In-depth research report on stablecoin payment: reconstructing trillion-dollar industries and opening a new era of borderless finance

Chapter 1: Overview of Stablecoins

Stablecoin is a type of digital currency pegged to specific assets such as fiat currency, commodities or other crypto assets. Its core goal is to provide a relatively stable store of value and medium of transaction in a high volatility environment in the cryptocurrency market. Compared with mainstream crypto assets such as Bitcoin (BTC) or Ethereum (ETH), the value volatility of stablecoins is greatly reduced, giving them unique advantages in global payments, cross-border transactions, decentralized finance (DeFi) and other fields.

The concept of stablecoins can be traced back to the early stages of the development of the cryptocurrency industry. As Bitcoin gradually became the dominant force in the digital asset market, people began to realize that the problem of its violent price fluctuations seriously hindered its application in daily payments. Although the decentralized and censorship-resistant properties of Bitcoin are important, it is difficult for Bitcoin to act as a stable value scale due to its supply rigidity (up to 21 million yuan) and drastic price changes driven by market sentiment. Therefore, the proposal of stablecoins is essentially a correction to the limitations of Bitcoin, so as to provide a stable pricing and trading tool while retaining the advantages of decentralization.

The design mechanism of stablecoins determines its stability and market acceptance. The most common stablecoins are fiat-solidated stablecoins (such as USDT, USDC, TUSD), whose value is supported by USD or other fiat currency reserves, that is, for each stablecoin is issued, the corresponding amount of USD is stored in a bank account or other regulated institution. The advantage of this model is that it has high transparency, users can easily verify the adequacy of their reserve assets, and within the legal and regulatory framework, such stablecoins can be widely recognized.

However, fiat currency collateral stablecoins also have some flaws. First, they still need to rely on the traditional financial system, i.e., banks or financial institutions are required as reserve custodians, which to some extent weakens the characteristics of decentralization. If the regulator decides to block the bank account of a stablecoin, the stability of the stablecoin may be hit. In addition, this model has high operating costs, requires regular audits, and may experience liquidity crises in extreme market situations.

In contrast, crypto-security-secured stablecoins (such as DAI) offer a more decentralized solution. The value of such stablecoins is supported by over-collateralized crypto assets (such as ETH), which usually requires users to deposit assets with higher value in smart contracts than issuing stablecoins to ensure their stability. For example, if a user wants to mint $100 DAI, he may need to mortgage $150 ETH. The advantage of this mechanism is that it does not require relying on a bank account, and it runs completely on the blockchain, so it has stronger censorship resistance. But at the same time, it also has certain risks - if the price of collateral assets falls sharply, the smart contract may force liquidation of some assets to maintain the stability of DAI, thereby causing losses to user funds.

In addition to fiat currency collateral and crypto asset collateral stablecoins, there are also algorithmic stablecoins (such as UST and FRAX), which use mathematical models and market regulation mechanisms to maintain currency stability. For example, some algorithmic stablecoins use a dual token system, where one token (such as UST) acts as a stablecoin and the other (such as LUNA) is used to absorb market volatility. When the UST price is less than USD 1, the user can destroy the UST in exchange for LUNA, thereby reducing the supply of UST and pushing up its price; conversely, when the UST price is higher than USD 1, the user can exchange LUNA for UST, thereby increasing the supply of UST and reducing the price. However, algorithmic stablecoins are at greater risk because their stability depends on market confidence. Once a large-scale sell-off occurs in the market, it may lead to a death spiral, causing a complete collapse of stablecoins, as demonstrated by the 2022 UST crash.

From the perspective of market size, stablecoins have become an important part of the cryptocurrency market. According to the latest data, the total market value of global stablecoins has reached the 100 billion US dollars, of which USDT (Tether) and USDC (Circle) dominate the market. The transaction volume of stablecoins has even exceeded many mainstream crypto assets because they are not only used for transaction hedging risks, but are also widely used in multiple fields such as payments, lending, and decentralized exchange (DEX) liquidity provision. The widespread use of stablecoins makes it a "lubricant" in the crypto economy, driving the development of the entire ecosystem.

