Original Article Title: "Stablecoin Series Part One: The Opportunity for Onshore Stablecoins to Scale Adoption"

Original Source: Animoca Brands

Abstract

● Stablecoins have gained regulatory recognition in the two major economies of China (including Hong Kong) and the United States, ushering in a wave of enthusiasm. In contrast to offshore stablecoins, which are mostly used for speculation and the informal economy, we believe that onshore stablecoins will mainly focus on two areas: the "open-source digital wallet" for payments and the "open clearinghouse" for interbank settlement.

● Compared to centralized digital wallets of the Web2 era, digital wallets using stablecoins and blockchain have much lower barriers to entry in terms of both technology and business promotion. From a technological standpoint, stablecoin payments can be entirely based on existing blockchain technology, token standards, and crypto wallets. From a business perspective, consumer platforms such as retailers, e-commerce, and social networks can promote stablecoin payments for their own benefit without the need for coordination, thereby creating momentum for stablecoin promotion. Based on these points, stablecoin payments can be considered as an "open-source digital wallet".

● Leveraging these advantages, stablecoins may create a wave of challenge to the credit card-dominated payment system, with the issuing banks that primarily collect transaction fees undoubtedly being impacted. At the same time, payment networks such as Visa, Mastercard, and payment processors like Stripe will benefit from the increased variety of "currencies" in the payment network, thereby solidifying their roles in the payment system.

● In terms of fund transfers, stablecoins will function as an "open clearinghouse". Through bank-to-bank settlement via stablecoin deposits and on-chain transfers, its architecture and settlement process closely resemble traditional interbank transfers. Simultaneously, a system based on stablecoins can further enhance real-time processing, scalability, and cross-border capabilities. The inefficiency of cross-border settlements has long been due to the lack of an international clearinghouse role, making stablecoins crucial as an open cross-border clearing service to address the inefficiencies in cross-border transfers.

● Existing remittance operators such as Wise and Air-Wallex are enhancing remittance efficiency by acting as cross-border clearinghouses. These operators bridge the gap between countries' banks through proprietary ledgers and funds pools in various countries, avoiding actual cross-border fund transfers. However, if banks achieve the same efficiency through stablecoin settlement, this model may face challenges. On the other hand, it should also be noted that not all blockchain companies' remittance solutions truly leverage the core capabilities of stablecoins. For example, cross-border transfers conducted through centralized cryptocurrency exchanges involve only internal exchange ledgers and do not involve blockchain transactions, and thus should be viewed more as a remittance operator's business rather than a stablecoin-based solution.

The Rise of Mainstream Stablecoins

Over the past two months, stablecoins have seen related legislation passed in the world's two largest economies, the United States and China (via Hong Kong). The completion of this legislation marks a significant milestone for stablecoins, transforming them from a tool primarily used within the cryptocurrency niche into a recognized New Financial Technology (FinTech) innovation in the mainstream economy.

In the United States, on July 18, the GENIUS Act was officially signed, providing a clear path for the compliant use of stablecoins. Over the past few months, the bill progressed through the Senate and the House of Representatives for deliberation and discussion. With increasing prospects of the bill's passage, various institutions and large enterprises have begun to engage in the issuance and use of stablecoins, including:

● Payment service providers supporting stablecoins: Stripe, Visa, Shopify, PayPal, and others.

● Social media and e-commerce platforms considering adopting stablecoin payments: Meta, Amazon, Walmart, and others.

● The Big Four Banks in the U.S. planning to ally for stablecoin issuance: including JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup.

In Hong Kong, the Stablecoin Act was passed in May 2025 and came into effect on August 1, 2025. This demonstrates Hong Kong, as China's financial gateway, opening up to stablecoin-related financial activities. Besides the Hong Kong dollar, the act also allows licensed issuers to issue stablecoins of other currencies, extending its impact far beyond Hong Kong's local currency circulation. Interestingly, the most proactive respondents to this opportunity are similar to those in the United States, including:

● Payment service providers: Ant Group (including Ant International and Ant Technology), LianLian International, and others.

● E-commerce platforms: JD Digits plans to launch a stablecoin, while Alibaba can do so through Ant Group.

