a16z: Stablecoin Guide

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

Stablecoins may be the first “killer application” of cryptocurrency. Our “State of the Crypto Industry Report” to be released at the end of 2024 points out that, as scalability upgrades significantly reduce costs, stablecoins have achieved product-market fit. In March of this year, their trading volume reached a historic peak of $1.82 trillion. However, stablecoin activity has a very low correlation with the cryptocurrency market cycle—its non-speculative organic use continues to expand even during periods of trading volume fluctuations.

If we do not deeply observe the impact of stablecoins on users, builders, and businesses, it is easy to underestimate their potential. As one of the few mediums of exchange that do not require centralized gatekeepers like payment networks or central banks, stablecoins have become one of the lowest-cost methods for transferring dollars (the fee for a $200 cross-border transfer to Colombia is less than $0.01). However, the breakthrough of stablecoins is not just in cost reduction: they possess permissionless programmability and scalability. This means that developers can finally easily integrate a globally available, fast, and nearly free stablecoin infrastructure into their products while building new fintech functionalities — companies ranging from Stripe to SpaceX have already begun to adopt them.

How do stablecoins disrupt the global payment industry? Who stands to benefit the most? How should builders and enterprises position themselves? This article summarizes a series of viewpoints published by a16z crypto, starting with clarifying the definition of stablecoins, all the way to the reconstruction of currency based on first principles, presenting a complete picture of the industry’s development trajectory.

1**、Macro Perspective: Stablecoins are the currency’s ”WhatsApp moment”, enabling near-free instant cross-border transactions.

Stablecoins have made currencies as open, instant, and borderless as email.

Before WhatsApp was launched, each cross-border SMS cost 30 cents. Now, internet communication has achieved instant and free global transmission. The payment system is currently in the 2008 stage of the telecommunications industry: constrained by national borders, intermediary exploitation, and deliberately designed high costs. Stablecoins will completely change this situation.

Current international remittance fees can be as high as 10% (the average cost for a $200 remittance in September 2024 is 6.62%). These fees are not only friction costs but also a disguised regressive tax on the world’s poorest workers. Businesses are similarly hampered by inefficient global payments: B2B transactions through specific channels take 3-7 days to settle, costing $14-150 per $1000 transaction, involving up to five profit-sharing intermediaries. Stablecoins can bypass traditional clearing systems like the SWIFT network, making transactions nearly free and instantaneous.

This is not a theoretical deduction: SpaceX has used stablecoins to manage funds (including divesting from currency-volatile countries like Argentina and Nigeria); companies like ScaleAI use this to provide fast and low-cost salary payments to global employees.

For more, please refer to “The WhatsApp Moment of Stablecoins”

2**、**Definition of Stablecoins: Two Main Types and Common Misunderstandings

It is necessary to clearly delineate the landscape of stablecoins. The history of banking development - including successful experiences and lessons learned from failures - provides an excellent reference for understanding its design space.

We expect stablecoins to accelerate the reenactment of banking history. Just as U.S. currency began with simple banknotes and later expanded supply through complex credit, stablecoins will also undergo a similar evolution. This historical perspective helps us establish a comparative framework between stablecoins and the banking system, assisting builders in avoiding the flaws and inefficiencies of traditional institutions.

Current analysis often describes stablecoins from two dimensions: the degree of collateralization (under-collateralized/over-collateralized) and the degree of centralization. This is quite valuable for understanding the technical structure and risk associations. Based on this, we propose two categories of stablecoins and one common misconception, borrowing from the perspective of retail banking:

Fiat-Collateralized Stablecoin

The operating principle is similar to banknotes during the era of the National Bank of the United States (1865-1913): users can directly redeem trusted fiat currency. Its value is anchored to the underlying currency, but the level of trust depends on the issuer’s credibility and the redeemability convenience provided by exchanges like Uniswap. Currently, this type of stablecoin accounts for over 90% of the total supply.

Asset-backed stablecoin

Generated from on-chain loans (CDP), mimicking the process by which banks create money through a fractional reserve system. When banks create money using mortgages, business loans, etc., lending protocols generate such stablecoins using on-chain assets as collateral. As economic factors continue to go on-chain, it is expected that: 1) more assets will become eligible collateral; 2) such stablecoins will occupy a larger share of on-chain currency.

Synthetic Strategy Dollar (SBSDs)

Tokens pegged to 1 dollar of this type combine collateral assets with investment strategies (such as yield generation or basis trading), which are fundamentally different from true stablecoins. SBSDs are essentially shares of a hedge fund, facing challenges such as audit difficulties, risks associated with centralized exchanges, and asset volatility, and therefore do not possess the core functions of stablecoins as a store of value and medium of exchange.

As indicated by the history of the American banking industry, we expect on-chain dollars to continue innovating, enhancing their security, transparency, and capital efficiency.

For more, see “The Future of Stablecoins in the Context of the Development History of American Banks”

3**, The widespread adoption of stablecoins can significantly reduce corporate costs**

Transaction fees erode the profit margins of many businesses. Reducing these fees through stablecoins can unlock significant profit potential for businesses of all sizes. To illustrate this more vividly, we selected data from three publicly listed companies for the fiscal year 2024 to simulate the effect of reducing payment processing costs to 0.1%. [For simplification, this assessment assumes that these companies currently incur an overall payment processing cost of 1.6%, and that the costs of fiat channels can be ignored.]

