Over the past year, stablecoin adoption has surged, particularly in global payments. By offering faster, cheaper, and more transparent transactions, stablecoins provide a compelling alternative to traditional banking methods.
However, challenges related to trust, regulation, and competition from CBDCs continue to shape adoption. Speaking to Payment Expert, Luke Wingfield Digby, Co-Founder and Head of Corporate Development at Orbital, shares his views on the competitive dynamics between stablecoins, financial institutions, and emerging CBDCs.
Payment Expert: Beyond cost and speed, what transformative changes do stablecoins bring to cross-border transactions? Are they solving unseen challenges?
Luke Wingfield Digby: As stablecoins are settled over blockchains on a peer-to-peer basis, we are finding that the removal of unnecessary intermediaries involved in the payment settlement, particularly when compared to the swift correspondent banking model, is one of the most transformative changes, solving challenges for a variety of new use cases and industry sectors.
PE: What major trends are shaping the stablecoin market, and how will they influence cross-border payments over the next three to five years?
LWD: Increasing regulatory clarity and positive action from governments of major financial centres has definitely been one of the major trends of late. This change is legitimising stablecoins as a major potential payment rail, offering peace of mind to large institutions and corporations thinking about how and when they may implement them into their own financial operations.
Outside of regulation, we are seeing a massive wave of new stablecoin issuers enter the market all vying for adoption and distribution. Whilst we expect many of these new stablecoins will struggle to gain any significant traction, we believe that the current incumbent issuers (Tether and Circle) may start to see usage transition to other stablecoins which offer better incentives to those involved in the distribution of the token (such as exchanges and PSPs).
For example, USDG issued by Paxos is a kind of “consortium” stablecoin token which is unique because the majority of the economic value accrues back to consortium partners responsible for distributing it as opposed to the issuer themselves. We think stablecoins like this have a higher chance of disrupting the status quo as distribution and liquidity are key to the success of any stablecoin.
Lastly, we are seeing incredibly strong adoption of stablecoins from retail consumers in emerging markets. Stablecoins are democratising access to Dollars in countries which have been starved of access to foreign currencies. Demand for Dollars is not a new concept in these markets, as consumers view the Dollar as a safe haven relative to their own domestic currencies which are prone to high inflation and often exchange controls. Historically people held Dollars in cash, but now we’re seeing that move to stablecoins.
PE: Stablecoins are seen as less risky than other types of cryptocurrency, but trust remains an issue. How should the sector build confidence among users?
LWD: Until recently there hasn’t been a clear regulatory path for issuers to follow, which would have reduced risk for end users, and built trust. That has finally started to change with Singapore having a clear framework for issuers, and Europe’s MiCA the same. We’re seeing positive progress in the US, and potentially the UK soon, and the UAE is already becoming another hot spot for positive digital asset regulation.
PE: How are regulations across different jurisdictions shaping stablecoin adoption for cross-border payments?
LWD: So far it is too early to say how the new regulations such as MiCAR will impact the adoption of stablecoins for cross-border payments. MiCAR has heavily restricted access to non-compliant tokens (such as USDT which currently commands the vast majority of the market for stablecoin payments according to the Orbital Stablecoin Payments Dashboard) within the European economic zone. This would suggest a shift towards other tokens which are MiCAR compliant (such as USDC) becoming more widely adopted instead.
However, this shift may not actually play out in the broader global market because stablecoins offer the most efficiency gains when transferring value cross-border to or from emerging markets (EM’s), and as our data shows those markets still strongly prefer to transact in USDT. It is therefore yet to be seen whether Europe’s and other jurisdictions’ regulations will impact which stablecoins become adopted and used for cross-border payments in the rest of the world.
PE: Are there any particular countries or jurisdictions whose regulations are leading the way when it comes to stablecoin adoption, in your view?
LWD: It could be argued that Singapore is leading the way in terms of stablecoin regulation, however, that relates more to stablecoin issuers as opposed to end-users, and therefore doesn’t necessarily have a direct impact on adoption.
We are seeing stablecoin adoption from consumers happening most rapidly in emerging markets (SE Asia, Africa, LatAm), because stablecoins are an easy-to-access digital Dollar which can be transacted 24/7, settled in near real-time, and, in many cases, without any intermediaries.
So far, less regulation has resulted in higher levels of adoption. However, the risk to many of these countries is hyper dollarisation which then undermines their own domestic central banks. Countries like Nigeria have experienced this first hand, and have enforced strong regulations to discourage the use of stablecoins resulting in negative adoption rates.
PE: With CBDCs gaining momentum, how can stablecoins stay relevant in cross-border payments?
LWD: Whilst CBDCs and stablecoins share some commonalities, they are not necessarily the same, and therefore should not be assumed that CBDCs will simply replace stablecoins or leave them redundant once they arrive. We think it’s unlikely that central banks will start issuing their own currencies on public blockchains, directly to retail consumers.
Instead, central banks are more likely to create CDBCs to be used to provide wholesale access to banks and non-bank FI’s, who will then distribute “money” and financial services to end users similar to how things work today. It could be argued that in many markets money is already digital and CBDC’s will not really change much for the end user. We believe they could potentially make it easier for fintechs to access central bank money instead of having to go via a bank/credit institution.
Stablecoins on the other hand, being issued by private companies on public blockchains solve a different need, which we don’t think is going to go away.
PE: How can companies active in the stablecoin space ensure compliance with different regulations across different markets? What is Orbital’s experience of this?
LWD: Maintaining regulatory compliance in multiple markets simultaneously is a challenge for any business operating within the space. However, the requirements vary significantly depending on the type of business model of the market participant. Stablecoin issuers have very different requirements and challenges to say cross-border payments companies, and the same again for exchanges, and/or consumer neobanking apps, all of which touch and handle stablecoins as part of their business operations or services.
What is common is that whatever the business model, maintaining compliance requires significant investment and resources to manage, and will very likely become a massive differentiator for businesses operating within the space. Adequate efforts and resources poured into compliance is not a guarantee but definitely a minimum pre-requisite for the businesses to succeed in the long run.
PE: With competition from financial institutions and tech giants, how does Orbital stand out in the stablecoin market?
LWD: Orbital has been one of the earliest payments firms focussed on building innovative cross-border payment solutions leveraging stablecoin rails. We believe that licensing and regulatory compliance, combined with best-in-class traditional banking rails, and the strongest information security and governance, will be the three core pillars which set different players in the stablecoin payments market apart. Orbital is currently best in class across all three and aims to maintain that position to continue to stand out in the market.
The views expressed in this article are those of the author. The information provided is for general informational purposes only and should not be construed as financial or investment advice. Services described are intended exclusively for eligible corporate clients outside the UK and high-net-worth companies.
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