● Large banks: Standard Chartered Bank plans to apply for stablecoin issuance through a joint venture with Animoca Brands and Hong Kong Telecom.

In this context, this article aims to provide readers with a framework to understand the key scenarios in which onshore stablecoins can play a role in the economy and explain the primary objectives of the aforementioned institutions' participation. We will divide the discussion into two main application categories:

● Payments, where consumers pay merchants

● Transfers, where remitters transfer funds across banks

Strictly speaking, payment can also be a form of transfer. We separate the discussion of these two use cases because the existing mainstream solutions for non-cash payments and transfers differ, thus presenting different pain points. The former is primarily facilitated through credit card payments supported by card networks, while the latter is mainly bank transfers. In the following sections, we will explore the key issues with existing solutions, the existing alternatives, and the new opportunities brought about by stablecoins.

Payment

Cash and credit cards are still the predominant payment methods in most regions. Among them, credit card transactions serve as the primary non-cash option, processed through card networks such as VISA and Mastercard. Payments facilitated through a card network generally follow these steps:

1. Merchant Initiation: The merchant requests payment information from the customer through their POS terminal, where the customer provides the information either by swiping the card offline or entering credit card details online.

2. Authorization Request: The POS system selects the corresponding card network based on the customer-provided information and sends a payment authorization request to the issuing bank through that network.

3. Authorization Approval: Upon verifying the customer's balance or credit limit, the issuing bank approves the transaction. This confirmation is relayed back to the POS terminal via the card network, then returned to the customer for confirmation, completing the payment authorization.

4. Clearing and Settlement: For authorized payments, the POS terminal initiates the clearing and settlement process with the acquiring institution (e.g., the bank used by the merchant). The acquirer sends the batched total amount to the issuer through the card network. The issuer then settles the transaction through traditional interbank transfer mechanisms.

5. Foreign Exchange Transactions: In cases involving foreign currency transactions, the issuing bank performs the currency conversion and settles through methods such as SWIFT transfers.

Throughout this process, the card network serves as the information exchange layer to ensure that regardless of the financial service providers used by the customer and the merchant, communication and settlement can be completed.

The presence of credit cards and card networks has significantly enhanced the convenience of non-cash payments on one hand but has also often been criticized for its high transaction fees. For every credit card transaction, a 2-3% or higher fee is automatically deducted from the customer's payment amount as a processing fee. This fee poses a significant burden for low-margin businesses.

However, upon closer inspection, the card network itself is not the primary driver of high processing fees. Credit card transaction fees can be broadly divided into three parts: the "Assessment Fee" paid to the card network, the "Interchange Fee" given to the issuing bank, and the "Processing Fee" for the sales terminal. Among these, the fee charged by the card network is the lowest, at only about 0.15% of the transaction. For example, Visa processes $16 trillion in transactions annually, with revenue accounting for only 0.2% of the total transaction volume. The majority of the transaction fee goes towards the interchange fee paid to the issuing bank (1-3%). This fee primarily covers the costs and risks associated with the bank's services, such as credit default risk and consumer protection. For consumers requiring credit services, this rate is not considered unreasonable. For issuing banks, the 2% fee for the credit card, as a credit service with default risks, reflects the bank's risk management professionalism rather than inefficiency.

Therefore, the key issue with credit card fees lies not in their high cost, but in consumers treating them as the default option. Regardless of whether they need a credit limit, consumers will prioritize using a credit card over other payment methods. The root cause of this consumer preference is a misalignment between the payer and the fee bearer: consumers choose the payment method, while merchants bear the transaction costs. This misalignment provides room for issuing banks to utilize a portion of the fees to "bribe" consumers through rewards and points to earn consumer favoritism. This strategy has proven to be highly effective, as many consumers prefer credit cards due to better cashback and point rewards over debit cards, cash, or digital wallets with lower transaction fees, even if they do not need credit for spending.

In addition to high transaction fees, card networks also incur steep cross-border fees during cross-border payments, further driving up transaction costs. The root cause of this issue is the settlement reliance on traditional banking routes between issuing and acquiring banks. We will delve into the topic of cross-border settlements in the section on transfers.

