the FPC Knowledge Center.

Barbara J Hudgins, AAP, APRP, AFPP, CCRS, is a payments industry expert and the recently retired director of payments education at ePayResources.

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