Pay for things with your Stablecoins

Why is this an important topic?

We might well be having a “Star Trek moment”. You might remember Capt. Kirk’s line: “To boldly go where no man has gone before”. Ok, we are still on Earth and only talking financial services, but something mega interesting is developing in the world of payments.

Stablecoins have moved beyond just being a digital thing which people hold simply to have a time-out from trading crypto. And, we have moved beyond the notoriously intransparent Tether, adding properly regulated Stablecoins. Better still you can now generate yield on your USDC holdings.

More info: I recommend a recent article of mine here on Liquidity Finder.

Today, whether you are business or an individual, if you have both cash, or rather commercial bank money in the form of a credit balance with your bank, and securities holdings, then you have two discrete things. The McKinsey mind would call them MECE, mutually exclusive and collectively exhaustive. Plain English might say “… and never the twain shall meet”. You pretty much have to elect to hold some cash to pay for things. Even if you use a credit card, eventually the monthly bill has to be paid and that means fiat in the form of a direct debit or a bank transfer.

What’s new or changing?

Let’s assume you are a “crypto maximalist”, though perhaps more precisley a “tokenised digital assets maximalist”. You want to avoid fiat. So you wonder: “Would it be possible to pay for things using the assets in my Web 3 wallet?”. Right now, the answer to that question would be: ‘not very easily”. Well, things are about to change.

Before exploring what’s changing, let’s make sure we have a sense both of where we are today and of the use cases when we say “pay for things with tokenised assets”. And, to keep things interesting, assume we want to concern ourselves with cross-border situations, where the buyer and the seller/supplier/merchant are in two different countries. I’ll use Seller as the collective noun here. And the focus is here is retail and not wholesale payments.

Today, if I want to buy something cross-border, say in Euro, then typically I either pay-up front, by wiring funds or using a credit card, or I pay later, making payment versus an invoice. In all cases though, the seller is saying: “For this thing I want to charge you EUR 100”, i.e. “I want fiat”. Makes sense, since many outgoings or expenses are likley to be in EUR. The seller is also willing to pay a fee to accept a credit card. Willing, but not necessarily happy. The level of unhappiness with the so-called interchange fees is very well documented. Where domestically, there are options for avoiding card payments, in cross-border business the alternatives have a lot more friction.

Table 1: Use cases for payment by tokenised asset

Table 1 lists out the immediate use cases. Case #1 is the simplest; I have a Stablecoin and the Seller is willing to accept it. Executing that payment needs a small amount of orchestration and interoperability; the seller’s e-commerce platform has to create a transfer request, with details of the receiving wallet, the Stablecoin preference and the amount. There is then either a pull process, where I tell the seller my wallet address or a push process where I use the seller’s details to initiate the payment. The push process is pretty much the same as I have here in Switzerland today when I scan a QR code to pay an invoice or even at the checkout at my babrber.

Case #3 is, at least in theory, the next simplest. I have an asset and the Seller is willing to accpet some units of that TMMF asset in payment. There is more to a transaction like this than pull or push of Case #1. The extra element here is that of valuation; where do we get a price from and is that source reliable? Then comes the question of which price; assets will typically have a bid and offer price, as well as some known quantity of liquidity. The Seller is also taking on market risk; the price of the fund. Now Money Market Funds, whether tokenised or not, should in theory have very stable prices. One could also expand Case #3 to any tokenised asset; in that case the answer to the valuation and price stability questions has even more margin for error.

Case #2 requires some kind of intermediation or transformation. A third party is needed who will make the exchange between Stablecoin and Fiat. That needs a marketplace and liquidity. Today, instant FX settlement is only possible across the books of financial institution; UBS will generally let me sell CHF and buy USD when I have accounts with them in both currencies. It would take an abnormal service for me to do that with instant settlement and then make an immediate payment in USD. UBS does not want to keep USD liquidity lying around just in case I want to make a payment. And in wholesale markets sameday FX is not possible without taking settlement risk. Intraday FX markets are emerging, Finteum is one. If the fiat has to move from the Buyer’s bank to the Seller’s bank, then it is hard to control the process and for the Seller to be sure that payment has been received. So, Case #2 is possible but tricky.

