A guide to stablecoins: What, why, and how

Stablecoins may be crypto’s first “killer app.” In our most recent State of Crypto report, we noted that stablecoins found product-market fit, as major scaling upgrades drastically reduced costs. Transaction volumes reached $1.82 trillion in March of this year, a record high. But stablecoin activity is largely uncorrelated to crypto market cycles — organic, non-speculative use appears to be widespread and growing even as crypto trading volume fluctuates, as the chart in the last link shows. 

Still, it’s easy to underestimate the promise of stablecoins without taking a closer look at the impact they’re having on users, builders, and businesses. Stablecoins are one of the only mediums — besides cash and gold — to operate without centralized gatekeepers like payment networks and central banks. Stablecoins are already one of the cheapest ways to send a dollar (sending $200 from the U.S. to Colombia costs less than $.01). But stablecoins are not just cutting fees; they’re permissionlessly programmable and extensible. So for the first time, anyone can easily integrate globally available, fast, and nearly free money into a product using stablecoin rails — while building new fintech features. Companies from Stripe to SpaceX are embracing stablecoins.

So how did stablecoins become poised to disrupt the global payments industry? Who will benefit most from their adoption? And how can builders and businesses think about them? In this list, we’ve rounded up a few pieces and perspectives on stablecoins published by a16z crypto to better understand how we got here, starting with what is (and is not) a stablecoin, and ending on ideas for reimagining money from first principles. 

1. The big picture: Stablecoins could be a ‘WhatsApp moment’ for money, making international transactions nearly free and instant

Stablecoins are our first real shot at doing for money what email did for communication: Make it open, instant, and borderless. 

Before apps like WhatsApp, sending a text across borders meant paying 30 cents per message. Internet-native messaging is now instant, global, and free. Payments are now where messaging was in 2008: limited by borders, burned by intermediaries, and expensive by design. Stablecoins could dramatically improve this situation.

Today international remittances can cost up to 10% in fees. (A $200 remittance cost 6.62% on average in September 2024.) These remittance fees aren’t just friction points — they’re effectively regressive taxes on the world’s poorest workers. But businesses also suffer from the inefficiencies of global payments. Along certain corridors, B2B payments can take 3-to-7 days to clear and can cost anywhere from $14-to-$150 per $1,000 transacted — passing through as many as five intermediaries along the way, each of whom takes a cut. Stablecoins could help bypass legacy systems and silos, like the international SWIFT network and associated clearing and settlement processes, and make these transactions nearly free and instant. 

This isn’t theoretical — it’s already happening.  In 2024, stablecoins moved $15.6 trillion in value, effectively matching Visa’s volume. While that figure mostly represents financial flows (versus retail payments), its magnitude still suggests we’re on the verge of a financial infrastructure shift. Meanwhile, companies like SpaceX are using stablecoins to manage their corporate treasuries (including by repatriating funds from countries with volatile local currencies, like Argentina and Nigeria). And other companies, like ScaleAI, are using stablecoins to make faster, cheaper payouts to global workforces. 

…more: “Stablecoins: Payments without intermediaries”

2. What is (and is not) a stablecoin? There are two types of stablecoins, and one common miscategorization

It’s time to clearly delineate the stablecoin landscape. One useful lens for understanding the richness and limitations of the stablecoin design space is the history of banking: what worked, what didn’t, and why.

We expect stablecoins to speedrun banking history. Just as with stablecoins, American money started with simple banknotes before regulatory changes enabled banks to expand the money supply through increasingly sophisticated lending. Looking at this history helps us draw out useful comparisons between stablecoins and the banking stack, and can help builders avoid the pitfalls and inefficiencies of traditional institutions.

