Well-known venture capital firm A16Z: Disruptive opportunities for stablecoins

Source / A16ZCrypto    Editor / far@Centreless Compiler / Centreless    X(Twitter) @Tocentreless

Background of the Payment Industry

The scale of the payments industry is unimaginable. In 2023, the global payments industry processed 3.4 trillion transactions, with a total transaction amount of a staggering $1.8 quadrillion and generated $2.4 trillion in revenue. In the United States alone, credit card payments reached $5.6 trillion, and debit card payments reached $4.4 trillion.

Despite the ubiquity and scale of the payments industry, payment solutions remain expensive and complex, although payment apps often shield this experience from consumers. For example, Venmo is a peer-to-peer payment app that looks simple and easy to use on the front end, but its back end hides complex bank integrations, debit card processing mechanisms, and countless compliance requirements. Further adding to the complexity, payment solutions are often built on top of each other, and people still use a variety of payment rails, including cash, debit cards, credit cards, peer-to-peer payment apps, ACH (Automated Clearing House), checks, etc.

The four main dimensions for measuring payment products are: timeliness, cost, reliability, and convenience.

Where Stablecoins Come In

Stablecoins can leverage the payments industry precisely because they cut in where existing payment solutions fail: high cost, low availability or high friction. At the same time, stablecoins are more advantageous in scenarios where other services bundled with payment solutions (such as identity verification, credit, compliance, anti-fraud protection and bank integration) are not necessary.

Take remittances as an example. It often happens out of helplessness. Many remittance users belong to the "underbanked" population and use highly fragmented financial services. Therefore, these users do not see much value in the integration between traditional payments and banking services. Stablecoin payments have structural advantages such as instant settlement, low cost and no intermediaries, which are attractive to all payment users or builders. After all, it costs less than $0.01 to send $200 from the U.S. to Colombia using a stablecoin; the cost of a traditional corridor is $12.13. (Remittance users must send money regardless of the cost, but they benefit greatly from lower fees.)

International corporate payments, especially for small businesses in emerging markets, also face high fees, long processing times, and weak bank support. For example, a payment from a clothing manufacturer in Mexico to a textile factory in Vietnam will typically involve four or more intermediaries—a local bank, a foreign exchange service, a counterpart bank, and then a foreign exchange service and local bank in the other country. Each intermediary takes a cut and introduces the risk of failure.

Fortunately, these types of transactions tend to occur between two parties with a clear partnership and are repeated. With stablecoins, the payer in Mexico and the receiver in Vietnam can try to bypass those slow, bureaucratic, and expensive intermediaries. They may need to find local pick-up and drop-off lanes and adapt to the process, but in the end, they can enjoy a faster, cheaper and more controlled payment experience.

Small transactions—especially those offline transactions with low fraud risk, such as those at restaurants, coffee shops or corner stores—are also a promising opportunity. With low profit margins, these merchants are very cost-sensitive, so even a 15-cent transaction fee in a payment solution can have a real impact on their profitability.

Whenever a customer spends $2 on a cup of coffee, the coffee shop actually only gets about $1.70 to $1.80, and nearly 15% of the fees are taken by the payment company - just to complete the transaction. Credit cards in this scenario only provide "convenience": neither consumers nor merchants need the additional features included in the high rates. Consumers do not need anti-fraud protection (they just got handed a cup of coffee) or loans (the coffee is only $2). Coffee shops also have very limited needs in terms of compliance and bank integration (many coffee shops use restaurant management systems or even do not use them at all). Therefore, if there is a cheap and reliable alternative, it is foreseeable that these merchants will actively adopt it.

Stablecoins: Payment without intermediaries

The internet enabled the free flow of information around the world. So why is it still so difficult and expensive to transfer money?

The early internet promised a future where anyone could publish, build, or trade without permission. Protocols like email and the World Wide Web were open and neutral, and they sparked an explosion of creativity, innovation, and entrepreneurship. But somewhere along the way, we went off the path.

Today’s global financial system looks more like a jigsaw puzzle of corporate networks: centralized, closed, and extractive. Behind every transaction is a complex and cumbersome "Ruble Goldberg machine", including points of sale, payment processors, acquiring banks, issuing banks, local banks, intermediary banks, foreign exchange institutions, card organizations, etc. - each link takes a cut, slows down, and imposes restrictions. These networks effectively impose unnecessary "taxes" on commerce and suppress innovation, turning the financial "plumbing" that should be neutral into a high-friction bottleneck.

Stablecoins - cryptocurrencies pegged to stable assets such as the US dollar - provide us with a way out, a chance to restart, and bring the original vision of the Internet to the world of money.

The disruptive opportunity of stablecoins

Today’s payments architecture was not designed for the internet; it was born from a world of intermediaries that were originally used to manage local cooperation, fraud prevention, and operations. Even today, international remittances cost as much as 10%—in September 2024, the average fee for a $200 remittance was 6.62%. This is not just friction, it’s a regressive tax on the world’s poorest workers. The system we inherited is slow, opaque, and exclusive, leaving billions of people with limited access or completely excluded from the global financial system.