Data from 2024 shows:

Walmart’s annual revenue is $648 billion, with a profit of $15.5 billion. Its credit card fee expenses are about $10 billion. If payment fees are eliminated, under the same conditions, using a cheaper payment solution could increase the profit margin by over 60%.

The fast food chain brand Chipotle has an annual revenue of 9.8 billion USD and may pay 148 million USD in credit card fees based on an annual profit of 1.2 billion USD. Reducing payment processing fees alone could increase its profit margin by 12%.

The national chain supermarket Kroger will benefit the most, as its profit margin is the lowest (below 2%, like most grocery stores). The astonishing thing is that its net profit is almost equivalent to its payment costs. Using stablecoin payments could potentially double its profits.

It should be noted that retailers and payment processors are not in opposition here; they are united against high fee payment solutions. Payment processors also operate on low profit margins, with most of their profits being taken by credit card organizations and issuing banks. For example, Stripe charges a fee of 2.9% + $0.30 for processing online retail payments, but over 70% of that must be paid 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, charging only a 1.5% fee for stablecoin payments (over 50% discount compared to credit card rates). To support this business, Stripe completed its largest acquisition ever—acquiring the stablecoin payment platform Bridge.xyz.

As more payment processors such as Block(, Square), Fiserv, and Toast adopt stablecoins, competition is expected to further lower fees while promoting the adoption of stablecoins in commercial scenarios.

For more, please refer to “How Stablecoins Will Devour the Payment Industry”

4**, Small and Medium Enterprises Will Be the First to Abandon Credit Cards**

On the surface, it seems that social platforms, paid games, and other internet-native enterprises are the most likely to adopt stablecoins first. However, physical merchants that are sensitive to fees—such as restaurants, coffee shops, and convenience stores—can achieve greater benefits by accepting stablecoins. These businesses are the most impacted by transaction fees but rarely utilize the additional features provided by credit card companies that justify high fees.

Typical scenario: When a customer pays 2 dollars for coffee, the coffee shop only receives 1.7-1.8 dollars. Nearly 15% of the amount flows into the pockets of intermediaries like credit card companies.

In this scenario: consumers neither need anti-fraud features (having received the physical coffee) nor credit services (only a $2 purchase). The coffee shop has very low compliance and banking integration needs. If there are inexpensive and reliable alternatives, such merchants will surely adopt them enthusiastically.

Stablecoins can help small businesses recover profit losses. Of course, there is a cold start problem: the current user base of stablecoins is limited. However, due to the strong relationship chain between community merchants and customers, brands with regional influence are likely to become the first wave of forces driving the popularization of stablecoins.

For more, please refer to “14 Exciting Crypto Big Ideas for 2025”

5**, Beyond Payment: Stablecoins as Public Goods Give Rise to a New Paradigm of Software**

Traditional finance is built on private and closed networks. The internet has shown us the power of open protocols like TCP/IP and email in driving global collaboration and innovation.

Blockchain is the native financial layer of the internet, combining the composability of public protocols with the economic efficiency of private enterprises. They possess trustworthy neutrality, auditability, and programmability. With the introduction of stablecoins, we have for the first time achieved a truly open monetary infrastructure—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 all.

Stablecoins will not only disrupt the payment industry for the reasons mentioned above, but also empower a new category of software:

Machine Intermediary Programmatic Payments: **Envision AI agent-driven market automatically coordinating transactions of computing power and other resources.

Content Creation Micro-Payment**:** Automatically allocate rewards for media, music, and AI contributions through a “smart” wallet with simple rules.

Fully Audited Transparent Payments**: **A potential solution for government expenditure tracking systems.

Global Trade Without Redundant Intermediaries**:** Instant international settlement at nearly zero cost has now been achieved.

Blockchain networks and stablecoins are at a historic moment: the synergy of technology, market demand, and political will is making these applications a reality. Cryptographic technology is about to bridge the gap—from a financial experiment for a few to a foundational pillar for the many, with stablecoins leading the way.

For more, please refer to “The Whatsapp Moment of Stablecoins”

6**, Decentralized Stablecoins: The Cornerstone of Digital Native Currencies**

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

The current monetary system is built on a close symbiotic relationship between the Ministry of Finance, central banks, and commercial banks. This system has gradually revealed fundamental limitations such as risk management defects and governance inefficiencies, making it difficult to adapt to the increasingly digital economic demands.

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 addressing pain points like international payments, perpetuating the inefficiencies and vulnerabilities of the existing system.

Algorithmically anchored price decentralized stablecoins exhibit superior characteristics. Overall, DeFi has multiple advantages over traditional financial frameworks:

Antifragility**: **Issuing through a distributed network eliminates the risk of single points of failure.

Transparency Enhancement: **On-chain real-time verifiable audit trails of reserve assets empower regulators and market participants.

Efficiency Revolution: **Modularity and programmability bring capital efficiency optimization to counter the trend of centralized profit capture.

Future Compatibility: As a digitally native financial tool, it is better suited for the development of consumer-grade financial applications than outdated bank APIs.

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

For more, please participate in “Why Do We Need Decentralized Stablecoins”