welcome to money is freedom
a podcast
exploring how finance and freedom connect in our lives
created from thoughtful research
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this series brings you clear
meaningful insights into finance and beyond
in episode 18 we dive into
the transformative potential of stable coins
in the payments industry
inspired by the a 16 z crypto article
how stable coins will eat payments
we'll explore how stable coins
are disrupting traditional payment systems
their advantages in speed
cost and global accessibility
and what this shift means for businesses and consumers
join us as we unpack the rise of stable coins
and their path to becoming the future of money movement
welcome back for another deep dive today
um we're gonna be talking about stable coins okay
specifically uh
you know their potential to kind of shake things up
yeah in the payments industry
um
the source that we're using is a recent article from a
16 z crypto okay
and let me tell you
they paint a fascinating picture of the future of money
it really is fascinating
like how money could move in the future yeah
how it could address some of these
pain points that have been around for so long
in a system that like
honestly affects all of us yeah
for sure it's easy to take payments for granted right
how about you swipe your card
tap your phone boom yeah
transactions done easy
but you know behind the scenes yeah
it is a trillion dollar industry
with a lot of moving parts
oh yeah
a lot of opportunity for change for sure
you know
the A16Z article throws out some numbers that are
pretty saggering yeah
they do in 2023
global payment systems okay
processed over 3.4 trillion transactions
wow moving one point eight quadrillion dollars
yeah that's 18 zeros
by the way
it's hard to even fathom that number just to kind of
yeah let that sink in yeah
so it's an insane amount of money
but you know
the takeaway here isn't just the volume right
it's who's getting a cut of this enormous pie right
payment processors networks
pulling in trillions in revenue
yeah and that cost is often passed down to businesses
and ultimately consumers the end user
think about that small business down the street yeah
you know the one you love getting your coffee from
yeah they're paying almost 15% in fees
really for every credit card transaction
wow so if I buy a two dollar cup of coffee
that little shop is giving up 30 cents wow
just to process the payment
that's wild yeah
that's the reality of these traditional systems
wow and that's one of the key reasons why
stable coins are getting so much attention
okay that makes sense yeah
uh maybe we should take a step back for a second
yeah
and kind of break down how this complex system works
sure like how do payments actually happen
yeah so you've got these uh
payment rails okay
which are essentially the technological highways
okay for these transactions
got it then you have the payment processors
companies like stripe square
facilitating that movement of funds
right
and then you have payment service providers like Venmo
Paypal yeah
giving users access to these systems
so it's like a multi layered cake
yeah and each layer is taking a slice
yeah exactly
but it's not just about fees right
yeah there are other inefficiencies too
the article goes into
these four key measures of a payment system timeliness
cost reliability
and convenience each player
kind of prioritizes these measures differently
and it makes it kind of a chaotic landscape
okay so let's unpack these a bit
credit cards for example
right instant processing
super convenient for the user
but high fees yeah
can be a real burden for sure for the business
and then there's chargebacks
chargebacks exactly
debit cards have lower fees
but they're still subject to processing costs
yeah and regulatory caps
right which can limit their use
especially for international transactions right
and then there's ACH transfers right
relatively inexpensive but can take days to clear
yeah and wire transfers
oh don't even get started
yeah those fees on those fees freeze
each method has its pros and cons
yeah
but the current system for sure is ripe for disruption
definitely and stablecoins offer yeah
a really interesting alternative
they do now
our listeners are pretty savvy when it comes to crypto
so yeah won't insult their intelligence yeah
by asking what a stable coin is okay
but for those who might be tuning in for the first time
sure we could just touch on the basics yeah
stable coins are essentially cryptocurrencies
okay that are designed to maintain a stable value
gotcha or being pegged or linked to a more stable asset
like the US dollar or a basket of currencies
so unlike Bitcoin which can swing wildly
right in price
stable coins are designed to hold their value exactly
making them much more suitable for
everyday transactions for sure
and it goes beyond just price stability
we're seeing
all these different types of stablecoin models now like
you know algorithmic stablecoins
those backed by fiat reserves
even hybrid models
each has its own set of advantages and challenges
which is where a lot of the innovation is
it seems like people are catching on right
yeah the article mentions that in the last month alone
over 28.5 million people
use stable coins for over 600 million transactions
it's incredible those numbers are only gonna grow to
as people discover the benefits
especially in areas where traditional payments
systems fall short like remitses
for example oh yeah
for sure sending money overseas
yeah remember those hefty fees yeah
with stable coins
sending $200 to Colombia can cost less than a penny
it's amazing a game changer
for people who rely on sending money back home
that's amazing and it's not just individuals right
no you're right businesses
businesses especially those operating internationally
yeah they're starting to see the appeal
I can imagine imagine
cutting out all those intermediaries and their fees
yeah when you're making international payments