From the above discussion, we can roughly understand the attitudes of various participants in the payment system towards stablecoins:

1. Merchants suffer the most in the credit card system, hence they have the strongest motivation to seek alternative solutions. Companies like Walmart, Amazon, and JD.com have shown a keen interest in stablecoin payments as an alternative due to their extensive sales network.

2. Card networks like Visa, Mastercard, which themselves have a low share in transaction fees and can support various currencies, including stablecoins. Therefore, card networks themselves are not the antagonists of stablecoins. Conversely, with more stablecoins entering everyday transactions, card networks may become more important due to their bridging function. Furthermore, with stablecoins, the payment network settlement process can be streamlined, allowing card networks to further participate in settlements, playing a more significant role in the entire payment process. As early as 2021, Visa demonstrated the potential for cross-border settlements with issuers through stablecoins.

3. Point of Sale (POS) solution providers can expand their product line by supporting new payment methods. Stablecoins will not only disrupt their current role but will also allow POS solution providers to enter opportunities for acquiring and cash-in/cash-out services. Stripe's acquisitions of Bridge and Priv (wallet services) underline this trend.

Open-Source Digital Wallet Based on Stablecoins

The digital wallet was first introduced by the US's PayPal and, after many years, has successfully taken a dominant position in payments in China, as well as in numerous developing countries in Southeast Asia and Africa. Compared to bank card payments, digital wallets have several advantages, such as:

● Registering a digital wallet is much easier than opening a bank account. Users only need to complete an online registration similar to signing up for a website to start using a digital wallet. Some digital wallet services may offer offline channels for top-up or withdrawal.

● As a product of the Web2 era, digital wallets are inherently compatible with online transactions, which has led to rapid growth in their use cases in the mobile age and gradual expansion to offline merchants.

● Due to the fewer participating nodes in the payment process, the transaction costs of digital wallet transactions are cheaper than those based on card networks. For example, Alipay charges merchants a fee of 0.6%, and peer-to-peer transfers among users are free.

Stablecoin payments share many similarities with digital wallets and can be considered a new form of digital wallet service. The similarities include:

● The "funds" in a wallet account are all tokenized representations of fiat currency on the ledger and must be 100% collateralized according to regulatory requirements.

● Payments between digital wallets are transaction records on the ledger. The difference is that digital wallet transaction records are on the owning company's ledger (such as Alipay), while stablecoin payments are recorded on a decentralized blockchain ledger.

● In terms of user interface, digital wallets and digital currency wallets have a similar user interface and interaction method, such as supporting functions like "scan-to-pay" and "payment codes."

At the same time, due to its decentralized architecture, stablecoin payments are a more open "open-source digital wallet" compared to products of the Web2 era. For example:

● Stablecoin issuance, involving compliance, collateralization, and contract deployment, can come from multiple institutions, such as Tether and Circle.

● Stablecoin on/off-ramping is provided by independent fiat gateways, such as Transak.

● The ledger for stablecoin transactions can use different blockchains, such as Ethereum, Solana, TON, etc.

● Users can make payments and receive funds using any wallet that supports these blockchains.

● Cross-wallet ledger payments can be handled through various on-chain cross-chain protocols, such as LayerZero.

Therefore, as stablecoin payments are promoted and adopted, they can not only draw on the successful strategies of digital wallets but also enter areas that were previously challenging for digital wallets due to their more open nature. For example:

● Capturing Consumer Scenarios: Digital wallets acquire a large number of users by targeting applications with a massive user base and consumer demand. For example, Alipay (e-commerce), WeChat Pay (social media), Grab Pay (ride-hailing), as well as Suica, EasyCard, and Octopus for public transportation payments. Stablecoin payments are likely to follow a similar path.

● Opportunities in Developed Economies: Stablecoin payments present another opportunity to challenge the dominance of credit cards in countries like the United States. The open nature of stablecoins allows merchants, stablecoin issuers, blockchain operators, cryptocurrency wallets, payment service providers, and others to independently participate in the stablecoin race without the need for coordination, thus creating a collaborative force. This approach would be much more potent than promoting a single digital wallet service (such as PayPal) alone. With 28% of the U.S. population already holding cryptocurrency, once major consumer platforms start supporting stablecoins, the user base will grow rapidly.

