Introduction

The international monetary system has existed with various inefficiencies throughout its history. The current methods of international money transfers operate through complex systems which are slow and expensive thus creating major obstacles for both individuals and businesses. The process of international money transfers depended on a complicated system of correspondent banks before digital financial technologies became prevalent. The systems operated through SWIFT global standards while requiring multiple currency conversions and producing high transaction fees.

A standard international bank transfer required three to five business days for completion while generating multiple fees from transaction costs, intermediary networks, banking institutions, and foreign exchange services. The current payment systems create inefficiencies for businesses, freelancers and migrant workers who depend on international money transfers and traditional banking channels. Developing countries face major challenges because of these limitations which reduces the amount of money received by beneficiaries.

Digital revolution started to disrupt traditional payment systems through fintech solutions that delivered minor improvements. Blockchain technology together with stablecoins introduced a revolutionary approach to transform international payment systems.

Understanding Stablecoins: A New Financial Instrument

Stablecoins emerged early in the digital currency era to address the extreme volatility of cryptocurrencies like Bitcoin and Ethereum, allowing users to remain within the crypto ecosystem without constant exposure to price swings or needing to convert back to fiat currency. They are an alternative crypto solution designed to maintain a stable value by being backed by fiat currencies, other cryptocurrencies, or governed by algorithmic mechanisms. Of these, fiat-backed stablecoins – typically pegged to mature currencies like the US dollar - are the most widely used and trusted. They offer a more predictable and reliable medium of exchange and store of value compared to traditional crypto assets.

As volatility proved to be a major barrier to the mainstream adoption of cryptocurrencies, stablecoins quickly gained traction among investors, institutions, and regulators, particularly for use cases like cross-border payments. From a modest $5 billion market capitalization in 2020, the stablecoin market has grown exponentially to over $200 billion in 2025, with Tether (USDT) and USD Coin (USDC) accounting for over 90% of the total (data aggregated from several cryptocurrencies exchanges, March 2025). This exponential growth illustrates the increasing demand for innovative payment systems and the need for an instant, cost effective payment instrument.

Exhibit 1: Growth of stablecoin in trading and in circulation (2018-25, billion USD)

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Stablecoin For Cross-Border Payments

The relative stability of stablecoins compared to other cryptocurrencies makes them suitable for B2B cross-border payments, remittances, and liquidity within the broader crypto ecosystem. With growing interest from institutions and regulators, stablecoins represent one of the most promising solutions for cross-border payments. They offer a faster and more cost-effective alternative to traditional remittance channels by reducing reliance on intermediaries, which often involve high fees, FX markups and prolonged settlement times. Blockchains networks can also carry more detailed payment data than traditional banking rails, including invoice references and reconciliation information enhancing transparency and automation in B2B transactions. This development is particularly transformative for markets where access to efficient financial infrastructure is limited, allowing individuals and businesses to transfer funds seamlessly across borders without the need to be dependent on the brick-and-mortar financial institutions. Additionally, stablecoins enhance liquidity in emerging markets, providing a stable and transparent means of transacting in economies that frequently experience currency fluctuations and hyperinflations. Stablecoins ability to increase financial inclusion in emerging countries, and facilitate international transactions represent an innovative technological shift in reshaping the future of cross-border payments.

Exhibit 2: Comparative Advantages: Stablecoins vs. Traditional Payment Methods

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Institutional Adoption: Major Players Enter the Stablecoin Arena

Major financial institutions like Visa, Mastercard, PayPal, and traditional banks now include stablecoin technology in their payment systems. Institutional adoption reflects growing recognition of the technology’s potential to transform cross-border payments.

In addition to giants of payments themselves, innovation of blockchain technology and tokenisation infrastructure also enables other stablecoin operations. Collaborations between firms such as Fireblocks and Chainlink are improving security and efficiency, but high-stake partnerships and acquisitions like Stripe's $1.10 billion acquisition of stablecoin API platform Bridge Network and PayPal's inclusion of PYUSD are bringing attention to stablecoins' increasing legitimacy. Stripe now charges 0.1% to 0.25% on every stablecoin transaction (Nilson Report – Issue 1280), which is less than what it charges on in-store Visa and Mastercard transactions. Financial institutions are also expanding access to stablecoins in emerging markets, with Circle promoting USDC supply in Brazil and Mexico by connecting it to regional real-time payment networks like Pix and SPEI. Bitso, a Latin American cryptocurrency exchange, is also entering the world of stablecoins with its subsidiary Juno, which will issue and hold digital assets such as stablecoins for cross-border payments. Revolut's plan to create its own stablecoin is a part of a broader movement towards bringing digital currencies into mainstream finance, with potential lowering of transaction costs and speeding up settlement velocity for mass consumer usage. At the same time, Ripple's release of RLUSD, its institutional stablecoin, reflects fintech firms evolving to serve markets' demands, namely in the areas of cross-border payments and trading tokenised assets. PayPal has also made significant progress with making its first B2B transaction in PYUSD, solidifying the heightened mainstream adoption of stablecoins. As more financial institutions start to take to the innovation, stablecoins are bound to become a corner stone in the new global payments architecture.

