With the GENIUS Act signed into law now we get to see if stablecoins can actually walk the walk, not just talk the talk. The story the stablecoin industry has told is one of payments innovation, particularly for international payments, with stablecoins poised to displace the expensive and ungainly wire transfer system. Is this right?

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Stablecoin boosters rightly note that the wire transfer system is less than ideal. Although an actual wire can be sent almost instantaneously from one bank to another, wires often move through chains of banks. For example, a business in Germany wants to pay a supplier in the United States, so it directs its local bank to send a dollar-denominated payment to a correspondent bank, to a larger international bank, through an international clearing organization, to another large international bank, to a correspondent bank, to the local bank of the American supplier. That’s six payment orders before the funds are settled into the American payee’s account. That’s a lot of places where something can go wrong—whether it is delay or a payment order not being forwarded at all or being sent to the wrong place or in the wrong amount, etc. To be clear, most wires go through just fine, but it’s a huge pain when they don’t, not least because the dollars involved are often large.

Stablecoins promise to be an alternative method for international payments. The scheme envisioned is that the German business simply sends a payment of stablecoins from its blockchain wallet to a blockchain wallet controlled by the American supplier. Or more likely, the German business directs its crypto custodian to send a payment to the crypto custodian of the American supplier. This transaction cuts out all of the layers of correspondent relationships and can be done much faster (just as long as it takes for the block to clear), and the parties can readily observe to see if the transaction has happened or not. There’s not much room for a “the money has been sent, I don’t know why it hasn’t arrived” situation, absent insolvency or fraud. Sounds great no?

I’m skeptical that there’s going to be much uptake, at least from larger businesses in developed countries. Here’s why. I talk with corporate treasury types from time to time. These are the folks who have to be convinced to use stablecoins if they are going to be anything other than a niche payment market for personal remittances and capital control evasion. From the perspective of many corporate treasury professionals, there’s little to commend the use of stablecoins. Sure, wire transfers are problematic, but stablecoins bring with them a host of other operational problems. Instead of simply maintaining an account (or a master account with subaccounts) at a bank, the corporate treasury now needs to also maintain stablecoin wallets—at least one for each type of stablecoin it will take or make payment in. Remember that a USDC is not good delivery for USDT, etc. It’s like having to maintain accounts in different currencies. That’s just an operational pain. (The same is true for having to develop protocols for invoicing for stablecoin payment to make sure that the payment goes to the right place; it’s doable, but takes additional work to be operational.)

The corporate treasury will also need to be frequently moving funds in and out of those stablecoin wallets and into its deposit accounts. In other words, there’s actually another leg to the stablecoin payment transfer—from the wallet to the deposit account. That last leg probably isn’t going to be instantaneous (and might in fact involve a wire transfer!). That just adds more operational complication. What’s more, that last leg probably won’t be free. Coinbase, for example, has no conversion fee for USDC to USD for wire transfers of under $40 million over 30 days, but it then jumps to 5bp for the $40m to $100m range and goes as high as 20bp. So if you were doing $60m, you’d be paying $35k in fees. That’s a LOT more than you’d likely pay for receiving $60m in wire transfers in $50k increments at Citibank ($15/incoming transfer, so $18k in fees). Of course, if the transfers were all for $25k, then the Coinbase fee would be slightly lower. The point here is that it is far from clear if stablecoins will be a cheaper option for corporate treasuries compared to wires. Additionally, because major stablecoins are pegged to the US dollar, foreign users are assuming FX risk when they maintain stablecoin balances. (This can be a feature, rather than a bug, depending on the stability of the local currency….)

Here’s what I know about corporate treasury folks. They are operations people, and they always want to reduce operational complication. Although they are happy to reduce cost, reducing the cost of international payments just isn’t a huge priority for them (it’s not like interchange fees for them). Instead, they are likely to follow the adage that “no one ever got fired for buying IBM,” which means playing it safe and sticking with the tried-and-true wire transfer system. What could go wrong with a stablecoin transaction and who would be responsible? If you’re a corporate treasurer, do you really want to risk finding this out the hard way? Are you sure you’ve identified all the risks with a new system with new intermediaries? There’s basically no upside to a corporate treasurer for using stablecoins, and if anything were to go wrong, the treasurer will get blamed for using stablecoins for payment.

This all leaves me quite skeptical that there will be any major commercial uptake of stablecoins for payment purposes. Instead, I suspect that the major use of stablecoins will continue to be serving as collateral for in DeFi lending protocols and liquidity pools, with a relatively limited sideline of payment use, particularly in developed countries with stable currencies. It’ll be interesting to see where things are in five years with this.

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