Case #4 has some but not all of the same challenges as Case #2. Again, a marketplace and liquidity are needed. But the market infrastructure is different. In over simplified terms, it is all “on chain”; the Buyer’s TMMF is in a wallet and the Seller will have a wallet for the Stablecoin. An orchestration process can do the earmarking and coordination with a marketplace, the same process will apply to whoever is willing to sell the Stablecoin vs. the TMMF. That exchange has atomic trading and settlement; trade and settlement are instantaneous, there is no settlement risk. Onward payment to the Seller is also “on chain”, or wallet to wallet, essentially a replay of Case #1.

Case #5 is simply a variation on case #2.

Which gets us to:

Is anybody offering these new types of service? Some readers will have heard about retail outlets accepting payment in Bitcoin. The process there is certain to have friction; Bitcoin can be anywhere from an hour to 16 hours in extreme cases.

Two services have caught my eye lately. The first, Luno Pay from South Africa was announced in October 2024. On first pass, this looks like an implementation of Case #2; the Seller or Merchant being willing to accept fiat payment after the transaction, exactly as they would with traditional means of payment. Of note here is that there is no friction for either Buyer or Seller. It would seem that Buyers can use any crypto currency, which may or may not include Stablecoins, and quite likely does not include tokenised assets like Money Market Funds.

The other service to catch my eye is Yodl. Their focus is on seamlessly connecting Web 3.0 wallets to businesses and merchants. At least for now, their focus is on Case #1. Broadly they are offering an any-to-any Stablecoin offering. A seller issues a request-to-pay in the form of a QR code. They buyer scans to pay. Behind the scenes Yodl makes use of an AMM, a so-called automated market maker, to exchange what the buyer has now for what the seller wants. Sellers pay Yodl for the connectivity and buyers pay any swap fees. In theory they also cover Cases 3 & 4 too; this will work as long as there is a marketplace for Yodl to connect to. They are leaving the crypto to fiat conversion to other, specialist providers, but do allow to ona and offramp via services such as Revolut. Their offering is a great enabler for two specific use cases: i) cross-border offerings,  ii) for any business which wants an alternative to accepting credit cards and the often high fees which go with them.

Why might these new things matter?

The likes of Luno and Yodl are doing the hard work of laying foundations. The value of those foundations is in the long-term; they are creating new means of connectivity and will also drive the creation of whole new FX marketplaces. A few thoughts to ponder:

1) This is like TradFi. “There’s a new secondary FX market in them thar hills”

2) Think about how Amazon got started with building phenomenal logistics capacity starting with books.

Last month, I wrote about how new product offerings from OpenTrade offer the possibility of earning a yield on Stablecoin holdings. We know from all that has been written about digital assets, that programmability will enable us to do things with a lot more ease than we can today. As I write, I am looking at a couple of invoices for 2025 insurance premiums I need to pay. Imagine I could hold my money in a tokenised money market fund and had the ability to make some contingent instructions. First, “ensure my balance in Stablecoin X is always 1’000” and “If want to pay this insurance invoice on 30th November. Sell enough of my tokenised money market fund to cover it and then pay”. That is pretty frictionless and I have all the optionality I need to stay invested. I could possibly do the same things today with the securities and cash accounts I have at UBS, but the words “frictionless” and “cheap” are unlikely to feature in any description of the process. 

In conclusion

Over time, I think three things will become true:

1) “Web 3.0 wallets will be the standard means of custody & banking

2) Instant or atomic and trading will become the new normal in retail trading

3) A fiat cash or chequing account will be an oddity!”

If I am right about the direction of travel, what does this ultimately do for cash deposits and fractional reserve banking? Might be high street vs. big box stores vs. on-line & delivery redux. A thought that I will ponder more in another post.

Thanks for reading. Please do let me know what you think of these notes. Feedback via the comments would be great.

Please feel free to get in contact via LiquidityFinder here.

Author

Olaf Ransome is a liquidity and financial services expert. He is the founder of 3C Advisory  You can message Olaf directly here.