Behind stablecoins: what they are, what they aren’t, and the strategic repositioning

There are not many topics that have attracted as much attention as stablecoins lately. At the same time, not a day goes by without new developments in the space.

That is why we have invited Panagiotis Kriaris – Senior Advisor in Fintech, Payments and Banking – to explore what they are and what they aren’t from a few different angles in his new column at The Paypers, Beyond the Headlines.

Beyond the Headlines aspires to be a column out of the ordinary. One where you won’t find the typical news and announcements you can find elsewhere. Beyond the Headlines takes a step back and unpacks the hows, the whys, and the real-world implications – in plain language, without the jargon. One topic at a time.

The column debuts with a series on stablecoins and will continue by analysing and explaining some of the industry’s most pressing challenges. In each instalment, Panagiotis takes one part of the ecosystem and breaks down how it works, who is building it, and what it means for the broader industry.

Ten years ago, stablecoins barely existed.

Five years ago, few people outside crypto took stablecoins seriously.

Today, they are at the centre of the debate over the future of money, payments, and financial infrastructure.

But to understand why perceptions of stablecoins have changed so dramatically in such a short amount of time, we need to take a step back.

The problem

We live in a digital world where everything happens in real time:

• Consumers communicate, work, shop, and access services from anywhere, at any time.
• Businesses sell across borders, manage global supply chains, and serve customers in markets where they have no physical presence.
• Marketplaces and platforms bring together millions of buyers, sellers, workers, and service providers across different countries.
• Data moves continuously between companies, platforms, and devices.
• Digital products, from software and media to financial assets, are created, exchanged, and delivered instantly.
• And now, the big debate is how AI agents will act on our behalf, from booking travel and managing subscriptions to negotiating with suppliers and making purchases.

Yet, there is one thing that still does not consistently operate in real time.

Money.

Although most money is already digital, it is not native to the digital economy.

• It cannot move seamlessly across platforms and borders.
• It cannot settle continuously, without being constrained by banking hours and cut-off times.
• It cannot be embedded directly into digital transactions or programmed to move automatically when specific conditions are met.
• It still relies on multiple institutions to move between different systems, accounts, and countries.

Effectively, what we have done is digitise access to money without creating a form of money designed for the internet.

This is the big gap.

And here come stablecoins.

The reason everyone is discussing stablecoins is that they have the potential to address this gap and become a form of money that moves at the same speed, and on the same infrastructure, as the digital economy itself.

For financial services, this means that the next generation of products and services could be built on stablecoin infrastructure.

To understand how that can be done, we need to understand first what they are (and what they are not).

Graphic sources: Deutsche Bank, GFTN

Enter stablecoins

First, the thing that some people avoid saying: stablecoins are cryptocurrencies.

With one main difference: they were created to solve one of crypto’s main problems: volatility.

Bitcoin and other cryptocurrencies can move digitally without relying on traditional payment infrastructure, but their value can change significantly within hours. That makes them difficult to use as money. A currency cannot work effectively as a means of payment or store of value if neither side knows what it will be worth tomorrow.

Stablecoins combine the ability of crypto assets to move on a blockchain with the relative stability of traditional currencies.

How do they do that?

Most are designed to maintain a fixed value against a fiat currency - typically one US dollar.

In the most common model, an issuer receives one dollar, holds the corresponding value (usually in cash or short-term government securities) in reserve, and issues one digital token.

The holder can later return the token and redeem it for one dollar. That ability to redeem the stablecoin at a fixed price, together with confidence that sufficient reserves exist, is what keeps its market value close to one dollar.

Why now?

Four things have changed compared to the past:

1. Regulators have created formal frameworks for stablecoins: MiCA in Europe and the GENIUS Act in the US. Both set rules covering issuance, reserves, redemption, and supervision, and give players (both banks and fintechs) the stability and certainty they need to invest, build, and launch products in stablecoins.
2. It has become easier to connect stablecoins with bank accounts, local payment systems, and business platforms. A growing number of providers offer the wallets, on-ramps, off-ramps, and APIs required to add stablecoin services without building the underlying infrastructure from scratch.
3. In many parts of the world, access to US-dollar banking remains expensive or limited. Stablecoins give businesses and consumers another way to hold, receive, and move dollars without opening a US bank account. This is driving their use in payments, collections, remittances, and treasury.
4. Fintech and crypto are moving into each other’s territory. Fintechs are adding stablecoin wallets and payments to products used by existing customers. Crypto platforms are adding accounts, cards, and other mainstream financial services. This gives stablecoins access to much wider distribution.

Use cases

The next step is understanding the use cases: where stablecoins solve a real problem better than existing forms of money and payment infrastructure.