Risks of Stablecoins in Cross-Border Payments

Stablecoins, while promising for cross-border payments due to their speed and cost-efficiency, face several common risks and critiques:

• Reserve Transparency and Liquidity Risks: Tether (USDT), the largest stablecoin by market capitalization, has been criticised for the lack of transparency of its reserves. In May 2022, during a broader crypto market downturn, USDT briefly lost its peg, trading as low as $0.94 This deviation raised concerns about the liquidity and composition of Tether’s reserves. While Tether claims its coins are fully backed, the absence of real-time, transparent audits has raised concerns.

• Technical Scalability and Systemic Risks: Stablecoins rely on blockchain technology, and it can face scalability issues at times of high transaction volume. In May 2022, the collapse of algorithmic stablecoin TerraUSD (UST) revealed the existence of systemic risks due to insufficient collateral. It impacted investor confidence in the stablecoin market, even on asset-backed stablecoins like Tether (USDT)

This has led to regulatory bodies around the world to begin creating comprehensive frameworks to govern stablecoin usage

Navigating the Regulatory Landscape

The European Union has been at the forefront with its Markets in Crypto-Assets Regulation (MiCA), which establishes clear rules for stablecoin issuers. Similarly, the United States is developing a proposal “Clarity for Payment Stablecoins Act ”, which is still in the legislative process and not yet enacted into law. This proposed legislation aims to establish standardised regulatory guidelines for stablecoins. Singapore has already implemented the Payment Services Act, providing a progressive framework that supports local currency stablecoins.

Companies across the US, Europe, and beyond have long called for well-defined rules that would allow them to operate securely and innovate without regulatory uncertainty. The MiCA framework, for instance, has introduced stringent requirements around transparency, reserve backing, and consumer protection, fostering a more trustworthy environment for stablecoin adoption. This shift is encouraging traditional financial institutions to engage with stablecoin technology while ensuring compliance with evolving regulations.

Central Bank Digital Currencies as challengers to stablecoins

The rise of stablecoins has led the world's central banks to explore their own digital equivalents, which has driven the rapid development of Central Bank Digital Currencies (CBDCs). According to Atlantic Council, as of 2025, 134 countries representing 98% of global GDP are either researching or testing CBDCs, with two primary models:

1. Retail CBDCs, designed for public use as digital cash, and

2. Wholesale CBDCs, aimed at improving interbank and cross-border settlements. While only three countries - Bahamas (Sand Dollar), Nigeria (eNaira), and Jamaica (Jam-Dex) - have fully launched CBDCs, 44 pilot projects, including the digital euro, are currently underway

For most central banks, CBDCs are a strategic response to private digital currencies, preserving monetary sovereignty, enabling financial inclusion, reducing reliance on existing payment networks, and enhancing the transparency of the financial system. The European Central Bank, for instance, sees the digital euro as a step to counterbalance the dominance of US dollar-backed stablecoins and safeguard European financial autonomy. In addition, geopolitical tensions have accelerated cross-border CBDC initiatives, emphasising their role in remaking international finance.

Despite this initiative, retail adoption of CBDCs remains slow. Nevertheless, as the technology continues to mature, CBDCs can turn out to be the game-changing driver of digital payments with governments having a regulated option with the benefits of stablecoins without losing monetary policy to uncontrolled forces.

The Future of Stablecoins: Regulation and Innovation

As the ecosystem matures, the stablecoin market can be expected to split into two segments. Regulated stablecoins backed by transparent reserves and governed by clear legal frameworks, are poised for broad institutional adoption. These include USDC and PYUSD, which are being increasingly integrated into payment networks, and B2B cross-border payments. With growing regulatory clarity and oversight, these assets are well positioned to serve as a stable bridge between traditional finance and the digital asset economy.

Meanwhile, unregulated stablecoins will continue to exist in decentralized environments, offering users censorship-resistant channels for conducting cross-border transactions. Although they will enjoy popularity among crypto-native communities that prize autonomy and privacy, such stablecoins will likely face intensifying regulatory scrutiny. Some governments will limit or even ban their usage within the formal financial system, limiting their role in mainstream use cases.

Conclusion: A Financial Transformation

Stablecoins can be a game-changer, challenging traditional payment systems and promoting the digital asset economy. By enabling faster, cheaper, and more transparent cross-border payments, they can trigger significant innovation in cross-border payments. Yet, their broader adoption depends on their regulatory status, consumer protection, and their long-term financial stability.

As regulatory clarity improves through initiatives like MiCA and institutional interest from major financial players grow, stablecoins are steadily gaining legitimacy within the global financial system. Their increasing integration into payment infrastructures by financial institutions, fintech players, and even governments suggest a shifting landscape.

Whether stablecoins become the foundation of a more efficient and inclusive global payment system or remain a complementary solution within a regulated financial architecture will depend on how regulatory, technological, and market forces play out in the coming years.

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The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).