Stablecoins' trillion-dollar "Game of Thrones" is afoot

The big picture: Global payments have been built on the slow and creaky system of correspondent banking that dates back a couple hundred years, but until stablecoins came along there hasn't been sufficient impetus to truly update it.

• Stablecoins put competitive pressure on legacy payments, with settlements in minutes, not days, 24/7 operation and often negligible fees, because the only "middleman" is the underlying blockchain.

Zoom in: Circle, the issuer of the second-largest stablecoin out there, USDC, announced the Circle Payments Network last week. It looks like the most straightforward bid to sit at the center of trillions of dollars in money sloshing all over the world.

• The network is a crypto-ready bid to create an alternative to SWIFT, the bank-to-bank messaging system at the heart of today's global payments, an electronic layer that enables correspondent banking in the information age.
• Circle's essentially proposing a compliance edge around stablecoin networks so that traditional institutions can send stablecoins or regular old money and move it faster, cheaper and with better features.
• Payments giant Stripe made a similar move when it acquired Bridge, making one of the crypto industry's biggest acquisitions.

Between the lines: Circle's new network comes amidst the initial public offering it filed for on April 1, in which it is seeking a $4 or $5 billion valuation, a steep multiple on its current profits.

• But Ananya Kumar, of the Atlantic Council, reads Circle's goals modestly. "A goal here is to create interoperability and reduce frictions," she said. She doesn't see an immanent threat to SWIFT.

Reality check: "There's something like $1.8 quadrillion in value when it comes to global payments," Kumar says. "The volumes are far from this transplanting of SWIFT happening."

New laws, big banks

Collectively, stablecoins are already a rival for Visa, a private network that connects banks, merchants, consumers and businesses around payments.

• ING Direct and other banks in Europe reportedly want to create a stablecoin. And VISA, which started as a cooperative effort between banks — referred to as "coopetition" — is the likely playbook these banks are following.

Bank of America is the one that got VISA going starting back in 1958, so its announcement this year that it will be ready to go when stablecoins get the all clear could be telling.

• So far, the main big bank we have heard from is BNY, which came to the U.S. House Financial Services committee to advocate for permitting banks to issue them.

Big banks have clearly been eyeing stablecoin technology for years, but until recently had avoided the inevitable headaches from regulators.

• But the regulatory landscape has changed, and traditional finance firms are making moves.
• Europe has basically already written clear rules for stablecoins with its MiCA framework. A new law in the U.S. appears to be months, not years, away.

King of the realm

Many players aren't planning to be part of a collective, however. Each one wants to be the next Visa, that is, to rule this new category.

Tether is king of stablecoins, for now. The company behind by far the most used stablecoin, USDT, claims it's already expanded usage well beyond crypto trading, and it's popular in the developing world.

• Meanwhile, the company is talking about bringing the fight for stablecoin dominance to the U.S., possibly attempting to disrupt Block, Inc.'s Square payments system, making a new point-of-sale system with perks for customers that use a new, designed-for-U.S. compliance stablecoin.

Paypal has bet on increasing the utility of its stablecoin, PYUSD, because it believes the instruments open up a universe of new kinds of business, starting at the enterprise level and in cross-border transfers.

• It just announced a 3.7% return on its stablecoin when held within its app, which would be most of the yield the issuer is earning off the stablecoin's underlying Treasuries.
• The theory here is that sharing yield with users will make it more likely that they keep that money in the digital wallet, making it more likely that they spend them with a merchant.

Paypal however, the first mainstream fintech to issue a stablecoin, is passing on a big disruption in the payments system.

• "We think new payment rails will exist with old payment rails," Jose Fernandez da Ponte, the company's lead on digital assets, tells Axios.

Between the lines: Whether stablecoins disrupt the current payments system, or simply become integrated into its backbone infrastructure, it appears inevitable that they will soon play a significant role.

💭 Our thought bubble In 2005 you could buy a t-shirt that said "I don't want to read your blog."

• But by the end of that decade, almost everything that anyone read on the internet was published using what was, ultimately, blogging software (including this website).

The bottom line: Like the term "blogging," we'll probably shed the word stablecoin eventually.

• But the infrastructure built for it will be everywhere, powering the future, and someone — a new king — will run it all.

Go deeper: Bitcoin offers a politics-free medium for payments