Stablecoin Introduction
Stablecoins can destabilize as banks might see deposits decrease and become less reliable. While they wouldn’t take all deposits, some of the better ones might vanish. Some of the biggest merchants, such as Walmart and Amazon, are exploring whether to issue their coins in the U.S. Expedia Group and large airlines have also discussed issuing their coins. This would shift the high volumes of cash and card transactions away from the traditional financial system and save billions of dollars in fees.
What are Stablecoins?
Stablecoins are a crypto-based payment that allows consumers to transact without dealing with any financial institutions. These digital tokens are typically fully backed by fiat currencies such as dollars. Fiat currency is a government-issued currency that is not backed by a tangible asset such as gold or silver and relies on public confidence in the issuer and the willingness of others to accept it as an exchange medium. This style of currency is used by major economies such as the U.S, EU, and Japan. Governments can respond to economic conditions and facilitate the supply when needed. The difference with Stablecoins is that they’re unique to a specific business or consortium behind them. These businesses could issue their coins under their brand and back them with cash or equivalents such as U.S. treasuries held in reserves. These coins would behave similarly to how companies use loyalty and rewards programs.
Genius Act
The Senate is looking to soon pass an act that will set guidelines for issuers. When a U.S.-based stablecoin is created, the issuer receives U.S. dollars to put in a reserve. Some politicians have criticized the Act for not being rigorous enough to prevent crimes such as money laundering. They argue that the bill should require issuers to monitor all activity across all exchanges and platforms using the coin. Further regulatory implications and security worries will still exist even if the Genius Act is rigorous.
Business Benefits
Benefit isn’t only about saving on fees, but it’s about controlling financials and the customer experience.
Lower Payment Processing Costs: This is the most obvious for all businesses in the process of establishment. Credit card networks such as Visa, Mastercard, and Amex all charge around 2-3% per transaction. These savings are massive on a scale. For example, Amazon netted $638 billion in sales in the year 2024. Even a 1% saving on these sales would result in an extra $6.38 billion.
Faster Settlement: Many credit card transactions will settle in 1-3 days are it is reviewed by the credit card and confirmed. Stablecoins would be near instant, improving cash flow and enhancing overall management of treasuries.
Closed Ecosystem: While this may be an issue for many consumers restriction of monetary use to only one company strongly benefits these businesses. Consumers will feel obligated not to spend their money elsewhere.
Consumer Benefits
While the business appeal of Stablecoins is clear, consumer benefits are less obvious. Companies may try to make Stablecoins appealing via several methods.
Rewards and Discounts: Companies will be able to offer price discounts for using crypto, as they are no longer responsible for any transaction fees. This will make them more flexible than gift cards and could potentially also be stacked with loyalty programs and perks.
Faster Checkouts: Since Stablecoins will likely live in a “wallet”, payments will be near instant, as there is no need for third-party payment verifications. This will make a true “1-click checkout” and will reduce payment friction in high-demand events or merchandise drops.
Small Payments: With many services and subscriptions being small, Stablecoins will make it easier to purchase them, without having to worry about pulling out a credit card and typing in all numbers for something like an article on Kindle. While storing your credit card online is possible, having a “wallet” with a company will allow you to easily purchase once in your account.
Bank Destabilization?
There is a concern that if these currency forms were to expand, banks may be affected. While Stablecoins don’t take funds out of the banking system, and they will usually end up back in banks, many deposits would be large and uninsured. For example, if an individual takes out money less than $250,000, fully covered by government deposit insurance, and moves it to an issuer, that money will end up in a higher-balance account that can’t be fully backed. Smaller regional banks that rely on retail deposits will be more exposed as they struggle to fund lending.
Overall, Stablecoins are in the talking stages for major companies such as Amazon or Walmart. As they continue to expand their fintech capabilities, consumers could see a new form of online payments. While the promise is convenience and innovation, broader questions about stability and regulation remain.