● Financial Inclusion: Digital wallets, by enabling the transition from cash to online payments and providing services like savings and credit to the underbanked population, have furthered financial inclusion. As an open-source digital wallet, stablecoins can continue this trend by reducing technological barriers. Payment service providers in various countries can integrate their local stablecoins onto existing blockchain infrastructure and applications without the need for extensive technical development.

● Marketing Advantages: Stablecoin payments will require extensive marketing efforts. This includes convincing merchants to adopt the new payment method, upgrading Point of Sale (PoS) systems, and attracting users through incentive measures such as discounts and rewards. At this point, stablecoins, with their inherent interest-bearing nature due to circulation through collateral, can provide the necessary funds for marketing activities.

● Continued Importance of Card Networks: The proliferation of digital wallets will not eliminate the need for transaction intermediary networks. For instance, digital wallets will still rely on platforms like Alipay+ to connect merchants with different wallets, or the Octopus App supporting payments through UnionPay PoS terminals. Stablecoins will similarly require support from various payment networks. Existing payment infrastructures (e.g., Visa, Stripe) can expand their service offerings by adding support for stablecoins. For example, Stripe has acquired multiple crypto services to cater to the growing merchant demand, while Visa has explicitly stated its vision to support digital currencies.

● On-Chain Payment Networks: The on-chain component of stablecoin payments will also require routing and exchange services to support transactions between stablecoins issued by different entities or on different blockchains, or for the same stablecoin across various blockchains. Circle's CPN (Circle Payment Network) already enables cross-chain routing and settlements for its USDC. The further development of this need presents a new opportunity for traditional networks and on-chain native protocols.

Transfer

Interbank transfer is a cornerstone of the modern economy. Despite the ability of digital wallets to handle a large number of small transfers between individuals, the majority of fund transfers still occur through banks. Due to its importance, each country and region establishes necessary infrastructure (such as clearinghouses) to facilitate domestic transfers. However, due to the lack of cross-border clearinghouses, cross-border transfers remain relatively inefficient. The SWIFT telegraph network, established in the 1970s, still serves as the foundation for interbank cross-border transfers fifty years later.

Domestic Transfer

Domestic transfer is the primary form of fund movement. In 2024, the Chinese domestic payment system processed ¥12,450 trillion (approximately $1.8 trillion) in transfers. At the same time, the amount processed domestically in the United States was comparable.

These interbank transfers are typically facilitated through clearinghouse services provided by a central bank or banking association. Under the clearinghouse framework, banks do not settle directly between themselves but hold accounts with the clearinghouse to execute transfers based on transactions recorded in the clearinghouse's ledger. During this process, there is no direct flow of funds between banks, only entries between banks and the clearinghouse. Taking the systems of the United States and China as examples:

U.S. banks utilize multiple clearing services. The Federal Reserve offers FedWire and FedNow for large and small transfers, respectively. The Clearing House Payments Company provides CHIPS and RTP as parallel products. Additionally, the over 50-year-old ACH system, managed by Nacha (a non-profit banking association), is still widely adopted by U.S. banks due to its compatibility with legacy systems.

Chinese banks rely on clearing systems provided by the People's Bank of China, including HVPS, BEPS, and IBPS, to manage transfers of varying scales and time requirements. In Hong Kong, the Hong Kong Monetary Authority offers CHATS (Clearing House Automated Transfer System) for large interbank transfers and FPS (Faster Payment System) for real-time fund transfers. Just this year, the "Cross-Boundary Payment System" went online, connecting PBoC's IBPS and HKMA's FPS to achieve real-time fund transfers between mainland China and Hong Kong, as well as currency exchange between HKD and RMB.

Furthermore, the People's Bank of China also provides CIPS (Cross-Border Interbank Payment System) for offshore Renminbi (CNH) transactions. Through CIPS, overseas banks can directly conduct Renminbi transfers with banks in mainland China or other participating CIPS members abroad without relying on the SWIFT system. In contrast, cross-border USD transfers are mainly settled through CHIPS, which can only be cleared in New York. All USD cross-border transfers require banks to first internally or externally transfer the funds to their New York branch before proceeding with further operations.