The success of stablecoins is not accidental, but conforms to the needs of the global payment market. Traditional cross-border payment systems have high handling fees, slow settlement times and complex intermediary processes, while stablecoins are based on blockchain technology and can achieve low-cost, real-time global transfers. For example, using a traditional banking system for international remittances can take several days and incur high fees, while using stablecoins for the same transfer is almost instant and cost only a few cents. In addition, in areas where fiat currencies are subject to capital controls or the banking system is unstable, stablecoins have become an important hedge tool.

Chapter 2: How to restructure the payment industry in stablecoins

The rise of stablecoins is profoundly changing the global payment industry. As a bridge between blockchain and the traditional financial system, stablecoins provide an efficient, low-cost, and borderless payment method, which is gradually replacing some functions in the traditional payment system, especially playing an increasingly important role in cross-border payments, corporate settlements, e-commerce, remittances, salary payments and other fields. The success of stablecoins is not only due to their technical advantages, but also an accurate solution to the pain points of the existing payment system.

2.1 Pain points of traditional payment system

In the traditional payment system, capital flow often needs to go through multiple intermediary institutions, such as banks, payment processors, clearing institutions, etc. Each layer of intermediaries will charge a certain fee, resulting in a higher overall payment cost. For example, credit card payments typically charge a transaction fee of 2% to 3%, while international wire transfer fees can be as high as $20 to $50, or even more. In addition, third-party payment platforms (such as PayPal and Stripe) may charge an additional 2.9% to 4.4% handling fee when processing international transactions, plus currency exchange fees, making global payments expensive. On the other hand, cross-border payments usually take several days or even a week to complete, because traditional banking systems rely on centralized clearing networks such as SWIFT and ACH, which require a lot of time in transaction verification, fund clearing, compliance review, etc. For example, a cross-border transaction from the United States to Africa may require multiple institutions such as Bank of America, Bank of International Settlements, local banks, etc. Each institution needs to undergo KYC (Know Your Customers) and AML (Anti-Money Laundering) audits, increasing transaction time and uncertainty.

Currently, more than 1.5 billion people around the world still do not have access to bank accounts or basic financial services (i.e., "unbanked" people), mainly distributed in developing countries and remote areas. Due to the lack of credit history, geographical restrictions, government policies and other factors, these people have difficulty accessing the international payment system, nor are they unable to smoothly conduct e-commerce transactions, salary payments or cross-border remittances. International payments need to involve currency exchange, and exchange rate instability may lead to increased transaction costs, especially in countries with severe inflation. For example, the fiat currencies in Argentina, Venezuela and other countries depreciate rapidly, and companies and individuals often need to pay additional foreign exchange conversion fees when conducting international trade or cross-border payments and bear the economic losses caused by exchange rate changes.

Traditional payment systems are strictly controlled by national regulation, especially in response to anti-money laundering (AML) and Know Your Customer (KYC) policies. For some countries or regions under economic sanctions, international payment channels may be completely blocked, making it difficult for businesses and individuals to conduct legal transactions. For example, companies in countries such as Iran and North Korea cannot use the SWIFT network, and some countries have imposed strict supervision on cryptocurrency transactions, which limit the free flow of global funds.

2.2 Payment advantages of stablecoins

Stablecoin payments do not rely on traditional banking systems, but are based on blockchain-based peer-to-peer networks that can bypass expensive intermediaries and achieve lower-cost transactions. For example, using USDT (TRC-20 version based on the Tron chain) for cross-border transfers can have transaction fees as low as $0.1, while traditional bank wire transfer fees usually cost $30-50 and will take several days to arrive. The confirmation time of stablecoin payment is usually between seconds and minutes, which greatly improves capital liquidity.

Another core advantage of stablecoins is financial inclusiveness. As long as you have an internet connection and a digital wallet, anyone can create a crypto account and start making global payments. This model greatly lowers the threshold for financial access, allowing unbanked people around the world to obtain payment and deposit services, especially in Africa, Southeast Asia, Latin America and other regions. Stablecoins have become an important tool for people to fight local currency inflation.

Compared with crypto assets such as Bitcoin and Ethereum, the price of stablecoins fluctuates very little because their value is usually anchored 1:1 to the US dollar or other fiat currencies. For example, the price fluctuations of stablecoins such as USDC and USDT usually do not exceed ±0.5%, which is far lower than that of highly volatile assets such as Bitcoin. This makes stablecoins a reliable payment medium, where merchants and consumers can accept stablecoin payments with confidence without worrying about sudden drops in currency value.

