Many early cryptocurrency promoters trumpeted the end of fiat cash and a new form of finance. But the rise of stablecoins has shown the old US dollar is still dominant — and point toward a new kind of money for the future global economy.
When stablecoins first emerged, they were designed to solve one of crypto’s original challenges, namely breaking an insidious pattern of hyper volatility. Rather than turning to new-fangled technologies or novel market structures, the world’s most successful stablecoins turned (to varying degrees) to the US dollar as the anchor of trust and economic stability. Just as in the real world where the greenback carries outsized weight as the go-to currency for global commerce and reserves, the US dollar now reigns supreme in the always-on digital economy.
While not all stablecoins are created equal, virtually all successful stablecoins reference the dollar. There are more than $190 billion in circulation, as of December 2024, cumulatively supporting trillions in novel economic activity. The novelty is not with the transactional activity per se, but the fact that for the first time in history, stablecoins show the way toward an era of open, programmable and composable money with the scale and reach of the internet.
‘For the first time in history, stablecoins show the way toward an era of open, programmable and composable money with the scale and reach of the internet’
Designed for the internet
Successful stablecoins are designed to import the critical underlying economic features of money: serving as a store of value, unit of measure and a medium of exchange. The difference, however, is that stablecoins are designed for the scale, reach and instantaneity of the internet. That comes courtesy of changing the form factor of money into cryptographically secured digital objects (aka tokens), whose circulation and transactions are recorded on blockchains. Harnessed correctly, stablecoins — and broader blockchain-based financial services — do not compete with the existing financial system, but rather complete the system’s unfinished work. Unlike the advent of the internet, which was a genuinely disruptive technology that saw software and code ravenously devour and reshape entire industries, blockchains are augmenting technologies that will expand the capabilities of the traditional financial system.
Despite early promises that crypto decentralization and democratization would make incumbent banks and Wall Street less relevant, the most successful and trusted digital assets are built on top of these pillars of the real economy instead of around them. By this measure, in technology parlance, stablecoins are the first killer applications of what some are calling the third generation of the internet, or Web3. In Web3, people are able to read, write and own digitally unique content, attributes and assets, including stablecoins as an internet native form of money. Of all Web3 products or services to date, stablecoins have the greatest promise for serving billions of end-users — and already support trillions in economic activity in a fast-evolving, open-source and developer-driven market.
Like any novel system, however, especially one involving the promise of better, faster, cheaper and universally accessible money, the rise of stablecoins has not been risk-free. Several stable-in-name-only algorithmic stablecoins like Terra-Luna saw total collapse. Other stablecoins were initially designed to cater to illicit activity. And other stablecoin projects have proven to be either little more than vaporware or securities hiding in plain sight. Crypto finance, like the dark web before it, has been mired with peaks and valleys. There were so-called “crypto winters” in the shadows of the valleys of early crypto finance.
Stablecoins are now powering a crypto spring, and a thousand flowers of responsible, open and prosperity-enhancing opportunities are blossoming. The seedbed of this financial inclusion super bloom are basic internet-connected devices, which courtesy of the mobile internet revolution are now within reach of nearly all of humanity. More than 63% of the people on the planet have access to an internet-connected mobile device and a veritable space race is underway to connect the remainder with ubiquitous and democratizing high-speed internet. These devices are rapidly enabling open-source digital wallets that serve as the bottom rung of the ladder of economic mobility — and dollar-denominated stablecoins are their digital thrift. A bottom-up financial revolution is underway and globally accessible, near-instant peer-to-peer payments are becoming the flywheel of modern money.
It is fair to think of the tumultuous early days of stablecoins and crypto finance as a down payment on the future of finance and money — a future in which everyone, everywhere can access their money, and even complex financial services — with little more than a basic internet-connected mobile device. Stablecoins, together with a global proliferation of digital wallets, mobile money applications and a highly competitive ecosystem of fintechs and neo-banks, are becoming the connective tissue of a worldwide web of financial access. A veritable internet of value is being developed, albeit in its dial-up phase. The Bank for International Settlements refers to this new world as the financial internet, or “finternet”, which still favors an operating and regulatory model designed for incumbents and closed-loop payment systems.
