Stablecoins represent a critical innovation in the cryptocurrency ecosystem: digital tokens designed to maintain a stable value by being pegged to external assets like the US dollar, euro or other fiat currencies.

Unlike their volatile crypto counterparts such as Bitcoin or Ethereum, stablecoins aim to combine the technological advantages of blockchain with the price stability needed for everyday financial applications.

Stablecoins maintain their peg through various mechanisms, most commonly by holding reserves of the underlying asset they represent. For every stablecoin in circulation, the issuer maintains an equivalent amount in cash, cash equivalents or other assets. Stablecoins have attracted considerable attention because they offer an alternative payment method that is proving to be faster, cheaper and more transparent than existing rails. A few large issuers have established dominant and profitable market positions within the crypto ecosystem, but the broader payments market is hundreds of times larger. As stablecoins break out of crypto and into general-purpose payments, the market structure will likely change and come to resemble some familiar models with many issuers and many accepting institutions. While many people focus on issuance, the chart below shows the revenue opportunity on the receiving side. When a foreign currency stablecoin is received there is an opportunity to convert it into local currency. The potential players in this market are banks, FinTechs (PSPs, e-money providers, etc.) and exchanges.

Potential revenue from receiving stablecoins

Source: Ubyx.xyz

Advantages of blockchain-based stable money

The potential advantages of stablecoins are compelling:

· speed and cost - cross-border transactions which can take days through traditional banking can settle in minutes or seconds with minimal fees.

· programmability - smart contracts enable automated, condition-based functionality.

· global accessibility - anyone with internet access can potentially use them without needing traditional banking relationships.

· 24/7 operation - unlike traditional payment systems with business hours and settlement windows, blockchain networks never close.

· transparency - on-chain verification allows unprecedented auditability.

· peer-to-peer capability - direct transactions between parties without financial intermediaries, leading to massive resilience.

Structural challenges limiting adoption

Despite these advantages, stablecoins face significant structural challenges that prevent mainstream adoption:

· universal redemption gap - unlike checks or card payments that can be deposited into any bank account at full value, stablecoins lack reliable, widespread redemption options. Recipients must evaluate the creditworthiness of both issuers and off-ramps.

· the many-to-many problem - with multiple issuers and potential accepting institutions, the number of bilateral relationships required becomes unmanageable - similar to if every credit card issuer needed direct relationships with every merchant.

· accounting treatment - businesses can't treat stablecoins as cash equivalents under current accounting standards, creating significant barriers to corporate adoption.

· regulatory uncertainty - inconsistent regulatory frameworks across jurisdictions create compliance challenges.

· market fragmentation - the stablecoin ecosystem is developing in isolated fragments rather than as a cohesive network and interoperability between different stablecoins using a variety of blockchains remains a challenge.

Pathways to overcome these challenges

To achieve mainstream adoption, the stablecoin ecosystem needs several key structural improvements:

· clearing infrastructure - a standardized clearing system like Ubyx would allow any financial institution to redeem stablecoins from any issuer at par value without requiring bilateral arrangements. This mimics how checks work - a bank accepts checks from other banks because a clearing system exists.

· accounting recognition - when stablecoins achieve consistent, reliable redemption at par value through regulated channels, accounting bodies could recognize them as cash equivalents (IAS7), removing a major barrier to corporate adoption.

· regulatory clarity - clear frameworks for bank participation in public blockchain networks and for accepting foreign stablecoins would enable institutional adoption.

· economic incentives - a balanced revenue model where issuers earn redemption fees and accepting institutions earn conversion fees would drive network growth.

· progressive decentralization - starting with more centralized systems that build trust with regulators and traditional finance, then gradually decentralizing governance and technology.

The future of digital money

If these challenges are overcome, we could enter what might be called the "stablecoin epoch" - where digital currencies become as ubiquitous as other payment methods.

Source: Ubyx.xyz

In this future, people would transact confidently peer-to-peer using stablecoins, with the assurance they could deposit them into any financial account at full value if needed. Businesses would hold stablecoins as cash equivalents on their balance sheets. Financial institutions would offer stablecoin services alongside traditional offerings. The market would likely have multiple issuers and currencies, operating across various blockchains, yet united by interoperable clearing standards. This pluralistic ecosystem would preserve competition and innovation while solving the fragmentation problem. Additionally, stablecoins would evolve from specialized crypto assets into general-purpose payment methods with a superset of features found in traditional payments - combining the best aspects of cash, checks, cards and digital transfers with entirely new capabilities unique to blockchain technology. This transition represents not just a technological shift but a reimagining of money itself - preserving sovereignty and regulatory oversight while enabling a more open, efficient, and accessible global financial system.

This article first appeared in Digital Bytes (8th of April, 2025), a weekly newsletter by Jonny Fry of Team Blockchain.