What are stablecoins?
A stablecoin is a type of digital currency designed to make transacting with crypto more practical. Most stablecoins are pegged to a fiat currency like USD or EUR. Because of this, stablecoins have acted as a gateway into usingĀ blockchain and digital assets for paymentsĀ amongst users concerned with cryptocurrency price volatility.Ā
Like many digital assets, stablecoins can provide broad, inclusive access to the financial system, and enable the fast and efficient movement of value. In 2022,Ā fiat backed stablecoinsĀ transacted $6.87T, eclipsing bothĀ Mastercard and PayPalĀ in terms of moving value across networks.
How do stablecoins work for payments?
UsingĀ stablecoins for paymentsĀ combines the benefits of blockchain technology ā namely greater security, transparency, cost efficiency, and speed ā with the trust and familiarity of traditional fiat or local currency.
As demand for stablecoins grows, particularly asĀ cash use experiences a historic low, more individuals and businesses are considering these assets as payment alternatives. The number of Americans who say they did notĀ use cash to make a purchaseĀ in a typical week is now 41%, up from 29% in 2018. Business owners are increasingly finding the switch toĀ stablecoin paymentsĀ advantageous, noting rising consumer demand, faster checkouts, lower labor costs and increased security.
The trend towards stablecoin use is driven by the benefits of blockchain technology that add improvement over credit-card and other traditional payment types.Ā
Stablecoins reduce the role of intermediaries in the current financial system and support direct transactions between merchants and consumers, reducing intermediary costs. BecauseĀ stablecoins are cryptographically secure, users can settle transactions almost instantaneously without double-spending or other problematic settlement facilitation.Ā
Because stablecoins are built on distributed ledger technology, they offerĀ programmability to payments via smart contractsĀ which can inspire useful product or service innovation and link the traditional Web2 economy with the future of financeāWeb3.
Adoption of new digital payment methods offers significant benefits to customers and society: improved efficiency, greater competition, expanded financial inclusion, and innovation.Ā
Stablecoin market at-a-glance
TheĀ fiat-backed stablecoin market capĀ today is over $100 billion. While the stablecoin market is still largely dominated by a couple incumbentsānamely Circleās USDC and Tetherās USDTānewer stablecoin issuers like PayPal (PYUSD) and Ripple (RLUSD) have more recently come onto the scene withĀ USD-backed stablecoins.Ā
Ripple USD is purpose-built for payments, designed to maintain a constant value of one US dollar. It is fully backed by a segregated reserve of cash and cash equivalents, and is redeemable 1:1 for US dollars. RLUSD is issued on the XRP Ledger and Ethereum blockchains, enabling instant payouts and easy fiat-stablecoin on/off ramps. For exchanges, remittance and money transfer providers, or payment service providers (PSPs) that want to hold, buy and trade USD on-chain, RLUSD provides fast settlement, multi-chain issuance, and programmable financeāopening up a whole new world of use cases and revenue streams.
Ripple USD is built with regulatory compliance as a defining feature, bringing with it an opportunity for developers, payment providers, exchanges and others to benefit from the stability and transparency Ripple is uniquely able to provide. With over a decade of experience at the intersection of crypto and finance, and a proven track record working with regulators and policymakers across the globe, Ripple is accelerating the digital asset economy with RLUSD.
What about stablecoin regulation?
On-trend with the rest of the global crypto industry, regulation of this new asset class has already begun to take shape, and tends to merit more political support than crypto regulation more broadly. Stablecoin regulation is quickly progressing across the globe, from North America and Europe to Asia, and more recently, theĀ UAE.Ā
The U.S. is witnessing regulatory progress with recent bipartisan support for theĀ 'Clarity of Payments Stablecoin Act'. If passed, the legislation could unlock stablecoin innovation led by private players in the blockchain industry, allowing anyone with consumer distribution (social, commerce, finance) to partner with a regulated stablecoin issuer.
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