For many businesses, the inefficiencies of the legacy payments system also represent a huge cost. Stablecoins can greatly improve this situation. For example, a B2B payment from Mexico to Vietnam takes three to seven days, costs between $14 and $150 per $1,000, and may go through five stages, each of which takes a cut. Stablecoins can bypass traditional systems, such as the international SWIFT network and its clearing and settlement processes, making such transactions almost free and instant.

This is not theory, it's already happening in reality. For example, SpaceX is using stablecoins to manage corporate finances, including repatriating funds from countries with currency turmoil (such as Argentina and Nigeria). Other companies, such as ScaleAI, use stablecoins to quickly and cheaply pay their global workforce. In the B2C field, Stripe is the first service provider to support crypto payments on a large scale. Its current checkout fee is 1.5%, which is only half of the traditional fee. This is a huge boon for some industries. Sam Broner of a16z crypto notes that for industries with very low margins, such as supermarkets, a 1.5% improvement could mean doubling net profits. (And in a competitive blockchain market, transaction fees are expected to continue to fall.)

Unlike the old, siloed financial architecture, stablecoins are inherently global. They run on blockchains—open, programmable networks that anyone can build applications on. No need to negotiate with banks in multiple countries, just plug into the network. People are already realizing the benefits: in 2024, stablecoin transactions reached $15.6 trillion, almost on par with Visa. While this number mainly represents financial flows rather than retail payments, its scale suggests that we are on the threshold of a transformation of financial infrastructure that no longer requires "patching up 20th century systems with duct tape."

We can build a whole new architecture from scratch, one that is truly native to the Internet - as Stripe puts it, "a room-temperature superconductor for financial services" that enables lossless value transfer rather than lossless energy transfer.

The WhatsApp Moment of Finance

Stablecoins are our first real opportunity to do to money what the technology of the "email revolution" did - make it open, instant, and borderless.

Think back to the development of text messaging. Before WhatsApp, you had to pay 30 cents to send a text across borders, and even then it wasn't guaranteed to be delivered. Until internet-native messaging emerged—instant, global, and free. Payments today are like text messaging in 2008: fragmented by borders, exploited by middlemen, and artificially limited.

Stablecoins offer a clean, built-from-scratch alternative. Instead of stitching together clunky, expensive, outdated systems, stablecoins run directly on a global blockchain. These systems are programmable, composable, and designed to scale across borders. Today, stablecoins have already slashed the cost of remittances: sending $200 from the U.S. to Colombia the traditional way costs $12.13, while using a stablecoin costs just $0.01. (The fees for converting stablecoins to local currency range from 5% to 0% and continue to fall due to competition.)

Just as WhatsApp disrupted expensive international calls, blockchain payments and stablecoins are changing the way the world transfers money.

Regulation: From Obstacles to Breakthroughs

People often see regulation as a hindrance, but wise legislation is precisely the key to the future.

Establishing a clear regulatory framework for stablecoins and crypto markets can truly drive these technologies from experimentation to the mainstream. For many years, decentralized finance (DeFi) has been trapped in a closed loop of "self-entertainment", not because the tools are useless, but because regulation is extremely difficult to connect with the traditional financial system.

Now the situation is changing. Policymakers are developing rules to identify and regulate stablecoins that protect consumers, preserve U.S. competitiveness, and encourage innovation. Smart regulation, such as a framework that distinguishes between “cyber tokens” and “security tokens,” can deter bad actors while providing clear direction for compliance builders. In fact, a forthcoming bill could pave the way for more widespread adoption and integration of stablecoins into the global financial system (details are being negotiated in Congress as of this writing).

Building Public Infrastructure for All

Traditional finance is based on private, closed networks, but the Internet has shown us the power of open protocols—like TCP/IP and email—that have driven global collaboration and innovation.

Blockchain is the Internet's native financial layer, which combines the composability of public protocols with the economic strength of private enterprises, and is neutral, auditable, and programmable. With the addition of stablecoins, we have an unprecedented "open money infrastructure."

Think of it as a public highway system: private companies can still build cars, do business, and build service areas, but the roads themselves are neutral and open to everyone.

Blockchains and stablecoins are not only reducing fees, they are giving rise to entirely new categories of software services:

• Programmed payments between machines: Imagine AI-driven markets that automatically trade computing power and services;

• Micropayments for media, music, and AI works: Set budgets and rules and let “smart wallets” automatically distribute rewards;

• Transparent payments and audit trails: make government spending traceable; Global commerce without intermediaries: complete international transactions at almost zero cost - in fact, this is already happening. The era of stablecoins and blockchain has arrived: the technology is mature, the market demand is strong, and the political will is strong to make this a reality. Congress may pass a stablecoin bill this year, and regulators are also developing a new framework to match risks with regulation. Just as early Internet startups broke out after getting rid of the suppression of telecom companies or copyright lawyers, the crypto field is also preparing to leap from financial experiments to the backbone of infrastructure, and stablecoins will lead the way.

  Instead of patching the old system, we can create a new, better one.