Stablecoins are based on blockchain smart contracts and can realize automated payments and programmable fund management. For example, companies can use stablecoins to pay smart contract salary, so that wages are automatically paid to employees on a monthly basis; cross-border trading companies can set conditions to automatically trigger payment after the goods are delivered. The characteristics of programmable payments make stablecoins have huge potential in the fields of supply chain finance, smart settlement, etc.

2.3 Main application scenarios

Cross-border remittance: The total amount of funds sent to homes by immigrants and overseas workers worldwide exceeds $600 billion per year, while traditional remittance channels (such as Western Union and MoneyGram) usually charge as much as 5%-10%. Stablecoins offer a cheaper, faster alternative. For example, a Filipino migrant worker working in the United States can transfer money to a Filipino family in a few minutes via USDT or USDC, and the handling fee is only a few cents.

Enterprise international payment and settlement: Globalized enterprises need to make frequent international payments, while traditional banks have long settlement time, cumbersome procedures and high costs. Using stablecoins, companies can bypass the banking system, conduct B2B settlement directly, and improve cash flow management efficiency. For example, a Chinese manufacturer can use USDC to pay to U.S. suppliers without going through foreign exchange and bank transfers, reducing settlement costs and time.

E-commerce and digital payment: With the development of e-commerce globalization, stablecoins are becoming a popular choice for cross-border e-commerce payment. For example, an online store in Europe can accept USDT payments, thereby avoiding the high handling fees paid by credit card payments while providing convenient payment methods for consumers from around the world. More and more e-commerce platforms, subscription services, and game platforms are beginning to support stablecoin payments to attract global customers.

Freelancers and remote workers salary payments: The global freelancer economy is booming, but traditional salary payment methods have high handling fees and settlement delays. Paying salary with stablecoins allows remote workers to receive payments instantly and freely exchange them for their own currency or direct consumption. For example, a freelance designer working in India can directly accept salary from USDT from US employers without worrying about bank fees or exchange rate losses.

Travel and Consumption Payment: In the tourism industry, stablecoins are becoming a new payment method. For example, some merchants in Dubai, Thailand, Japan and other places have begun to accept USDT and USDC payments, allowing tourists to use stablecoins to make seamless payments and avoid currency exchange fees on traditional credit cards. In the future, as more merchants accept crypto payments, stablecoins may become the standard option for international travel payments.

Decentralized Finance (DeFi) and Smart Payment: Stablecoins are also an important part of the decentralized Finance (DeFi) ecosystem. Users can use stablecoins to conduct deposits, borrowing, liquidity mining and other operations. In addition, the DeFi protocol can also provide automated payment solutions, such as regular payments based on smart contracts, insurance compensation, etc., further promoting the development of the payment industry.

With the maturity of blockchain technology and the popularity of stablecoins, they are reshaping the global payment industry, providing faster, cheaper and more equitable payment methods for individuals and businesses. In the future, stablecoins are expected to become an important part of the global payment system and promote the further development of digital finance.

Chapter 3: Compliance Challenges and Policy Evolution of Stablecoins

As an important innovation in the blockchain field, stablecoin has not only had a profound impact in the fields of payments and financial services, but its technological architecture, innovation and compliance challenges have always been issues of high concern to the market and regulators. The core value of stablecoins lies in their ability to maintain price stability and provide users with convenient payment methods. However, this goal is not easy to achieve, it involves complex technical systems, innovative mechanisms and a changing regulatory environment. Therefore, the success of stablecoins not only depends on the continuous evolution of technology, but also needs to meet regulatory compliance requirements of various countries.

The technical architecture of stablecoins mainly covers multiple aspects, including asset mortgage mechanisms, smart contracts, decentralized governance, etc. Different types of stablecoins vary in design and implementation. As the stablecoin market continues to expand, governments and financial regulators of various countries have begun to lay out the regulation of stablecoins. The compliance issues of stablecoins are mainly focused on anti-money laundering (AML) and understanding your customer (KYC) requirements, transparency, cross-border payments, financial stability, etc. The regulatory attitudes of different countries are different, which poses a significant challenge to the cross-border application of stablecoins and the development of globalization.