So far, stablecoins have been described as existing on two axes: from under to over-collateralized, and from centralized to decentralized. This is useful, especially in helping people understand how technical structure relates to risk and in combating misconceptions. Here, we build on this framework by outlining two different types of stablecoins and one common miscategorization, using the lens of retail banking:

• Fiat-backed stablecoins operate under the same principle as bank notes from the U.S. National Banking Era (1865–1913): Users can directly redeem their tokens for a trusted fiat currency. The value of a token is linked to the underlying currency, but trust in that value depends on issuer reputation, and the ease of redemption through exchanges like Uniswap or Coinbase. Today, fiat-backed stablecoins make up over 90% of the total stablecoin supply.
• Asset-backed stablecoins are the product of onchain loans, also known as CDPs. They mimic how banks create new money through lending comparable to fractional reserve banking. While banks use mortgages, auto loans, business loans, inventory financing, and so on to create money, lending protocols use onchain tokens as loan collateral, creating asset-backed stablecoins. As more of the economy moves onchain, we can expect two things: first, for more assets to be candidates for the collateral used in lending protocols; and second, for asset-backed stablecoins to be a larger portion of onchain money. 
• Strategy-backed synthetic dollars (SBSDs) — $1-denominated tokens that represent a combination of collateral and an investment strategy (e.g., yield generation or basis trades) — differ significantly from true stablecoins. SBSDs are essentially dollar shares in an open-ended hedge fund, a structure that is both difficult to audit and that could expose users to centralized exchange (CEX) risk and asset price volatility. For these reasons, SBSDs are not considered to be a reliable store of value or medium of exchange, which are the main use cases for stablecoins.

We expect there to be continued innovation to improve the safety, transparency, and capital efficiency of onchain dollars… just like with the history of U.S. banking. 

…more: “A useful framework for understanding stablecoins: Banking history”

3. Greater stablecoin adoption can significantly lower costs for enterprises

Transaction fees hurt many business bottom lines. Reducing those fees via stablecoins could unlock massive profitability across businesses — of all sizes. To illustrate this point more vividly, we can take a look at three public companies’ fiscal year 2024 financials to approximate the effect of reducing payment processing to 0.1%. [For convenience, this evaluation assumes that these businesses are paying a 1.6% blended payment processor cost and have minimal on/offramp costs.] In 2024, 

• Walmart made $648 billion in annual revenue with $15.5 billion in profit. They might pay about $10 billion in credit card fees. Eliminating payment fees, Walmart’s profitability, controlling for all other factors, could increase by over 60%, just through cheaper payment solutions.
• Chipotle, a quick-service restaurant, made $9.8 billion in annual revenue. It might pay $148 million in credit card fees on a $1.2 billion annual profit. Chipotle could increase profitability by 12% just by reducing payment processing fees.
• Kroger, a national grocery store, has the most to gain because it has the lowest margins — and, astonishingly, Kroger’s net income and cost of payments may be almost equal. Like many grocers, its margins are below 2%. Kroger could potentially double profits with stablecoin payments.

Note retailers and payment processors are not at odds here; they’re aligned against high-fee payment solutions. Payment processors are also low-margin businesses, giving up most of their margin to card networks and issuing banks. So when payment processors handle a transaction, most of their fee passes through to payment networks. When Stripe handles an online retail checkout flow, they take 2.9% of the total transaction and a $0.30 fee, but they give Visa and the issuing bank more than 70% of that fee.

The revenue payment processors make on stablecoin transactions — with lower fees and no network gatekeeper to pay — is therefore much higher-margin. The first shoe has already dropped: Stripe announced that they are taking a 1.5% fee on stablecoin payments, an over 50% discount on the fees they charge for card payments. To support this effort, Stripe acquired Bridge.xyz (a payments platform built with stablecoins), its largest acquisition to date. 

And as more payment processors like Block (formerly known as Square), Fiserv, Stripe, and Toast adopt stablecoins, it’s possible that competition will push these fees down even further over time, in addition to making stablecoins more accessible to even more businesses.

…more: “How stablecoins will eat payments”

4. Small-to-medium-sized businesses will be the first to switch from credit cards

It’s easy to assume that the businesses to adopt stablecoins first will be the most internet-native ones, like social platforms, pay-to-play games, and so on. But margin-sensitive businesses — restaurants, coffee shops, corner stores, and other brick-and-mortar retailers — have much more to gain by accepting stablecoins. These businesses are hurt the most by transaction fees; they also don’t benefit from many of the features credit card companies offer that might justify paying more. 

