Key Points:
- Stablecoins are being likened to WhatsApp for global money transfers, as they reduce costs and remove intermediaries.
- According to venture firm Andreessen Horowitz (a16z), stablecoins could make global transactions almost free and instantaneous compared to traditional methods that involve several intermediaries and hefty fees.
- Despite facing regulatory hurdles, the popularity of stablecoins is on the rise, with their market capitalization exceeding $200 billion and annual transactions surpassing those of Visa and Mastercard.
In the past, making international calls or sending texts could escalate costs significantly. However, modern messaging applications like WhatsApp have rendered those expenses negligible. Similarly, stablecoins aim to democratize money transfers by eradicating long-standing barriers, as noted by a16z.
“Just as WhatsApp disrupted costly international phone calls, blockchain payments and stablecoins are transforming global money transfers,” the firm noted.
The traditional global payment infrastructure is intricate, involving various parties like points of sale, payment processors, banks, and card networks, which all levy fees and contribute to delays.
Read more: What Is a Stablecoin?
Currently, fees for remittances can soar as high as 10%, analogous to the previous high costs of international phone calls. Enter blockchain technology and stablecoins, which are cryptocurrencies linked to assets such as the U.S. dollar.
“Stablecoins provide a streamlined alternative. They operate smoothly on top of global blockchains, instead of relying on outdated and inefficient systems,” the blog post stated.
For instance, sending $200 from the U.S. to Colombia using conventional methods incurs about $12.13 in fees; with stablecoins, it drops to just one cent.
Moreover, stablecoins could also significantly improve B2B transactions. A16z mentions that business transactions from Mexico to Vietnam typically take three to seven days and can cost between $14 to $150 for every $1000 exchanged, passing through numerous intermediaries that each take their share.
The transition to stablecoins could render these transactions almost free and rapid. A notable example is Elon Musk’s SpaceX utilizing stablecoins for managing its corporate finances to mitigate foreign exchange risk.
It is not surprising that the overall market cap of stablecoins has now exceeded $200 billion, or that the annualized transaction value of stablecoins reached $15.6 trillion, approaching 119% and 200% of the transaction volumes of Visa and Mastercard, respectively.
Nonetheless, the growth of stablecoins is not without its challenges. Regulatory authorities have closely examined their usage, making it challenging to link conventional finance with stablecoin systems, according to a16z. However, developments in policymaking are underway, with proposals emerging to clarify regulations for stablecoins in the U.S., potentially opening the door for broader acceptance.
As the financial landscape evolves and cryptocurrency becomes more widely embraced, stablecoins might just be the transformative catalyst needed for the future of money.
“Just as WhatsApp disrupted costly international phone calls, blockchain payments and stablecoins are transforming global money transfers,” concluded a16z.
Read more: U.S. House Committee Advances Stablecoin Bill, While Dems Warn of Trump Conflicts
