a16z: A Guide to Stablecoins

Original title: A guide to stablecoins: What, why, and how; Source: a16z crypto editorial department; Translation: Jinse Finance xiaozou

Stablecoins may be the first "killer app" of cryptocurrencies. In our Crypto Industry Status Report released at the end of 2024, it is pointed out that as the expansion upgrade has greatly reduced costs, stablecoins have achieved product-market fit. Its trading volume reached an all-time peak of $1.82 trillion in March this year. However, stablecoin activities are extremely poorly correlated with the crypto market cycle - even during periods of trading volume fluctuations, its non-speculative organic use continues to expand.

It is easy to underestimate the potential of stablecoins without a deep look at their impact on users, builders, and businesses. As one of the few transaction media other than cash and gold that does not require centralized gatekeepers such as payment networks or central banks, stablecoins are already one of the lowest-cost ways to transfer dollars (a cross-border transfer of $200 to Colombia costs less than $0.01). But the breakthrough of stablecoins is not only in reducing fees: they are programmable and scalable without permission. This means that developers can finally easily integrate globally available, fast and nearly free stablecoin infrastructure into their products, while building new financial technology features - companies from Stripe to SpaceX have begun to adopt it.

How do stablecoins subvert the global payment industry? Who will benefit the most from it? How should builders and companies plan? This article summarizes a series of views released by a16z crypto, starting with clarifying the definition of stablecoins and ending with the concept of currency reconstruction based on first principles, fully presenting the development context of the industry.

1、The Macro Picture: Stablecoins are the "WhatsApp moments" of money, nearly free and instant cross-border transactions

For the first time, stablecoins make money as open, instant and borderless as email.

Before WhatsApp, each international text message cost 30 cents. Today, Internet communications are instantly and free around the world. Payment systems are at the stage of the telecommunications industry in 2008: constrained by national borders, exploitative middlemen and deliberately high costs. Stablecoins will completely change this situation.

Currently, international remittance fees are as high as 10% (the average cost of sending $200 in September 2024 is 6.62%). These fees are not just friction costs - they are a disguised regressive tax on the world's poorest workers. Businesses are also plagued by inefficient global payments: B2B transactions in specific channels take 3-7 days to clear, and each $1,000 transaction costs $14-150, with up to five profit-sharing intermediaries. Stablecoins can bypass traditional clearing systems such as the SWIFT network, making transactions almost free and instant.

This is not a theoretical deduction: SpaceX has used stablecoins to manage funds (including withdrawing funds from countries with volatile currencies such as Argentina and Nigeria); companies such as ScaleAI use them to achieve fast and low-cost salary payments to employees around the world.

For more, please see "WhatsApp Moments of Stablecoins"

2,The Essential Definition of Stablecoins: Two Major Types and Common Misjudgments

The stablecoin landscape needs to be clearly demarcated. The history of banking development - both successful experiences and failed lessons - provides an excellent reference system for understanding its design space.

We expect stablecoins to accelerate the replay of banking history. Just as the U.S. currency began with simple banknotes and was later supplied through complex credit expansion, stablecoins will also undergo a similar evolution. This historical perspective helps us establish a comparative framework between stablecoins and the banking system, helping builders avoid the flaws and inefficiencies of traditional institutions.

Existing analysis often describes stablecoins from two dimensions: the degree of collateral (under/overcollateralized) and the degree of centralization. This is valuable for understanding the relationship between technical structure and risk. On this basis, we draw on the perspective of retail banks to propose two types of stablecoins and a common misjudgment:

Fiat-collateralized stablecoins

The operating principle is similar to banknotes in the U.S. National Bank era (1865-1913): users can directly redeem trusted fiat currencies. Its value is anchored to the underlying currency, but the trust depends on the reputation of the issuer and the redemption convenience of exchanges such as Uniswap. Currently, this type of stablecoin accounts for more than 90% of the total supply.

Asset-backed stablecoins

are generated by on-chain loans (CDPs), imitating the process of banks creating money through the fractional reserve system. When banks use mortgages, corporate loans, etc. to create money, lending protocols use on-chain assets as collateral to generate such stablecoins. As economic elements continue to be put on the chain, it is expected that: 1) more assets will become eligible collateral; 2) such stablecoins will account for a larger proportion of on-chain currencies.

Strategic Synthetic Dollars (SBSDs)

These tokens, which are anchored to $1, combine collateral assets and investment strategies (such as yield generation or basis trading), which are fundamentally different from true stablecoins. SBSDs are essentially hedge fund shares, which have audit difficulties, centralized exchange risks and asset volatility risks, and therefore do not have the core functions of stablecoins as a store of value and medium of exchange.

As the history of the development of the US banking industry shows, we expect on-chain dollars to continue to innovate and improve their security, transparency and capital efficiency.

For more information, please refer to "Looking at the Future of Stablecoins from the History of Bank Development in the United States"

3The widespread adoption of stablecoins can significantly reduce corporate costs

Transaction fees erode the bottom line of many companies. Reducing these costs through stablecoins can unlock huge profit margins for companies of all sizes. To illustrate this more vividly, we selected the 2024 fiscal year data of three listed companies to simulate the effect of reducing payment processing costs to 0.1%. [To simplify the calculation, this assessment assumes that these companies currently pay a comprehensive payment processing cost of 1.6%, and the cost of the fiat currency channel is negligible.]

Data from 2024 shows:

Walmart has an annual revenue of $648 billion and a profit of $15.5 billion. Its credit card processing fee expenditure is about $10 billion. Eliminating payment fees could increase profit margins by more than 60% just through cheaper payment solutions, all else being equal.

