You can’t have missed the stablecoin vibe. While bitcoin and the rest of the cryptocurrency market is in the doldrums after falling from record levels in October, everyone else is talking about issuing tokens whose value is fixed, tied to a real-world asset. Mainly the dollar.
Not just the dollar, of course. Just this week, AllUnity, a German joint venture between DWS, Galaxy and Flow Trader, issued a Swiss franc-based token (CHFAU) and SBI Holdings and Startale Group introduced a yen (JPYSC) version. Earlier this month, Agant said it is working on a pound stablecoin, and Hong Kong said it plans to start handing out stablecoin licenses in March.
Then there’s the revelation that Mark Zuckerberg-led Meta (META) is looking to add stablecoin-based payment capabilities early in the second half of the year. The company tried and failed to introduce the Libra stablecoin, renamed Diem in 2019, in the face of stiff opposition from lawmakers and regulators.
But Meta’s proposed return to stablecoin-based payments later this year bears little comparison to Libra/Diem, according to Libra co-creator Christian Catalini, who is now a professor at MIT and founder of the MIT Cryptoeconomics Lab.
What’s different now, Catalini says, is that stablecoins are taking a backseat, offered by multiple providers and becoming part of the payments infrastructure. The once-hyped businesses of issuance and orchestration of stablecoins, or coordinating payments across different blockchains and converting between tokens and fiat for payment purposes, are becoming a commodity, he said.
“Not only Meta, but also Google, Apple, they will all use multiple providers, as is the case when they do payment disbursements,” Catalini said in an interview with CoinDesk. “So I would expect the market to be commoditized in the future, rather than a branded stablecoin. In a sense, it is a sign that the market has matured.”
This sentiment was also expressed by Meta’s vice president of communications, Andy Stone, who said the move to bring back stablecoin payments was simply “allowing people and businesses to make payments on our platforms using their preferred method.”
Billions of users
The true competitive advantage of stablecoins, the moat that keeps competitors at bay, now lies in distribution, Catalini said. Whoever has the direct relationship with the end user will capture the greatest value. And Meta has billions of users across Facebook, WhatsApp and Instagram, nearly 3.6 billion according to its most recent earnings report.
The focus on contacts and reach is a marked shift from accumulating value by delivering stablecoins to a wallet, or moving from fiat to crypto and then back to fiat, the so-called stablecoin sandwich required for regular payment transactions.
This shift has started to manifest recently, with news of companies abandoning acquisitions of stablecoin orchestration companies.
It’s also good news for traditional operators like card networks, fintechs, neobanks and some wallet companies that have an advantage because they actually own the point of contact with the end user, Catalini noted. Stablecoin payments threaten to undercut the lucrative interchange fees claimed by payment networks like Visa and Mastercard, but card networks have a significant advantage when it comes to distribution.
“Yeah [the card networks] If they can commodify the rails and assets, they will be able to defend their business,” Catalini said. “Commoditization of assets is inevitable; “There will be a lot of stablecoins and a lot of banks will want their own, so things will get interesting on the rails.”
Also in the fray is Stripe, Meta’s long-time payments partner, whose CEO Patrick Collison joined Meta’s board of directors a year ago and is a potential vendor Meta could recruit for its stablecoin project.
The payments giant’s aggressive crypto power plays should not be underestimated: Stripe bought stablecoin specialist Bridge for $1.1 billion last year and has built its own blockchain called Tempo.
Still, Catalini questioned whether other companies will flock to a competitor’s blockchain, even if it is supposedly a public network.
“If you’re another large payment service provider, would you want to take advantage of Stripe’s Tempo? Probably not,” Catalini said. “It goes back to the key challenge of making these networks truly open and neutral, which is the goal of cryptocurrencies. But of course, it’s difficult to achieve from a practical perspective, unless you’re building on top of something already established like Ethereum, Bitcoin or Solana.”
