What Are Stablecoins and How Are They Revolutionising Cross-Border Payments?

Understanding Stablecoins: A Foundation for Global Transactions

Stablecoins are a type of cryptocurrency designed to maintain a stable value by pegging their price to an underlying asset such as a national currency or commodity. In other words, if you're wondering what are stable coins in simple terms: they are digital tokens that mirror the value of something like the US dollar, Euro, or even gold. This price consistency makes them ideal for everyday transactional use and particularly attractive for global payments where price certainty is crucial—especially when backed by robust custody infrastructure. Institutions can integrate stablecoins using secure custody wallet infrastructure or through Wallet-as-a-Service that supports safe, compliant, and efficient deployment.

How do stablecoins achieve stability? There are a few common mechanisms:

• Fiat-Collateralized Stablecoins: Backed 1:1 by reserves of fiat currency held by the issuer. For example, each USDC or USDT is backed by one US dollar in reserve. These are the most widely used stablecoins.

• Commodity-Backed Stablecoins: Pegged to physical assets like gold or other commodities. A gold-backed stablecoin represents a certain weight of gold held in vaults.

• Crypto-Collateralized Stablecoins: Backed by other cryptocurrencies, using over-collateralization to account for crypto's price swings. An example is DAI.

• Algorithmic Stablecoins: Maintains its peg via software algorithms that adjust supply and demand. These are less commonly used due to historical instability.

Regardless of type, stablecoins operate on blockchain networks, meaning transactions are recorded on secure, transparent distributed ledgers. Essentially, stablecoins allow fiat-equivalent value to move with the speed and transparency of crypto. Their programmable nature also opens the door to automation in business processes such as recurring billing, escrow, or conditional payments.

The Edge of Stablecoins in International Transfers

Speed and Efficiency

Traditional cross-border payments often take multiple business days to settle. Stablecoins can be sent and received within minutes, regardless of the sender and receiver's locations. Blockchain networks operate 24/7, which means stablecoin payments are not restricted by banking hours or time zones. According to a Visa announcement, stablecoins have already been used for near-instant settlement in pilot programs. This speed is particularly useful for businesses that need to pay overseas vendors, freelancers, or partners on tight schedules.

Reduced Costs

Sending money abroad through banks or remittance providers often incurs high fees, sometimes up to 5% of the transaction value. In contrast, stablecoin transfers on blockchain networks typically cost a fraction of a dollar. A World Economic Forum report highlighted stablecoins' potential to reduce remittance costs significantly, making them more accessible for lower-income users. For institutions conducting high-volume transactions, the savings can amount to thousands of dollars annually.

Global Accessibility

Stablecoins are accessible to anyone with an internet connection and a digital wallet—no bank account required. This can significantly improve financial inclusion in regions where traditional banking infrastructure is lacking. As Chainalysis points out, stablecoins are particularly popular in emerging markets as a means of preserving value and facilitating international payments. This makes them a vital financial tool for migrant workers, NGOs, and businesses operating in developing economies.

Transparency

All stablecoin transactions are recorded on a blockchain, creating an immutable and transparent audit trail. This can reduce fraud, enable better compliance, and improve overall trust in the payment process. With blockchain explorers and real-time reporting tools, organisations can monitor fund flows and reconcile accounts with far greater precision than traditional payment rails allow.

Navigating the Challenges of Stablecoin Adoption

Regulatory Uncertainty

One of the most significant barriers to widespread adoption is the lack of clear and consistent regulation across jurisdictions. The European Union's Markets in Crypto-Assets (MiCA) framework is one step toward regulatory clarity, but other regions are still developing their approaches. A CoinDesk analysis breaks down how MiCA could shape stablecoin oversight in the EU. Meanwhile, differing approaches in the U.S., Asia, and Latin America create a fragmented landscape, making cross-border compliance a challenge.

Scalability and Infrastructure

Blockchain networks must be capable of handling increasing transaction volumes. Networks like Ethereum have faced congestion and high fees, prompting development of Layer 2 solutions and alternative chains such as Solana and Polygon. Payment infrastructure also needs to be enterprise-grade to support institutional usage. Custody wallets, smart contract integrations, and multi-party computation(MPC) systems must be in place to ensure both performance and security.

Interoperability

There are many different stablecoins on various blockchains, and moving assets between them can be cumbersome. Industry efforts like SWIFT’s blockchain interoperability tests—outlined in this SWIFT press release—aim to address this challenge and enable seamless integration. Cross-chain bridges, decentralised exchanges, and token standards such as ERC-20 or TRC-20 play an increasingly critical role in facilitating interoperability.

Counterparty Risk

Stablecoins are only as stable as their reserves. Trust in the issuer and transparency of reserves are critical. For example, Tether (USDT) has faced scrutiny over its reserve disclosures. Reliable stablecoins typically undergo third-party audits and publish reserve attestations to build trust. Institutions should conduct due diligence before selecting a stablecoin for settlement, especially when regulatory approval and reserve quality vary across issuers.

Stablecoins vs. Traditional Payment Methods: A Direct Comparison

Stablecoins offer real-time, low-cost, and accessible payment options that directly address the shortcomings of traditional systems. However, they’re more likely to complement rather than fully replace existing infrastructure in the near term. As companies like PayPal begin experimenting with their own stablecoins (see PayPal’s official release), we’re witnessing a convergence of old and new financial systems.

Furthermore, some banks and fintech companies are exploring hybrid models that integrate stablecoin functionality with traditional account services. This hybridisation reflects a broader trend where financial institutions are adapting rather than resisting crypto innovations.

Conclusion

Stablecoins represent a significant leap forward in how value moves across borders. Their key strengths: speed, cost-efficiency, accessibility, and transparency, position them as powerful tools for modern financial operations.

Despite regulatory and technical challenges, adoption is growing. For institutions and payment service providers, stablecoins are not just a speculative crypto trend—they are infrastructure. Leveraging a secure and compliant stablecoin payment system allows organisations to optimise treasury operations and improve user experience.

To implement stablecoins at scale, choosing a reliable technology partner is essential. Discover how Cobo’s institutional-grade digital asset custody platform and custody wallet solutions can help your organisation integrate stablecoin payment flows securely and efficiently.

With the right tools and governance in place, stablecoins can help institutions move faster, reduce costs, and expand global access in ways traditional systems simply can’t. Now is the time to prepare your operations for a multi-chain, multi-currency world—one where stablecoins will play a pivotal role.

Book a demo today to learn more about how Cobo helps facilitate stablecoin payments.