• Cross-border business payments: faster (and potentially cheaper) payments to suppliers, employees, and contractors, especially where money currently goes through several correspondent banks.
• Remittances: sending money internationally without relying on long intermediary chains and giving recipients access to a relatively stable currency in markets with high inflation or limited availability of US dollars.
• Treasury and liquidity: moving money between countries, legal entities, exchanges, and digital wallets around the clock. This reduces settlement delays and the amount of money businesses need to hold in different accounts or markets.
• Programmable money: stablecoins can be programmed to move automatically when specific conditions are met. For example, releasing payment when goods are delivered, settling transactions 24/7, or enabling very small payments that would otherwise be uneconomical.
• Digital-asset settlement: using stablecoins as the cash side of transactions involving cryptocurrencies, tokenised securities, and other digital assets. This is their largest established use case today.
• Consumer and merchant payments: paying directly with stablecoins online or in-store, especially in cross-border commerce or markets where cards are expensive, unavailable, or unreliable.
• Agentic payments: giving AI agents a form of money they can use to execute authorised transactions automatically, without depending on payment infrastructure designed around human interaction.

The infrastructure gap

However, turning these use cases into reality is not that simple.

And it will require more than issuing stablecoins.

In essence, it will require building a new financial infrastructure around them. And connecting it to the traditional financial system.

In the sense that traditional finance today runs through bank accounts, card networks, domestic payment systems, correspondent banks, and treasury platforms.

On the other hand, stablecoins run through wallets, blockchains, and smart contracts.

Which means that money held in a bank account cannot move directly to a blockchain wallet.

Hence, there is a big infrastructure gap to close.

Most of the activity in the market today is focused on closing that gap.

1. Connecting stablecoins with the existing financial system

The existing financial system still holds most of our money, owns the customer relationships, and provides access to local currencies and payment methods. To be used at scale, stablecoins need to connect with that system.

This creates the need for a connectivity layer, i.e., infrastructure that can allow money to move between bank accounts, payments, and stablecoins.

On-ramps convert funds held in bank accounts into stablecoins, off-ramps convert them back. Wallets hold and transfer the stablecoins, and APIs connect these capabilities to banks, fintechs, payment providers, and business platforms.

In this model, stablecoins provide a new transfer and settlement rail within the existing financial system.

2. Building financial services directly on stablecoins

There is a second layer being built around a different concept: stablecoins do not have to be converted back into traditional currency after every transaction.

A business could receive stablecoins, hold them, and use the same balance to pay suppliers, move funds between entities or complete other transactions. A digital platform could collect and distribute money in stablecoins without sending each payment through a bank or card network.

This is what I call the stablecoin-native layer, i.e. infrastructure built specifically for stablecoins.

To do that, there are companies building capabilities needed to issue, hold, exchange, and transfer stablecoins, together with the liquidity, compliance, and controls around them.

In this model, stablecoins are not just one part of a wider process that still depends on traditional financial infrastructure. The entire process takes place in stablecoins.

The strategic repositioning

 

Graphic source: Panagiotis Kriaris

For a long time, the debate was whether stablecoins were relevant at all. 

On one side, stablecoin issuers, crypto platforms, and a new generation of fintechs believed they could use them to build an alternative to parts of the banking and payments system. 

On the other hand, incumbents of all kinds (with banks in the lead) were reluctant to embrace something that threatens to bypass their dominant role in the existing infrastructure.

That has changed.

Incumbents now recognise that ignoring stablecoins means leaving competitors to lead the build-up of the next generation financial infrastructure. And that they cannot afford to stay out.

Which is why you see them joining the game:

• Banks are exploring their own stablecoins and tokenised deposits, building custody and settlement capabilities, and forming consortia to create shared infrastructure.
• Card networks are moving well beyond connecting stablecoin wallets to card acceptance. They are enabling settlement in stablecoins, supporting stablecoin-linked cards, and buying the infrastructure that connects bank money with blockchains. Mastercard’s acquisition of BVNK is the clearest example: it gives Mastercard ownership of the technology needed to move between fiat currencies and stablecoins.
• Payment companies are adding stablecoin acceptance, payouts, wallets, currency conversion, and orchestration, allowing their customers to use stablecoins without building these capabilities themselves.

They all have a common incentive for doing this: to preserve their role within the financial system. Or, better, within the next version of it.

Challengers have a different objective. They want to use stablecoins to build alternative infrastructure and capture activities that have traditionally sat within banking and the wider financial system: holding balances, moving money, and providing services around it.

One thing is clear.

The debate has moved on. More financial infrastructure is moving on-chain, and both sides now recognise it.

The game for control of the new infrastructure is on. It is still very early days, but it is on.

About author

Panagiotis is a senior advisor on fintech, payments and banking. He works with financial institutions, fintechs, investors, and technology providers on market positioning, brand, communication, strategy, innovation, and go-to-market. Panagiotis is a regular contributor to leading industry publications and podcasts and is a global keynote speaker and trainer. You can learn more about his work here: https://pkriaris.substack.com/