that's huge think about the time and cost savings
not to mention the reduced risk and complexity
the article uses the example of a garment manufacturer
in Mexico okay
paying a textile supplier in Vietnam okay
traditionally that payment yeah
would go through multiple banks
foreign exchange services
each taking a cut right
adding to the processing time totally
with stable coins that transaction happens directly
right much faster and at a fraction of the cost
much more efficient
it's like streamlining the entire supply chain
exactly and making it more efficient and transparent
for everyone for everyone involved yeah
so we've established that stablecoins offer some
pretty significant advantages yeah
over traditional payment methods yeah
for sure but
you know how does this theoretical potential
translate into real world adoption
are businesses actually making the switch
yeah that's the key question
and the article highlights a few trends
that are paving the way okay
for broader stablecoin adoption
and one of the most interesting
I think
is the rise of what they call stablecoin orchestration
stablecoin orchestration yeah
okay that sounds a bit technical
it does yeah
can you break that down a little
yeah essentially
it's all about making it easier okay
for businesses to integrate
stable coins into their existing operations
gotcha so
we're talking about tools that can help them manage
payroll invoicing subscriptions
all those essential back office functions
so it's not about ripping
or replacing their entire system right
but rather
adding a layer of stablecoin functionality on top
exactly these orchestration tools
act like a bridge between the traditional
financial world and the world of staple coins okay
allowing businesses to reap the benefits
without having to undergo a massive system overhaul
and I imagine this is particularly appealing to
oh yeah
smaller businesses absolutely
who might not have the resources right
for a complete digital transformation right
it's a way for them to
kind of dip their toes in the water yeah
experiment with these faster
cheaper more globally accessible payments
makes a lot of sense
so we've got back office integration happening
what other trends are we seeing
another key driver is the increasing integration of
stable coins
into platforms that people are already using okay
so think Venmo Apple Pay
Paypal
cash app even revolute
they're all starting to support stable coins
in one way or another
so it's becoming more and more seamless
exact for users to interact with stable coins
right without having to
you know learn a whole new system right
download a bunch of new apps exactly
it's all about convenience right
but there's also a growing incentive
for businesses to make the switch coin
stablecoin issuers companies like Circle
Paypal and tether
are starting to share profits with businesses that
adopt their stablecoins
so it's kind of like a rewards program yeah
in a way for using stable coins
businesses can earn a portion of the yield
generated by these stable coin transactions okay
which further incentivizes them to integrate
this technology that's a clever strategy
it is because it benefits both sides right
you know
users get access to a more efficient payment system
yeah businesses get rewarded for adopting it
everyone wins win win
but there's another perhaps even more crucial factor
yeah driving adoption
regulatory clarity regulatory clarity
it's always a big topic when it comes to crypto yeah
for sure what's the landscape looking like
yeah what's the current landscape for stable coins
it's still evolving okay
but we're seeing positive developments yeah
The European Union for example
have already implemented
the markets in Crypto assets regulation
or Mica
it establishes clear rules for stablecoin issuers
which has
really boosted confidence in the European market
and what about the US
the US is still working on a comprehensive framework
yeah but there is growing bipartisan support
okay for stablecoin legislation
gotcha the focus is on ensuring that stablecoins
are fully backed by high quality assets
with robust auditing
and measures to prevent illicit activities
so the finding that balance right yeah
fostering innovation and protecting consumers
yeah exactly yeah
and as those regulations become clearer
more businesses will feel comfortable
integrating stable coins into their operations
make sense
they wanna know they're operating within a stable
and predictable legal framework
yeah of course
and each company that makes the switch
sends a powerful message to the market
that stable coins are a viable
reliable and regulated alternative right
it's like a snowball effect
I'm curious with all this talk about payments
yeah are stable coins only useful for that
that's a great question yeah
and this is where things get really interesting okay
the article points out that stable coins
are more than just a payment mechanism
they're also programmable programmable yeah
what does that mean in this context
so it means you can essentially write code
that interacts with stablecoins okay
automating certain actions
or triggering specific events
based on predefined conditions
so it's like building smart contracts
exactly on top of stablecoins
exactly
and this opens up a whole new world of possibilities
yeah imagine being able to automate payments
yeah create personalized financial products
or even build entirely new business models
based on these programmable
stablecoin rails that's mind blowing
it is it's like
stablecoins aren't just about disrupting the payments
industry right
it's about
creating a more dynamic and flexible financial
ecosystem exactly
and this is where we start to see the true
transformative potential of stablecoins
it's about moving from a centralized
gatekeeper
driven financial system to a more decentralized
open and user centric model
so what does this all mean for the average person
yeah how will this stablecoin revolution actually
impact our lives