First, the anonymity of stablecoins makes it potentially compliant risks in cross-border payments. Although the decentralized nature of stablecoins makes them highly privacy-protected, it also makes them easy to be used for illegal activities such as money laundering and terrorist financing. To address this issue, regulators in various countries require stablecoin issuers to comply with strict KYC/AML policies to ensure the authenticity and compliance of their user identity information. For example, the U.S. Financial Crime Enforcement Network (FinCEN) requires stablecoin issuers to register as currency services business (MSB) and fulfill relevant anti-money laundering obligations.

Secondly, the transparency of stablecoins has always been the focus of regulators. This is especially true for fiat-collateralized stablecoins. Since the value of these stablecoins is supported by custodial fiat currency reserves, stablecoin issuers must conduct regular financial audits to disclose the specific situation of the reserves to ensure that each stablecoin can be supported by equal fiat currency. Otherwise, the market trust of stablecoins will be questioned, which may lead to market instability. To address this issue, some stablecoin issuers have taken positive measures, such as USDC and Circle collaborating with regular release of reserve certificates to enhance transparency.

Again, stablecoins also face huge challenges in international regulation. Because each country has different regulatory requirements for stablecoins, the cross-border flow and application of stablecoins may be subject to different legal frameworks. For example, China has completely banned the issuance of private cryptocurrencies, but is pushing central bank digital currency (CBDC) as an alternative to fiat stablecoins. The United States is actively promoting the construction of a stablecoin regulatory framework and promoting the introduction of the "Stablecoin Transparency Act". Europe has passed the Crypto Asset Market Regulations (MiCA) to require the disclosure of stablecoins reserves and conduct EU-level supervision. Different countries and regions have different attitudes towards stablecoins, which have also faced many challenges in the global application of stablecoins.

In terms of compliance, stablecoin issuers are also facing the adaptation of regulatory frameworks. Policy differences in countries around the world make stablecoin issuers need to maintain operational flexibility and market competitiveness while meeting local legal requirements. To address these challenges, stablecoin issuers often choose to work with traditional financial institutions to reduce compliance risks by leveraging their existing compliance experience and infrastructure.

In the future, the technology and compliance path of stablecoins may undergo profound changes. With the continuous advancement of technology and the continuous development of decentralized finance (DeFi) and privacy protection technologies, the application of stablecoins will become more extensive, and security and efficiency will be further improved. At the same time, coordination and cooperation between countries around the world in compliance will also be the key to the sustainable development of stablecoins. In order to achieve widespread application on a global scale, stablecoins need not only rely on technological innovation, but also require global regulatory coordination to ensure their compliance under different legal frameworks.

Chapter 4: Future development trends

With the rapid development of blockchain technology and stablecoin applications, stablecoins will play an increasingly important role in payments, financial services and many other industries in the future. From technological progress to changes in market demand, the future development trend of stablecoins has shown a diversified pattern. The following will explore the main development trends of stablecoins in the future.

First, with the increase in global payment and cross-border transaction demand, the application of stablecoins in the international payment field will further expand. Traditional payment systems, especially cross-border payments, have long had pain points such as high costs, long time and poor transparency. As a low-cost, high-efficiency, and decentralized payment tool, stablecoins can effectively make up for these shortcomings. In the future, with the improvement of stablecoin infrastructure and the participation of more financial institutions, stablecoins will play a key role in cross-border payments. Through stablecoins, users can bypass traditional banks and clearing systems and directly conduct payments and transactions around the world. In addition, the advantages of stablecoins in cross-border payments are not only reflected in speed and cost, but also in their transparency and security, which can effectively reduce the risks of financial fraud and money laundering.

Secondly, the application of stablecoins in the field of decentralized finance (DeFi) will continue to expand. As an innovative application of blockchain technology, DeFi provides various financial services through decentralized protocols, including lending, transactions, insurance, etc. As a core asset in the DeFi platform, stablecoins can provide a stable value base and reduce the risks brought by market volatility. As the size of the DeFi market continues to grow, stablecoins will play an increasingly important role in it. In the future, stablecoins will further integrate with decentralized financial protocols to promote the popularization and development of DeFi. For example, in a decentralized lending platform, stablecoins can be used as collateral, and users lend stablecoins or mortgage loans through stablecoins, thereby providing liquidity and stability to the decentralized lending market.

