Bitcoin started in 2008 as a mean of payment, and with Stripe re-authorizing stablecoins, we’re circling back to it. As their total supply hovers around all-time-highs in August at $154bn+, stablecoins potential is undeniable.
Problem is, stablecoins in and out of themselves don’t solve any problem - for now, they are mostly regarded as the safest way to be exposed to crypto. But their true potential is far greater: instant settlement, easy access to the dollar, free-of-charge remittance - the use cases are legion. However, such potential can only be exploited when stablecoins get more accessible, or better embedded in the existing financial infrastructure.
We need a way to do just that, and wallets with a Web2 UX like Opera Minipay, Sling or Payy might be the solution. The self-custodial products are embedded in a great user experience, enabling both decentralised operations while removing friction for the user. Could embedded wallets be the gateway to mass stablecoin adoption?
We sat down with Mathilde David, Product Lead for Stablecoin Movement at Paxos, to explore the challenges and opportunities ahead.
1. What are the current issues slowing down stablecoins adoption?
Despite their growing popularity, stablecoins are still grappling with a couple of important challenges before they can achieve mainstream adoption.
Top of the list is the lack of regulatory clarity. Governments worldwide are struggling to classify and regulate this new asset class, creating a climate of uncertainty that deters businesses from entering the market and ultimately slows down innovation.
Second is accessibility. Having to on and off-ramp creates a significant barrier to entry for non-tech savvy users. Because of that, most of stablecoins current usage isn’t focused on making our payments more efficient, but rather on creating profits on-chain. According to Visa, more than 90% of stablecoin transaction volumes are made by bots, automating transactions such as arbitrage, MEV plays or liquidity providing on the blockchain.
Stablecoins need a UX lift, and Mathilde agrees:
"Much work is needed to simplify the Stablecoin payment experience. Today, as an example amongst many, users often have to choose which chain they want to make payments from: should they pick Ethereum, Solana, Polygon? That's typically the type of complexity that should be abstracted."
Such complexities not only deters new users but also limits the potential use cases of stablecoins. To make them more appealing to mainstream audiences, the user experience needs to be simplified and streamlined. This means abstracting away the technical complexities of blockchain technology and creating a more intuitive and user-friendly interface.
Until these challenges are addressed, stablecoins will likely remain confined to the crypto-native space, limiting their potential to revolutionize the broader financial landscape.
So let’s talk about just that: if it needs to be simple to pay with stables for people to start using them, what would the ideal payment experience in stablecoins look like? Embedded wallets might have the answer.
2. Embedded wallets, the gateway to mainstream stablecoin adoption?
Let’s think about the money sending process for a Venmo user. Enter a phone number and a PIN, and voilà, a payment has been made. No IBAN to register in the app, no beneficiaries to add to your bank, and god forbid, no QR code to scan.
Isn’t it the user experience stablecoins need to become mainstream? Stripped down to the bare minimum: pay with a phone number.
For Mathilde, it’s pretty clear - consumers habits are already there, they’re just waiting on the UX:
“There's definitely habits and a lot of trust from consumers to use digital wallets. It makes it natural to adopt crypto wallets with an intuitive experience, such as Metamask or Phantom. The next step is ensuring users can easily make payments with these wallets."
Reading this, one might think that delightful payment means like CEX cards (Binance, Coinbase etc) already exist, and such payment experiences are already available. Then, why hasn’t it been widely adopted yet?
Well, there are 2 reasons for that:
- Most cards aren’t self-custodial (since they are issued by CEXs). As such, they often have hefty fees (as high as 1.5% on every payments) and are subject to all the issues CEXs have faced in the past (FTX, Genesis etc).
- The few self-custodial cards that exist, like Ledger’s CL card, are pre-paid for the most part, adding significant friction in the user experience prior to paying, and limiting adoption.
At the end of the day, actually getting self-custodied stablecoins is very hard for the average user, and the options for paying with them are currently not optimal (although we’re working on it at Kulipa with pure debit cards).
So let’s say embedded wallets grow their user base, and that stablecoin-based means of payments are improved. Well, it’s just the beginning of the story. Wallets might be the best enabler for stablecoins payments, they won’t help with global acceptance just by themselves. They are merely the distribution tool, and we need the rest of the party to join. And who might that be?
3. Payment infrastructure providers are the next adopters
Wallets and their end users are only one part of the equation. Merchants and payment infrastructure providers are the two others.
For merchants, stablecoins are just a net positive, because it solves two of their biggest problems: long settlement times and intermediaries costs. Mathilde explains:
“I spent a lot of time with US merchants during my time at Square. From their perspective, any dollar counts. They are focused on minimizing the costs to operate payments, and stablecoins on low cost chains are a great solution for this”
Another interest merchants have in accepting stablecoins is the access to a global pool of consumers. It’s very expensive and a lot of work for merchants to be able to accept payments from any place in the world; a painful country by country integration is usually the way to go. On the other hand, 560 million people worldwide hold crypto. This is as many international consumers within reach without much work to do.
So it’s pretty clear that merchants are pretty incentivized to accept stablecoins. That’s 2 out of 3 parts of the equation validated. What about payment infrastructure providers? You know, those who build the apps, the payment rails, the protocols.
After some tough love in the last couple years, providers are coming back to stablecoins. In 2024, there has been a large number of good news for stablecoin’s acceptance.
Just to name a few:
- Revolut launched their own crypto payment cards two weeks ago,
- As mentioned, Stripe’s validation is pretty big for the industry,
- PayPal Xoom now offers free cross-border payments in 160 countries using PYUSD,
- Block has partnered with Yellow Card to facilitate affordable transactions in Africa,
- Grab, Southeast Asia's ride-hailing giant, has begun accepting stablecoin payments
- Mastercard announced exploring blockchain payments with 5 web3 startups, including Kulipa.
Things are moving. Startups are launching in the space, and incumbents are progressively integrating this new mean of payment. But for Mathilde, stablecoins shouldn’t limit themselves to getting adapted to traditional finance (TradFi). It’s only the beginning of true innovation:
“Stablecoins offer a chance to innovate beyond traditional finance. There’s a real opportunity to create a better financial system for everyone. Paxos did this with the Lift Dollar, a dollar-backed stablecoin that automatically distributes daily yield when held in your wallet, turning it into a savings account.”
We’re getting there
Embedded wallets are the best gateway for stablecoins, as their user experience gets clearer and easier to handle. Payments rails are progressively integrating stablecoins after some much needed ecosystem consolidation - and merchants are all for it.
At the end of the day, stablecoins true potential might be just within reach, much closer to reality than what we expect. Will the rest of Web3 follow in their steps?
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About Kulipa
Kulipa helps non-custodial wallets issue crypto payment cards. With Kulipa cards, wallets can generate more fund movement, easily develop new use cases and maximize organic acquisition. Get in touch here!
The views expressed in this article are solely those of the author and do not necessarily reflect the official position or opinions of Paxos.”
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