The open money era
The real internet of value, like the internet of information before it, will be bottom-up open and globally networked — and, much to the chagrin of many policymakers and regulators, it is already here.
Technologists and developers are auguring an era of open money that hearkens to lifting the yoke of corporate captivity when traditional internet and telecommunications access depended on fixed-line infrastructure. Today, courtesy of the mobile internet and other pro-consumer, pro-competition innovations and regulations such as phone number portability, it is inconceivable to think of people going back to the days of informational siloes or telecommunications walled gardens.
The walled gardens of finance, thorny and barbed as they may be, are beginning to crumble, and even large payments-processing incumbents such as PayPal, Stripe, MoneyGram, Visa, and Mastercard are turning to stablecoin constructs for open payments or directly supporting stablecoins as a settlement currency. That acknowledges that the denomination of a payment is whatever medium of exchange the buyer and seller agree on. This is a stark reminder that the underlying technologies of blockchain finance are not only coming of age, they are critically fading to the background as foundational technologies. The result is a dollar settlement cloud layer, where open blockchains serve as financial services shareware.
Like the early web, it may be enticing to dismiss stablecoins and blockchain finance as a mere fad induced by crypto get-rich-quick schemes. The durability and global proliferation of stablecoins shows that these digital currency innovations are so much more than fringe finance. Indeed, they may be the perfect monetary innovation for a globalized but polarized world, where access to hard currencies as a projection of soft geoeconomic power has reached a point of diminishing returns — unless money and how it is accessed can be profoundly transformed. Rather than getting hung up on jargon or terms of art, it is better to think of stablecoins and all of their rebranded offspring, such as bank-issued deposit tokens or so-called central bank digital currencies (CBDCs), as collectively representing a wholesale upgrade of the international settlement system. As many countries work to upgrade their fast payment systems, intrabank clearing, or cross-border payment integrations, a stablecoin by any other name is still a stablecoin.
As regulatory regimes evolve to encompass crypto market activity, stablecoins are increasingly being treated as legal electronic money. Soon, all regulated stablecoins may bear similar balance-sheet, economic, and liquidity constructs.
Integrating stablecoins
All openly accessible digital currencies — especially stablecoins — enjoy network effects by supporting peer-to-peer economic activity. They also have the advantage of being programmable and composable. The transmission rails, and not the singular advantages of one digital asset or another, are how the digital currency space race will be won. By this measure, stablecoins generally have become the killer application of the internet financial system because they are the perfect blend of Moore’s Law, Metcalfe’s Law, and network effects. In short, stablecoins enjoy technological escape velocity.
Focusing on building a better digital currency mousetrap, or debating which digital currency product is superior or which type of issuers are better misses the real breakthrough: the rails on which stablecoins ride, not the digital tokens themselves.
‘Stablecoins only really work if they enjoy integration with the real economy and the real banking and payment systems’
Stablecoins prove that blockchains can be an augmenting technology, perhaps less like the disruptive revolution of the internet and more akin to the advent of cloud computing, which in its early days was also received with institutional trepidation. Stablecoins only really work if they enjoy integration with the real economy and the real banking and payment systems. Without these critical on- and off-ramps, stablecoins may be relegated to being the monetary equivalent of airline miles, not without some value but severely limited in practical usefulness for the holder. Many other crypto assets have likewise ended up representing stranded value unless there are cash-in and cash-out points. These points of connectivity are not only increasingly regulated and controlled for ever-present financial crime risks, they are also supported by some of the world’s largest and most-trusted financial institutions.
This convergence between the crypto stablecoin ecosystem and the traditional financial system will continue as policy progress takes hold in major financial centers around the world. Already, most major economies have enshrined minimum legal and regulatory expectations for stablecoins into law, including standards on reserve assets which ensure stablecoins do not fail — the regulatory equivalent of a “show me the money” test. In addition to reserve requirements, financial crime compliance bodies continue to lead the way in harmonizing rules in order to ensure that digital asset markets give bad actors few places to hide. The digital breadcrumbs left behind by all blockchain-based transactions have long been a prized feature (and a bug) of digital money. Conformity with financial crime-fighting standards like the Travel Rule was harmonized by the Financial Action Task Force (FATF) early on in the growth of crypto markets.