From the above analysis, it can be seen that the existing clearing systems can cover a wide range of transfer applications, but still have their limitations:

● System Fragmentation: Maintenance of legacy systems and cross-bank coordination are not easy, leading to the coexistence of multiple clearing services.

● Entry Barriers: Clearinghouses are usually limited to banks within a single country and only support the local fiat currency. This is clearly insufficient for currencies that need global mobility.

● System Availability: Many clearing systems do not support 24/7/365. They usually shut down services on weekends and at night. Even in 24/7 systems, time still needs to be allocated for system maintenance and upgrades.

● Cost and Speed: Most clearing services are batch processed, requiring trade-offs between cost and time.

The "Open Clearinghouse" based on Stablecoins can improve transfer efficiency in two ways. One is the previously mentioned digital wallet transfers, mainly targeting small-scale transfers between users. The other is to provide "Open Clearinghouse" services for interbank transfers. Let's delve into the concept of the "Open Clearinghouse" further.

Transactions conducted using stablecoins have many similarities to the clearinghouse process. As shown in the flowchart, under the clearinghouse architecture, banks create accounts on the clearinghouse ledger and deposit funds. Settlements between banks then become transactions on the clearinghouse ledger. In contrast, with clearing using stablecoins, it is as if banks establish on-chain accounts and "deposit" into stablecoins. Interbank transfers also become transactions on the blockchain ledger. Thus, interbank payments achieved through stablecoins can be viewed as a type of clearing service provided by blockchain and stablecoins.

At the same time, clearing services achieved through stablecoins are more open compared to traditional clearinghouses. Stablecoin clearing can be carried out between banks in a self-organized manner, not restricted by jurisdiction or the currency in use. Additionally, stablecoin clearing can access various DeFi functionalities on the blockchain, continuously expanding the functionality related to clearing.

By using the stablecoin "Open Clearinghouse," the interbank transfer process can be improved in many ways:

● Cost: Traditional clearing services incur high fees. For example, FedWire charges $0.2 per transaction, while FedNow averages about $0.045 per transaction. This is not a small amount on a large scale. In comparison, the majority of stablecoin transfer fees on blockchain are usually less than $0.01.

● Speed: On-chain transfers default to real-time settlement, with processing speed limited only by block generation time. Different blockchains have different block generation times, but generally range from 0.1 to 10 seconds.● Availability: On major public blockchains, 24/7 availability is the default and does not require offline maintenance.

● Access Control: Major public blockchains are permissionless, meaning that clearing services are no longer restricted by jurisdiction or currency. With more fiat currencies being brought on-chain, the supported currency types can continue to expand.

● Functionality Expansion: Traditional clearing is typically managed by central banks or banking associations, making functional decisions in a top-down manner. This often results in new functionalities being prioritized based on common use cases and slow decision-making. In contrast, blockchain is naturally open to functionalities needed by banks, essentially adding an "app store" for clearing services.

Stablecoins, acting as a role of an "open clearinghouse," may be one of the main motivations for the four largest U.S. banks to explore stablecoins. Pioneers may have a first-mover advantage in setting standards (e.g., selecting blockchain and stablecoin types). Furthermore, given the significant influence of these banks in the U.S. dollar ecosystem, their actions will impact the direction of subsequent innovation in the system. Considering the global role of the U.S. dollar, this dominant position will extend beyond the U.S. to influence globally.

Cross-Border Transfers

Cross-border transfers, also known as remittances, are smaller in scale compared to domestic transfers. However, they are often criticized for their high costs (approximately 5-6% of the transaction value), long processing times (around 5-7 business days), and unpredictable outcomes (transfers may fail for unknown reasons).

As mentioned earlier, the root cause of this inefficiency is the lack of a cross-border clearinghouse service. This means that two key functions in fund transfers are missing:

1. Communication, where the remitting bank informs the beneficiary bank of the transfer information.

2. Settlement, where funds move from the remitting bank to the beneficiary bank.

Without a clearing service, the prevailing solution is wire transfers, also known as SWIFT transfers. This method separates the above two functions:

● Communication: Handled by SWIFT for interbank communication, transferring the transfer request between the remitting bank, beneficiary bank, and intermediary banks.