Relatedly, stablecoins will play an important role in smart contracts, decentralized autonomous organizations (DAOs) and other decentralized applications (DApps). The operation of smart contracts and DAOs requires stable value units to ensure fairness in the implementation of the agreement and governance process. Stablecoins provide a safe, reliable and easy-to-operate payment medium for these decentralized applications. For example, DAO organizations can use stablecoins to pay members’ rewards and compensation, while leveraging the stability of the stablecoins’ value to prevent governance instability caused by market volatility. In smart contracts, stablecoins will be used as margin for counterparty or payment method during contract execution to ensure the smooth execution of the contract.

Third, the prospects for the application of stablecoins in traditional financial markets cannot be ignored. In the future, as the regulatory framework gradually becomes clear and compliance is enhanced, stablecoins will be more connected with traditional financial markets, bringing more innovative opportunities to traditional financial markets. First of all, stablecoins will play a role in digital asset management, fund investment and other fields. Through stablecoins, investors can achieve more efficient and lower-cost digital asset transactions and use stablecoins to flow across borders of funds. For example, stablecoins can serve as risk management tools to help investors maintain a certain degree of value stability in their digital asset portfolio.

Secondly, the relationship between stablecoins and central bank digital currency (CBDC) will also become an important development trend in the future. Central Bank Digital Currency (CBDC), as a legal digital currency issued by central banks in various countries, is gradually entering the R&D stage and is expected to become an important part of the financial market in the next few years. The competition and synergy between stablecoins and CBDCs will have a profound impact on the financial market. Although CBDC is a fiat currency issued by the state, the decentralized characteristics and cross-border application advantages of stablecoins make it form a complementary relationship with CBDC in some scenarios. For example, in cross-border payments, stablecoins may become a preferred payment tool due to their lower cost and higher efficiency. In other areas, the cooperation between stablecoins and CBDCs will help improve the interoperability of digital currencies and promote reform and innovation of the global payment system.

Fourth, with the continuous advancement of privacy protection technology, the privacy and security of stablecoins will become an important direction for future development. At present, stablecoins still face certain challenges in privacy protection, especially in privacy protection of user identity and transaction data. With the continuous development of privacy protection technologies such as Zero Knowledge Proof (ZKP), homomorphic encryption, stablecoins in the future will be able to provide higher privacy protection levels, thereby attracting more users to participate. At the same time, with the further maturity of privacy protection technology, decentralized stablecoins will be able to provide stronger user data privacy protection while maintaining transparency and compliance, and enhance users' trust in stablecoins.

Fifth, the popularity of stablecoins will be closely linked to the construction and management of digital identities. The construction of digital identity is an important direction in the application of blockchain technology, and the application of stablecoins will promote the gradual improvement of the digital identity management system. In the future, every transaction made by a user through a stablecoin may be pegged to digital identity, thereby achieving transparency and reliability of identity verification and transaction tracking. In this process, digital identity will serve as the infrastructure for stablecoin circulation, payment, investment and other applications, providing users with a more efficient and convenient digital financial experience.

Finally, with the continuous development of stablecoin technology and application scenarios, new market opportunities will also emerge. For example, stablecoins may play a role in new asset classes such as real estate, artwork, and even carbon credit. With the popularization of blockchain technology, stablecoins will become the payment and transaction medium for these emerging assets, further promoting the development of the global digital economy.

Chapter 5: Conclusion

In summary, the future development trend of stablecoins is characterized by diversification, which will not only continue to promote the innovation of payment systems and financial services, but will also bring profound changes in decentralized applications, digital asset management, cross-border payments, privacy protection and global supervision. As technology, market demand and policies continue to evolve, stablecoins will play an increasingly important role in the global economy and financial system. Stablecoins are rapidly subverting the traditional payment industry, providing global users with more efficient, low-cost and borderless payment methods. However, factors such as regulation, privacy protection, and technological innovation will still determine their future development direction. As more financial institutions and technology companies enter the field, stablecoins are expected to become an important part of the global payment network and promote further digitalization and decentralization of the financial system.