Stablecoins Surge in Prominence and Utility Across FinTech Ecosystem

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The de-pegging of TerraUSD (UST) in 2022 led to a cryptocurrency sector collapse, ultimately exposing fraud at FTX and elsewhere.

A lot has changed since then, especially as it pertains to the view conventional players in finance and funds maintain about stablecoins.

Observers across the financial services and technology industry seem to be warming up to blockchain technology and stablecoins. For example, PayPal completed its first business payment, to EY, with its in-house stablecoin, PYUSD, on Thursday (Oct. 3).

PayPal, which also used its PYUSD token to make a business investment in blockchain company Chaos Labs in September, isn’t alone in its forays into the digital asset space. Swift announced Thursday that it will let banks test tokenized transactions on its global messaging network starting next year.

Perhaps the biggest news this week was that Visa rolled out a new platform on Thursday for banks to issue fiat-backed tokens, such as stablecoins and tokenized deposits.

The Visa Tokenized Asset Platform (VTAP) is designed to use the payment company’s expertise in technologies like smart contracts to let banks issue and transfer fiat-backed tokens over blockchain networks.

“Visa has been at the forefront of digital payments for nearly 60 years, and with the introduction of VTAP, we’re once again setting the pace for the industry,” Vanessa Colella, global head of innovation and digital partnerships at Visa, said in a press release.

The involvement of major industry players like Visa and PayPal indicates a maturation of the stablecoin ecosystem. These heavyweights are not only expanding the use cases for stablecoins but also working on improving their stability and legitimacy, an effort that could mark a shift in how stablecoins are perceived and used in the broader financial world.

Read also: Can Stablecoins Spark Crypto Adoption Across Retail and B2B Markets?

The Push Toward Stablecoins in B2B and Beyond

Historically seen as a payment network giant in consumer payments, Visa’s ambitions with stablecoins appear firmly rooted in the B2B space. VTAP is focused on enabling banks to issue stablecoins and handle tokenized deposits, which could have implications for B2B transactions, cross-border payments and the rise of smart contracts.

Visa’s foray into stablecoins isn’t simply about adding another payment option for consumers but rather enabling a new level of efficiency in large-scale corporate transactions.

The company’s network scale and established relationships with financial institutions worldwide place it to contribute to the stability and legitimacy of stablecoins. By enabling banks to issue their own stablecoins and integrate tokenized deposits into their systems, Visa could foster widespread adoption, reducing the risk of market panic that often leads to de-pegging events. Moreover, as banks enter the fray with their regulatory frameworks in place, the perception of stablecoins as a reputable asset class may improve.

Visa’s efforts to build an infrastructure for banks to issue stablecoins could create a network effect, where stablecoins issued by trusted institutions reduce the risk of de-pegging and increase consumer trust.

By addressing key pain points in B2B and cross-border transactions, smart contracts and business payments, stablecoins could emerge as a foundational part of the global financial system, all with the backing of some of the most trusted names in finance.

See also: Stablecoins Surge in Prominence and Utility Across FinTech Ecosystem

Can Scale Bring Stability and Legitimacy?

PYMNTS examined the role blockchain technology plays in cross-border payments in a conversation last month with Sheraz Shere, general manager of payments and commerce at Solana Foundation.

“Blockchain solutions and stablecoins — I don’t like to use the term crypto because this is more about FinTech — they’ve found product-market-fit in cross-border payments,” Shere said.

Financial institutions are also looking at their own stablecoin options for settling transactions and streamlining internal operations. For example, J.P. Morgan Chase is involved in the exploration of blockchain and stablecoins, but its focus is primarily on wholesale banking transactions. The bank’s JPM Coin, designed for institutional clients, is a stablecoin that helps expedite large-scale, cross-border payments and transactions between the bank and its corporate customers.

The path to mainstream adoption of blockchain solutions will depend heavily on regulatory clarity and how well these companies can maintain their stablecoins’ pegs to underlying assets. If they succeed, stablecoins could become a permanent fixture in B2B and consumer payments.

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