● Settlement: Relies on interbank intermediaries, where the process utilizes internal bank transfers and domestic clearing services in different countries (e.g., USD through CHIPs).

For example, a USD transfer from Hong Kong to Brazil follows roughly these steps:

1. Send Message: A bank in Hong Kong sends a SWIFT message to a bank in Brazil, notifying it of the transfer information.

2. Choose Route: The remitting bank in Hong Kong selects a settlement route and sends a SWIFT message to an intermediary bank.

3. Fund Settlement:

- The remitting bank internally settles by transferring the US dollars from its Hong Kong branch to its New York branch.
- The New York branch sends the funds to the receiving bank's New York branch via CHIPS.
- The receiving bank internally settles by transferring the funds to Brazil.

Even in this simple scenario, as each step requires daily settlement and each intermediary point incurs fees, the entire process takes 3-5 business days, with costs accumulating at each transfer step.

This transfer can become even more complex due to other factors, such as:

● Using Local Currency: If the recipient in Brazil only accepts Brazilian Reals, and the sender only has Hong Kong Dollars, the sender must first convert HKD to USD to use the above fund transfer route, and then convert it to Brazilian Reals at the Brazilian bank.

● Small Banks: Banks without a New York branch need to route through a large bank with USD capabilities, further adding steps and costs.

Moreover, in the traditional clearinghouse model, a country can also facilitate cross-border currency clearing by establishing an offshore clearing bank to accommodate foreign banks (e.g., CIPS for RMB transfers). However, these efforts are still limited to a single currency and subject to a slow top-down expansion process. For example, the majority (73%) of offshore RMB transfers still rely on Hong Kong (akin to CHIPS through New York) and frequently use SWIFT instead of solely relying on CIPS.

Remittance Operators: Existing Cross-Border Payment Improvement Methods

Remittance Operators (MTOs) are one of the innovative approaches to addressing inefficiencies in cross-border transfers. MTOs are widely used in international e-commerce and personal remittances. Companies like Western Union, Wise, and Airwallex are well-known brands in their respective regions and customer bases.

The role of MTOs is akin to a user-driven cross-border clearinghouse. The sender transfers the local currency to the MTO's local bank account and notifies the MTO, thus "depositing" into the MTO's ledger. Subsequently, the MTO calculates the equivalent amount in the recipient's currency and pays the corresponding amount from the recipient's country bank account to the recipient's local account, completing the "withdrawal."

This approach is efficient because it effectively avoids actual cross-border movement of funds. The "cross-border" part of each transaction is only recorded in the MTO's ledger and then settled in the recipient's country through the MTO. Therefore, the primary cost for an MTO is not related to cross-border activity but mainly maintaining its liquidity pool in the service region. In regions where the flow of funds is balanced (e.g., between Singapore and Hong Kong), the liquidity pool remains relatively stable and requires minimal maintenance. In situations where the liquidity pool is unbalanced (e.g., from the U.S. to Mexico), MTOs utilize batch transfers and currency conversions to reduce the cost of individual cross-border transfers.

However, despite its high efficiency, MTOs only handle a small portion of the total cross-border transfer volume. Leading MTOs such as Wise or Remitly process less than $200 billion in transactions annually, generating approximately $1 billion in revenue. It has been reported that the entire MTO industry's annual revenue is $42 billion, leading us to estimate that MTO transfers represent around 3-5% of the total cross-border remittance volume.

Several factors may be contributing to MTOs' inability to dominate the cross-border transfer market:

● Large organizations typically prefer bank transfers for security reasons.

● Traditional wire networks offer broader coverage, while MTOs usually support only popular destinations and currencies.

● Limited liquidity pool sizes may restrict MTOs from handling large transfers.

Furthermore, MTOs incur additional operational costs, such as maintaining retail outlets or a dedicated sales team, expenses that banks can spread across their broader range of services.

It is worth noting that cross-border transfers via cryptocurrency exchanges (e.g., Bitso) follow more of an MTO model, where the core transfer occurs on the exchange's ledger itself, rather than leveraging the blockchain transfer capabilities of the cryptocurrency. The sender deposits dollars into the cryptocurrency exchange account, sends a stablecoin to the recipient's exchange account, and then withdraws to the recipient's local bank account. During this process, the cryptocurrency exchange only updates its centralized ledger and manages the deposits and withdrawals to and from the local bank accounts. The existence of cryptocurrency primarily serves as an alternative way to fund accounts rather than being an integral part of the underlying transfer mechanism.

