One post tagged with "digital currency"

Stablecoins are most widely known for their role as the "settlement layer" in the crypto market. However, to truly fulfill their potential as the core of the internet of value, stablecoins must cross the chasm from an insider tool to a form of everyday payment, becoming the next generation of digital currency in our pockets.

This path is full of challenges, but not unachievable. Let's start with the conclusion: for stablecoins to transition from a "settlement layer" to "everyday payment" in the U.S., the most viable path is to—

First, establish sustainable "strongholds" in niche scenarios by leveraging incentives and relative convenience.

Then, use an open, neutral, and participant-governed network to standardize and interconnect these fragmented strongholds, aggregating them into a unified whole to reach the mainstream.

1. Learning the "Two-Step" from Credit Cards

Any new payment method faces a common hurdle in its early stages: the bootstrapping problem. This is a classic "chicken-or-egg" dilemma—a network has no value without users, and users won't join a network that lacks value. To understand how stablecoins can break this cycle, we can learn from the successful path of credit cards, particularly the "two-step" strategy pioneered by BankAmericard (the precursor to Visa).

Credit cards' initial breakthrough was not through instant nationwide coverage but by creating positive feedback loops in local areas based on their "innate characteristics." The first was convenience—a single card could be used at multiple stores, greatly reducing the friction of carrying cash and writing checks. The second was incentives—it offered easier access to revolving credit, reaching a population underserved by traditional charge cards and providing tangible benefits to users. For merchants, credit cards brought incremental sales; by "outsourcing" credit and risk management to financial institutions, even small and medium-sized businesses could enjoy the sales boost from offering credit.

Once these fragmented strongholds formed a positive feedback loop, the true leap came in the second step: connecting them. The key was building an organizationally neutral network governed by all participants. This addressed the early distrust that came with being "both the referee and the player," allowing banks and merchants to join with confidence. At the same time, technical interoperability provided uniform rules for authorization, clearing, settlement, and dispute resolution, making the system efficient enough to compete with cash and checks.

The takeaway is: first, use "innate characteristics" to create a positive feedback loop in a niche, then use an "open network" to scale this local advantage into a national network effect.

2. The Three Levers of Stablecoins: Convenience | Incentives | Incremental Sales

Today's stablecoin ecosystem is gradually acquiring the "innate characteristics" that credit cards once had.

1) Convenience (The Gap Is Narrowing)

The pain points of current stablecoin payments are clear: high friction for fiat on-ramps, a poor user experience with private keys and gas tokens, and the complexity of cross-chain compatibility. Fortunately, we have clear technological and regulatory pathways to approximate the bank card experience.

In the future, deep integration with regulated custodians and financial institutions will significantly reduce the friction of exchanging fiat for stablecoins. Concurrently, infrastructure improvements like account abstraction, gas sponsorship, and passkeys will free users from the burden of private key management and gas payments. Furthermore, advances in chain abstraction and smart routing technology will simplify the complexity of users and merchants needing to be on the same chain, enabling seamless payments.

The conclusion is: while stablecoin payments are not convenient enough today, the technological and regulatory pathways are clear and are rapidly catching up.

2) Incentives (For Both Merchants and Consumers)

Stablecoins can offer incentives far beyond static loyalty points. Imagine "white-label stablecoins," where a regulated issuer handles the underlying issuance and operation, while a brand distributes it under its own label. This new type of membership asset is more user-friendly than traditional closed-loop stored value because it's transferable and redeemable. Brands can leverage its programmability to provide targeted subsidies, such as instant discounts, free shipping, priority access, or even VIP services.

On the consumer side, programmable rewards will bring a revolutionary experience. Stablecoins' native programmability allows rewards to be tightly coupled with payments: you can implement instant subsidies at settlement or dynamic rewards triggered by specific behaviors. Airdrops can be used for low-cost, targeted reach and immediate activation. If wallets can seamlessly route a user's floating funds to a compliant yield source, users will be more willing to keep balances within the ecosystem and spend directly with stablecoins.

3) Incremental Sales (Yield-Driven "BNPL-like" Model)

Stablecoins themselves are not credit instruments, but they can be layered with custodial and yield mechanisms to create a new model for stimulating consumption. A merchant could set it up so that when transaction funds enter a custodial account and earn yield, a portion of that yield is used to subsidize the user's bill upon maturity. This is essentially a redistribution of DeFi yield, transformed into a more refined and attractive transaction subsidy, exchanging lower capital costs for higher conversion rates and average order values.