Chipotle, a fast-food chain with $9.8 billion in annual revenue, could pay $148 million in credit card fees on $1.2 billion in annual profits. Reducing payment processing fees alone could increase its profit margins by 12%.

Kroger, a national supermarket chain, would benefit the most, as it has the lowest profit margins (less than 2% like most grocers). Amazingly, its net profit is almost the same as its payment costs. Using stablecoins could double its profits.

Note: Retailers and payment processors are not in opposition here; they are fighting high-fee payment solutions together. Payment processors are also low-margin businesses, with most of their profits captured by credit card organizations and issuing banks. For example, Stripe charges 2.9% + $0.30 to process online retail payments, but more than 70% of that goes to Visa and the issuing banks.

Stablecoin transactions bring higher profits to payment processors, with lower fees and no need to pay network gatekeepers. Stripe has taken the lead and charges only 1.5% for stablecoin payments (a discount of more than 50% over credit card rates). To support this business, Stripe completed its largest acquisition in history - the acquisition of stablecoin payment platform Bridge.xyz.

As more payment processors such as Block (formerly Square), Fiserv, and Toast adopt stablecoins, competition is expected to further lower fees and promote the popularity of stablecoins in business scenarios.

For more information, please refer to "How stablecoins will devour the payment industry"

4, small and medium-sized enterprises will be the first to abandon credit cards

On the surface, the most likely to adopt stablecoins first seem to be Internet-native companies such as social platforms and paid games. But physical merchants that are actually sensitive to fees—restaurants, coffee shops, convenience stores, etc.—can benefit more by accepting stablecoins. These businesses are hit hardest by transaction fees, but rarely use the additional features that credit card companies use to justify high fees.

Typical scenario: When a customer pays $2 for a cup of coffee, the coffee shop only receives $1.7-1.8. Nearly 15% of the amount goes to intermediaries such as credit card companies.

But in this scenario: the consumer does not need fraud protection (already in the physical cup of coffee) or credit services (only $2 spent). Coffee shops also have very low requirements for compliance and bank integration. If there is a cheap and reliable alternative, these merchants will actively adopt it.

Stablecoins can help small businesses recover lost profits. Of course, there is a cold start problem: the current stablecoin user base is limited. But because community merchants have a strong relationship chain with customers, brands with regional influence are likely to become the first wave of forces to promote the popularization of stablecoins.

For more information, please refer to "14 Crypto Big Ideas That Excite Us in 2025"

5Beyond Payment: Stablecoins as Public Goods Give Birth to a New Software Paradigm

Traditional finance is built on private closed networks. The Internet has shown us the power of open protocols such as TCP/IP and email to promote global collaboration and innovation.

Blockchain is the Internet's native financial layer, combining the composability of public protocols with the economic efficiency of private enterprises. They are trusted, neutral, auditable and programmable. With the addition of stablecoins, we get a truly open monetary infrastructure for the first time - just like a public highway system: private companies can still build vehicles, commercial facilities and roadside attractions, but the roads themselves remain neutral and open to everyone.

Stablecoins will not only disrupt the payments industry for the reasons mentioned above, but also enable entirely new categories of software:

Programmatic payments between machines:Imagine AI-driven markets that automatically coordinate transactions of resources such as computing power.

Micropayments for content creation:Automatically distribute rewards for media, music, and AI contributions through "smart" wallets that set simple rules.

Fully audited and transparent payments:A potential solution for government spending tracking systems.

Global trade without redundant intermediaries:International settlements are now possible at near-zero cost and in real time.

Blockchain networks and stablecoins are at a historic moment: the convergence of technology, market demand, and political will is making these applications a reality. Crypto is about to cross the chasm—from a financial experiment for the few to an infrastructure pillar for the many, and stablecoins will lead the way.

For more information, please refer to "Whatsapp Moment of Stablecoins"

6Decentralized Stablecoins: The Cornerstone of Digital Native Currency

Stablecoins allow financial system designers to reconstruct money from first principles. The core principle is control - that is, which entities create and regulate the money supply.

The current monetary system is based on a close symbiotic relationship between the Ministry of Finance, the Central Bank and commercial banks. This system has gradually exposed fundamental limitations such as risk management defects and inefficient governance, and it is difficult to adapt to the needs of an increasingly digital economy.

As mentioned earlier, stablecoins will reshape the entire financial intermediary system. However, many centralized stablecoins still rely on traditional reserve and money creation mechanisms when solving pain points such as international payments, inheriting the inefficiency and fragility of the existing system.

Decentralized stablecoins with algorithm-anchored prices show better characteristics. Overall, DeFi has multiple advantages over traditional financial frameworks:

Anti-fragility:Issued through a distributed network, eliminating the risk of single point failure.

Improved transparency:The audit trail of reserve assets that can be checked in real time on the chain empowers regulators and market participants.

Efficiency revolution:Modularity and programmability bring capital efficiency optimization, countering the trend of centralized profit grabbing.

Future compatibility:As a digital native financial tool, it is more suitable for consumer-grade financial application development than the old bank API.

Decentralized stablecoins are building a reliable, efficient, and trustless monetary system: anyone can issue highly transparent forms of currency through a permissionless/semi-permissioned mechanism. These systems aim to rebuild the checks and balances of value anchoring, directly connecting assets (reserves) and liabilities (tokens), thereby creating a truly digital native currency.

For more information, please participate in "Why we need decentralized stablecoins"