Stablecoins for Cross-Border Transfers: A New Way Combining MTOs and Banks

Stablecoins can integrate the MTO model into traditional bank cross-border transfers. As mentioned earlier, stablecoins have facilitated the establishment of "open clearinghouses" that transcend geographical limitations, enabling direct, single-currency transfers between any banks. For instance, a USD transfer from Hong Kong to Brazil that traditionally required a three-stage relay can now be achieved through a direct on-chain stablecoin transfer between two banks, taking seconds and costing less than $1.

For transfers that require currency exchange (such as Hong Kong Dollar to Brazilian Real), a simple solution is to first convert Hong Kong Dollar to US Dollar or Chinese Yuan for stablecoin cross-border settlement. Then, after local off-ramp, convert to Real. This model is already a significant improvement compared to traditional wire transfers. A better cross-border transfer method is to integrate currency exchange into an "Open Settlement Network." Once both the Hong Kong Dollar and the Brazilian Real have their own stablecoins, banks can simply perform blockchain on/off-ramp in local currency, while the exchange between Hong Kong Dollar and Brazilian Real can be done through an on-chain transaction fund pool exchange. In this way, banks can participate in cross-border transfers without the need for foreign exchange capabilities, thereby expanding the range of participating banks. Of course, this model requires that all participating currencies be backed by compliant stablecoins accepted by each country, and this day is yet to come.

It is worth noting that SWIFT, as the most widely accepted global banking communication platform, will still play a crucial role in cross-border transfers. While stablecoins can significantly improve the settlement process, transaction initiation still requires a shared platform to communicate transfer details. Just as card networks will continue to exist and stabilize stablecoin payments, SWIFT can still play its role in interbank communication in the stablecoin world.

After Stablecoins, Where Do Banks Stand?

The achievement of an "open-source digital wallet" through stablecoins may take away some of the retail business of banks. For the credit card market mainly issued by banks, the market preference for stablecoin payments may reduce credit card usage, thus reducing the income banks receive through card issuance. This may prompt banks to shift from issuing credit cards to providing consumer credit and consumer protection services through integration with retailers or wallet applications. In addition, personal deposits may appear more in the form of stablecoins on the chain rather than bank account balances, prompting banks to explore new ways to attract deposits, such as on-chain custody or RWAs.

At the same time, bank infrastructure still has its advantages. For example, central bank-supported clearinghouses provide ample liquidity for large-value real-time settlements. In contrast, stablecoin transfers require pre-funding of on-chain accounts, so traditional clearinghouses may still have an advantage in terms of capital efficiency for large-value transfers. Additionally, key bank capabilities, such as lending, combined with their strong risk management capabilities, remain indispensable for the modern economy. Lastly, banks can still serve as gateways for users to access more financial and asset services.

A possible scenario is that banks will gradually move their capabilities onto the chain, whether through the bank's own transformation or the emergence of new banks, similar to how banks transitioned from branches to online banking in the internet era. Users' bank accounts may evolve into on-chain IDs, with banks serving only as on-chain asset custodians. The financial products recommended by banks may also shift from funds and wealth management to tokenized real-world assets (RWAs). Similarly, loan services may integrate into on-chain DeFi, adding the bank's risk management and compliance capabilities.

At its core, the modern financial system is built around banks, with central banks responsible for creating money, commercial banks distributing and amplifying the money supply under regulation. Stablecoins have brought new possibilities for banking services, forcing banks to adapt to new business models. Banks that fail to keep up with the trend may be eliminated, but the banking sector as a whole will continue to play a significant role in the world.

Conclusion

This article focuses on the use cases and potential of stablecoins in onshore scenarios where major economy regulatory frameworks are already in place. There are many other topics regarding stablecoins, such as on-chain native stablecoins, yield-bearing stablecoins, stablecoin competitors (e.g., central bank digital currencies or tokenized deposits), and the political motivations driving stablecoin adoption, among others. We will explore these topics in future articles.

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