3. How to Bootstrap a Stablecoin Payment Network

Step One: Build Self-Contained "Strongholds"

The secret to success is to start in marginal, niche scenarios rather than directly challenging the mainstream.

• Niche A: Relative Convenience + New Sales.

  • Scenario: A U.S. merchant sells dollar-denominated digital goods or services to international users, where traditional payment methods are either expensive or restricted.
  • Value: Stablecoins provide an accessible and affordable payment rail, bringing the merchant new sales and a wider reach.

• Niche B: Incentive-Driven Audiences & High-Frequency Platforms.

  • Scenario 1: Fan Economy/Cultural Icons. Fan communities commit to holding a "her-branded dollar" in exchange for priority access and exclusive rights.
  • Scenario 2: High-Velocity In-Platform Markets. For example, a second-hand marketplace or content creation platform where sellers' revenue is often recirculated within the platform. Using a "platform dollar" reduces the friction of funds entering and exiting, amplifying turnover efficiency.

For these strongholds to succeed, three elements are essential: incentives must be impactful (instant reductions are better than long-term points), the experience must be smooth (quick on-ramps, gas-less experience, chain abstraction), and the funds must be transferable/redeemable (avoiding the psychological burden of "permanent lock-in").

Step Two: Use an Open Network to Connect the "Strongholds"

Once fragmented strongholds achieve scale, a unified network is needed to aggregate them. This network must be:

• Neutrally Governed: Co-governed by participants to avoid vertical integration with a specific issuer or acquirer, thereby earning everyone's trust.
• Unified Rules: Under the appropriate regulatory and licensing frameworks, establish uniform rules for KYC/AML, consumer protection, redemption, and dispute resolution, as well as clear procedures for extreme situations like asset freezing or blacklisting.
• Technically Interoperable: Standardize messaging for authorization, clearing, and reconciliation. Support a consistent API and smart routing for multi-chain stablecoins, and integrate compliant risk gateways for anti-money laundering, suspicious transaction monitoring, and traceability.
• Shared Economics: Fairly distribute network fees, service fees, and yield returns to ensure that issuers, merchants, wallets, and various service providers all benefit. Support co-branded loyalty programs and yield-sharing, much like co-branded credit cards once "recruited" major merchants.

4. Common Objections and Counterarguments

• "Credit cards are more convenient, why switch?"

  • This is not about replacement, but "attacking the flanks first." Stablecoins will first build an advantage in underserved segments and among incentive-driven audiences, and then scale their coverage through network aggregation.

• "Without chargebacks, how are consumers protected?"

  • Functional equivalents can be achieved through escrow, dispute arbitration, and insurance mechanisms. For high-risk categories, a revocable layer and token-gated identity management can be provided.

• "With regulatory uncertainty, how to scale?"

  • The premise is "compliance-first" issuance and custody. Within clear state or federal frameworks, "do what can be done first." The network layer can be designed for pluggable compliance and geo-fencing, gradually expanding as regulatory clarity improves.

• "Could card networks retaliate with lower fees?"

  • Stablecoins' core advantage is the new product space created by their programmability and open APIs, not just competing on fees. In cross-border and high-velocity closed-loop scenarios, their structural cost and experience advantages are difficult for card networks to replicate.

5. Verifiable Milestones in 12–24 Months

Over the next 1-2 years, we can expect the following milestones:

• Experience: The time for a new user to go from zero to making a payment is ≤ 2 minutes; a gas-less experience and automatic cross-chain routing with failure rates and latency comparable to mainstream e-wallets.
• Ecosystem: ≥ 5 compliant issuers/custody service providers have launched white-label stablecoins; ≥ 50,000 merchants accept them, with ≥ 30% from cross-border or digital goods/services.
• Economics: The all-in merchant cost of a stablecoin payment (including risk management and redemption) is significantly lower than traditional alternatives in target scenarios; repeat purchases or average order value driven by co-branding/yield-sharing achieve statistical significance.

Conclusion

If stablecoins were to race against bank cards head-on, their chances of winning would be low. But by starting in niche segments, establishing "strongholds" with incentives and relative convenience, and then using an open, neutral, and participant-owned network to standardize, interconnect, and scale these strongholds—this path is not only feasible, but once the network takes shape, it will look like a natural and logical next step in hindsight.