well in the short term
we can expect to see more businesses
offering stablecoin payment options okay
which could lead to lower prices for goods and services
so I could potentially buy my groceries
my coffee even pay my rent yeah
with stablecoins yeah
knowing that I'm avoiding those pesky transaction fees
exactly and as adoption grows
will likely see
new and innovative financial products emerge
that are tailored to the unique
capabilities of stablecoins
like what think micro loans
automated savings plans
or even decentralized insurance platforms
so it's like giving people more control
exactly over their finances
and
empowering them to participate in the financial system
exactly in new and exciting ways
that's the idea and in the long term
the impact could be even more profound
we could see the emergence of entirely new
business models and industries
built around stablecoin technology
and this like the early days of the internet
exactly
where people were just starting to grasp the potential
yeah of this new technology
and just like the internet
stable coins have the potential to
disrupt existing industries
and create entirely new ones
this is getting really exciting
it is but before we get too carried away
yeah with all the potential benefits
sure are there any downsides or risks
that we should be aware of
of course like any emerging tech
stablecoins aren't without their challenges right
let's talk about some of those potential hurdles
well one of the biggest is scalability okay
as more people and businesses start using stablecoins
the underlying blockchain networks
need to be able to handle
a massive increase in transaction volume
it was kind of like a traffic jam
yeah exactly
the more cars on the road
the slower things move
if transactions become too slow or expensive
it could really hinder that adoption of stable coins
so ongoing development and innovation
in blockchain technology is really crucial
to ensure that those networks can handle the load
that makes sense security is another big one yeah
we've seen with other cryptocurrencies
that they can be vulnerable to hacking
other forms of cyber crime right
people need to feel confident that their money is safe
exactly if
stable coins
are gonna become a mainstream payment method
robust security measures and protocols are essential
yeah
to protect user funds and maintain trust in the system
makes sense
and then there's the issue of interoperability
interoperability yeah
right now the stablecoin landscape is pretty fragmented
okay you have different stablecoins
operating on different blockchains
right and they don't always play nicely together
so it's like having different languages
different currencies
makes it harder for people to communicate and transact
yeah greater interoperability between stable coins
and different blockchain networks is crucial
for those seamless and efficient transactions
gotcha we need a more unified system
where stable coins
can flow freely between different platforms
and services sounds like there's still work to be done
there is but
the good news is
that there's a lot of innovation happening
in this space developers
are working on solutions to improve scalability
enhance security
and bridge the gaps between these different stablecoin
ecosystems that's encouraging to hear
yeah so beyond those technical challenges
are there any broader societal
or ethical considerations that we
should be thinking about yeah
definitely as
stable coins become more integrated into our financial
lives it's important to think about their potential
impact on financial inclusion
privacy and even monetary policy
for example will
stable coins make financial services more accessible
for under served communities
or could they exacerbate existing inequalities
those are great questions
and there are concerns about how they could be used for
illicit activities too
if not properly regulated right
so striking the right balance between
fostering innovation
and mitigating those potential risks
is going to be crucial so
it's a complex issue
with a lot of different perspectives
it is and it's an ongoing conversation
that involves policy makers regulators
technologists and the public
as with any powerful technology
it's essential to have thoughtful
and informed discussions about
how stablecoins can be used responsibly and ethically
so after diving deep into this world
yeah of stable coins
I have to say it's both exciting and a bit daunting
it is there's so much potential
so much but also so much to consider
I agree it really is
a fascinating time to be following this space
but even with all the challenges and uncertainties
one thing is clear
stablecoins are a force to be reckoned with yeah
they have the potential to really reshape
the financial landscape in some profound ways
the article paints a picture of a future
where payments are free instant and programmable yeah
it's a pretty compelling vision
it is and while that future may still be a ways off
the journey has begun
so what can our listeners do to stay ahead of the curve
stay informed okay
read about different stablecoin projects
understand the underlying technology
and follow those regulatory developments
don't be afraid to experiment a little exactly
try using stablecoins for small transactions
explore some of those platforms
tag and services that are emerging
the best way to understand
the potential of stable coins is to experience them
firsthand well
that's about all the time we have for today's deep dive
but before we go
what's one thing you hope our listeners take away
from this conversation
I hope they come away with a sense of curiosity
and a willingness to explore this new frontier
stablecoins are not just a technological innovation
they're a catalyst for change
and the journey is just beginning
beautifully said and that wraps up
our deep dive into the world of stablecoins
and the future of payments
we hope you enjoyed the exploration
until next time stay curious and keep diving deep