Everyone is talking about stablecoins – from major media outlets to political debates. But what are they really about, these digital tokens said to be a stable alternative to traditional currencies? Lukas Kunert explains what distinguishes this specific cryptocurrency from others like Bitcoin and what role they could play in international payment transactions.
From expert forums to major media outlets, the topic of stablecoins is all the rage right now. And in all the articles and such, a few things are often only touched on. Anyone who is not an expert in the field will find it difficult to understand this highly complex topic.
In this article – the first of two parts – we hence want to shed light on the sometimes complex interrelationships in order to make the future topic of stablecoins easier to understand. We will also use a practical example to illustrate where stablecoins already offer real added value and advantages over established structures.
Let’s start at the beginning: Stablecoins are digital tokens based on blockchain technology. This is the technological parallel to Bitcoin which is probably the most famous example of blockchain use. However, the value of stablecoins is created completely differently than for – let’s call them conventional – cryptocurrencies.
The value of stablecoins is always linked to another value, for example gold or a fiat currency. (Fiat money refers to cash issued and regulated by central banks and checkbook money created by commercial banks). When the media talk about stablecoins, they usually refer to the most common ones, which are pegged to fiat currencies such as the US dollar or the euro.
A well-known example is Circle’s USDC stablecoin, which is pegged to the US dollar. Optimally, there are no deviations between the US dollar and the USDC, so the exchange rate really is one-to-one. This mechanism is intended to ensure that stablecoins do not have the strong price fluctuations that have given Bitcoin and Co. the reputation of being highly speculative investments. Stablecoins are stable in the truest sense of the word.
Just as there are differences and similarities between stablecoins and other cryptocurrencies, there are also differences and similarities between stablecoins and fiat money. Basically, the latter has three functions: It serves as a unit for counting and calculating (accounting), it is used to store value (saving) and is a universal medium of exchange (payment transactions).
Regarding the first function: Stablecoins are not really a separate unit of account, as their price is always directly linked to another. Since the EU regulation MiCAR, which came into force at the beginning of the year, it has also been clear that fiat-linked stablecoins are not (or no longer) suitable for saving or even speculating. Among other things, MiCAR prohibits incentives in the form of interest income, more on this below. Saving is only still a relevant function with some other types of stablecoins, see our chart.
What remains is the function of the universal medium of exchange, and this is in fact the main purpose that stablecoins linked to fiat currencies have and should have. They are used in the short term and then converted back into other values. There are stablecoins that are converted several times a day and exchange hands. This shows how agile, simple and efficient a transfer with stablecoins is. Achieving a comparable speed with fiat money is hardly possible.
As mentioned, there are other references for stablecoins in addition to being backed by fiat currencies. Basically, you could even reference the value of the tokens to a pound of tomatoes. This would mean that I could exchange the token for a pound of tomatoes at any time. In reality, however, there are mainly the following types:
The reason there are these different types in the first place is because they each cover specific market needs: Fiat-backed stablecoins offer stability for payments, crypto-backed variants focus on decentralization, commodity-backed stablecoins are aimed at investors, and algorithmic models were intended to create an alternative without deposited collateral.
Of course, stablecoins and their risky crypto cousins such as Bitcoin or Ethereum have a common history. The Bitcoin whitepaper, which marked the beginning of the blockchain, was published 17 years ago. This was followed by several years of extreme cryptocurrency volatility before the first stablecoin – Tether (USDT) – was developed in 2014 in response.
The blockchain ecosystem has evolved enormously since then. Nevertheless, many people still reduce it to crypto speculation or criticize it harshly. At its core, however, it is a transparent, decentralized accounting system. With stablecoins, this ecosystem is now gaining a promising new use case in payment transactions. At neosfer, we are particularly interested in foreign payment transactions.
Because one thing is certain: Our cross-border payment transactions could use this innovation. SWIFT, the traditional banking network for these types of transactions, has been around for over 50 years and is slightly outdated. At a time when we are used to everything being available immediately at the touch of a button, a processing time of sometimes several days with high fees is simply no longer up to date.
The previous innovation in international payments was thanks to companies like Wise, which in 2011 – back then still named Transferwise – began using a peer-to-peer system to make transfers cheaper and faster. But even in that system, customers were still dependent on traditional banks. With stablecoins, transactions can now take place in real time with high transparency and low fees. This is because a transaction from one wallet to another can take place 24/7 around the globe and does not need the services of banks.
Banks, however, can continue to fulfil their traditional role in the payment system. One approach is tokenized deposits, a different technical – i.e. tokenized – version of today’s bank money. More and more banks around the world are exploring the concept of tokenized deposits as an answer to stablecoins; the overarching BIS/ IIF project “Agorá” with more than 40 private banks and 7 central banks, which was launched last year, is particularly noteworthy. The aim of the project is to research improvements in cross-border payments via tokenization of deposits and central bank money on an innovative technical infrastructure.
Most central banks have been working on individual projects for some time on improvements using central bank digital currencies (CBDCs). Issued by the central banks, these would not be new currencies, but simply digital versions of existing central bank money, for example cash or central bank money for interbank transactions. The European Central Bank ECB has also been working on the possible concept of a retail CBDC for end customers for more than two years. In 2024, it tested different variants of DLT-connected payment solutions with central bank money in interbank business (wholesale CBDC).
The fact that the topic of stablecoins is gaining momentum is partly due to regulation: For the first time ever, thanks to MiCAR (in force since the beginning of 2025), established corporates can become involved in the area of crypto assets without entering directly into regulatory and legally uncertain territory. The regulation contains strict requirements, for example on the topic of interest rates – see above – and clear guidelines on how collateral must be held.
If the tokens are backed by US dollars, for example, real assets such as bank money or short-term government bonds must be deposited as collateral in order to ensure price stability. This means that the regulation of stablecoins is already a political issue. The demand for government bonds increases as a result, making it cheaper for governments to refinance.
It is understandable that countries are trying to anchor their currencies in the stablecoin market through regulation and market mechanisms. Especially in these difficult geopolitical times, a strong stablecoin backed by the euro would be advantageous for the EU, for example. At the same time, the US has just announced its own guidelines; it is likely to be pursuing the clear goal of retaining global currency dominance.
One thing is for sure: Although stablecoins are not a replacement for the existing financial system, they can make certain elements of it significantly more efficient. Which approach – private sector stablecoins, commercial tokens from banks or digital central bank money – will be the dominant one, remains an open question. Stablecoins are currently ahead.
With the announcement of the MiCAR regulation, numerous innovative players have already positioned themselves. In our next article, we therefore want to take a look at interesting start-ups and innovators in the field of payment transactions. To be continued!
By the way: If you are interested in the topic of stablecoins, you or your company are active in this area and you would like to discuss it with us, then we look forward to hearing from you!
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