Critical standards for verifiable credentials and digital identity are vital companion innovations as internet-scale digital money continues to proliferate alongside digital wallets and transparent open ledgers. This will help guard against knee-jerk reactions that would force the nascent internet of value into closed siloes. A financial services equivalent of the US Transportation Security Administration’s trusted traveler program is needed to ensure that all the connected endpoints on this global internet money network remain universally accessible — while at the same time, law enforcement and good actors can maximize the cost on illicit actors, rather than penalize entire regions of the world. Prior to stablecoins and open blockchain-based financial services, global approaches to financial crime compliance remained largely unchanged from the post-9/11 framework, presuming (at least when it comes to financial access) guilt before innocence.
In certain countries or regions, even well-intentioned banks or large financial services firms face an insurmountable de-risking cost burden for providing even basic financial services because the direct and indirect risks of doing so are prohibitive. The openness, transparency, and auditability of blockchain-based financial services allow policymakers, law enforcement, and financial technology experts to ask new questions and develop entirely new financial access frameworks that not only combat illicit activity in near real-time, but presume innocence and preserve financial privacy instead of imposing a burden of guilt that precludes even basic financial access, which is a human right. The breakthrough development of dollar-denominated stablecoins being used as a form of instant, auditable, and corruption-resistant digital cash can also offer an entirely new blueprint for delivering humanitarian aid and cash assistance in some of the world’s most complex and risky environments.
The stablecoin economy
From supporting refugees in an active war zone such as Ukraine together with the UN Refugee Agency (UNHCR), to supporting the pandemic response effort by a disparate network of thousands of doctors across Venezuela, the use of stablecoins by the world’s leading aid agencies underscores one of their core use cases: delivering an instant, verifiable payment and a corresponding dollar store of value to the very edges of the world. When compared to cash in the humanitarian context — which is often delivered under intense logistical and security constraints, and which in the end may serve as little more than a honey pot for corruption, bribery, and fraud — stablecoins are a perfect digital payload to expanding humanitarian reach while critically improving the often-opaque accountability standards of taxpayer-supported humanitarian aid.
Indeed, international transfers of stablecoins are not really cross-border payments any more than an email sent to someone in another country should be thought of as cross-border mail. Rather, you send a stablecoin payment to a trusted recipient in a near-free, near-instant, and entirely verifiable manner. Compared to nearly all payment systems and networks, which are largely messaging platforms transmitting debit and credit instructions to counterparty financial institutions or people, stablecoins achieve settlement finality the moment they are received. This is a breakthrough in payments, increasing the velocity of money and the perimeter of rules-based financial activity that can be supported in the internet age.
We live in a world where our financial needs do not take bank holidays or rest at night and on weekends, unlike much of the traditional brick-and-mortar banking system. Dollar-referenced stablecoins are pushing beyond these old conventions and ensuring that the three principal features of money — store of value, unit of measure, and medium of exchange — enjoy an internet-scale upgrade. Thus far, stablecoins are fighting the risk of technological obsolescence of US dollars. Central banks around the world would do well in encouraging rules-based, principled, and technology-neutral ways to ensure their currencies are natively supported on the internet.
‘It is hard to envision building the global economy of the future without the money of the future’
It is hard to envision building the global economy of the future without the money of the future. As legal and regulatory clarity takes hold around the world to allow for stablecoins as a form of a super-intelligent digital money, economic connectivity at the next technological and human frontiers is all but assured — from streaming machine-to-machine payments to AI-powered agents capable of monetizing new activities. Even the most complex tasks in the around-the-clock internet economy have a form of always-on smart money in today’s generation of stablecoins.
This article was originally published in the January 2025 edition of Duckbucks magazine.
