In 2022, the de-pegging of the TerraUSD (UST) stablecoin led to a cryptocurrency sector collapse, ultimately exposing fraud at FTX and elsewhere.
Much has changed since then, particularly as it relates to the view traditional players in finance and payments hold around stablecoins.
Observers within the financial services and enterprise business space appear to be warming up to blockchain technology and stablecoins. PayPal, for example, completed its first business payment, to EY, with its in-house stablecoin, PYUSD, Thursday (Oct. 3).
PayPal, which also used its PYUSD token to make a venture investment in blockchain firm Chaos Labs in September, isn’t alone in its forays into the digital asset space. Swift announced Thursday that it will let banks test tokenized transactions on its global messaging network starting next year.
Perhaps the biggest news this week was that Visa launched a new platform Thursday for banks to issue fiat-backed tokens, such as stablecoins and tokenized deposits.
The Visa Tokenized Asset Platform (VTAP) is designed to use the payment company’s expertise in technologies like smart contracts to let banks issue and transfer fiat-backed tokens over blockchain networks.
“Visa has been at the forefront of digital payments for nearly 60 years, and with the introduction of VTAP, we are once again setting the pace for the industry,” Vanessa Colella, global head of innovation and digital partnerships at Visa, said in a press release.
The involvement of major industry players such as Visa and PayPal signals a maturation of the stablecoin ecosystem. These heavyweights are not only expanding the use cases for stablecoins but also working on enhancing their stability and legitimacy, an effort that could mark a shift in how stablecoins are perceived and used in the broader financial world.
Read also: Can Stablecoins Spark Crypto Adoption Across Retail and B2B Markets?
Traditionally seen as a payment network giant in consumer payments, Visa’s ambitions with stablecoins appear firmly rooted in the B2B domain. VTAP is centered on enabling banks to issue stablecoins and manage tokenized deposits, which could have implications for B2B transactions, cross-border payments and the rise of smart contracts.
Visa’s foray into stablecoins is not merely about adding another payment option for consumers but rather enabling a new level of efficiency in large-scale corporate transactions.
The company’s network scale and established relationships with financial institutions worldwide position it to contribute to the stability and legitimacy of stablecoins. By enabling banks to issue their own stablecoins and integrate tokenized deposits into their systems, Visa could foster widespread adoption, reducing the risk of market panic that often leads to de-pegging events. Moreover, as banks enter the fray with their regulatory frameworks in place, the perception of stablecoins as a credible asset class could improve.
Visa’s efforts to build an infrastructure for banks to issue stablecoins could create a network effect, where stablecoins issued by reputable institutions reduce the risk of de-pegging and increase user trust.
By addressing key pain points in B2B and cross-border transactions, smart contracts and enterprise payments, stablecoins could emerge as a foundational component of the global financial system, all with the backing of some of the most trusted names in finance.
See also: Stablecoins Surge in Prominence and Utility Across FinTech Ecosystem
PYMNTS examined the role blockchain technology plays in cross-border payments in a conversation last month with Sheraz Shere, general manager of payments and commerce at Solana Foundation.
“Blockchain solutions and stablecoins — I don’t like to use the term crypto because this is more about FinTech — they’ve found product-market-fit in cross-border payments,” Shere said.
Financial institutions are also looking into their own stablecoin options for settling transactions and streamlining internal operations. J.P. Morgan Chase, for example, is involved in the exploration of blockchain and stablecoins, but its focus is largely on wholesale banking transactions. The bank’s JPM Coin, designed for institutional clients, is a stablecoin that helps streamline large-scale, cross-border payments and transactions between the bank and its corporate clients.
The path to mainstream adoption of blockchain solutions will depend heavily on regulatory clarity and how well these companies can maintain their stablecoins’ pegs to underlying assets. If they succeed, stablecoins could become a permanent fixture in B2B and consumer payments.
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