Here’s an example: For every $2 a customer spends on coffee, only $1.70 to $1.80 goes to the coffee shop. The near 15% remaining goes to intermediaries like credit card companies and banks, just for facilitating the transaction. But credit cards are only being used for convenience here: Neither the consumer, nor the shop, needs the additional credit card features that justify those companies’ fees. For example, the consumer doesn’t need fraud protection here (they were just handed a coffee), or a loan (the coffee was $2). Coffee shops also have limited compliance and banking integration needs (they use comprehensive restaurant management software, or nothing at all). So if there were a cheap, reliable alternative, expect these businesses to take advantage of it.

Using stablecoins could help smaller businesses get that margin back. Of course, there’s a cold-start problem: Not many consumers are already using stablecoins. But because people have relationships with their in-person coffee shops and corner stores, it’s possible that strong local brands will bring more people onto stablecoins as part of the initial adoption curve.

…more: “A few of the things we’re excited about in crypto (2025)” and “Talking trends 2025”

5. Beyond payments: Stablecoins are public goods that can create new categories of software

Traditional finance is built on private, closed networks. The internet has showed us the power of open protocols — like TCP/IP and email — to drive global coordination and innovation.

Blockchains are the internet’s native financial layer. They combine the composability of public protocols with the economic strength of private enterprise. They are credibly neutral, auditable, and programmable. Add stablecoins, and you get something we’ve never really had before: open money infrastructure. Think of it like a public highway system. Private companies can still build the vehicles, the businesses, and the roadside attractions. But the roads themselves are neutral and open for everyone.

Stablecoins have the potential to transform the payments industry, for all the reasons we’ve already stated, but they’re not just a way to lower fees. They enable new categories of software:

• Programmatic payments between machines: Imagine AI agent-powered marketplaces automatically brokering deals for computer resources and other services.
• Micropayments for media, music, and AI contributions: Imagine setting a budget with some simple rules and leaving it to “smart” wallets to disburse the payments.
• Transparent payouts with full audit trails: Imagine using these systems to track spending in government.
• Global commerce without unnecessary intermediaries: It’s already possible to settle international transactions instantly at negligible cost 

The moment for blockchain networks and stablecoins is now: Technology, market demand, and political will are lining up and making these applications a reality. Crypto is ready to cross the chasm from a financial experiment for some to infrastructure backbone for many, with stablecoins leading the way.

…more: “Stablecoins: Payments without intermediaries”

6. Decentralized stablecoins are the foundation for digitally native money

Stablecoins allow digital finance system designers to start reimagining money from first principles. One of these principles is control: which people and institutions create money and control the money supply. 

Today’s monetary system is built on a tightly interwoven relationship between the state treasury, the central bank, and commercial banks. Over time, this system has revealed critical limitations, from poor risk management to governance inefficiency, as well as an inability to meet the demands of an increasingly digitally native economy.

As we’ve covered above, stablecoins stand to revolutionize the whole financial intermediation stack. Yet in prioritizing the functional benefits of stablecoins — low-hanging use cases with clear friction points, such as international payments — many centralized stablecoins still rely on existing legacy systems for reserving and monetary creation. This includes all of those systems’ entrenched inefficiencies and vulnerabilities. 

Decentralized stablecoins — which are typically programmed to maintain the price peg via algorithms — can do better. In general, decentralized finance (DeFi), offers a number of advantages over traditional financial frameworks:

• Enhanced resilience: By distributing issuance across a decentralized network, decentralized stablecoins reduce single points of failure, mitigating system risk.
• Improved transparency: The ability to have real-time, onchain visibility of the asset reserves backing stablecoins in issuance allows for better oversight by system designers, market participants, and regulators.
• Increased efficiency: The modularity and programmability inherent in DeFi enable improved capital efficiency and specialization, countering the traditional trend toward centralized profit capture.
• Future proofing: As digitally native financial instruments, decentralized stablecoins are better suited than outdated bank APIs for seamlessly developing and launching consumer financial applications.

Decentralized stablecoins are pioneering reliable, efficient, and trustless systems where highly transparent forms of money can be issued by anyone, permissionlessly or semi-permissionlessly. These systems aim to reconstruct the checks and balances that enable users to trust the value behind a dollar balance, directly connecting the assets (i.e., the reserves) with the liabilities — and in doing so, helping create digitally native money. 

…more: “Why we need decentralized stablecoins”

 

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The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. This post contains an excerpt of a16z crypto’s State of Crypto. The full report should be read in its entirety for important disclosures and context. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the current or enduring accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; a16z has not reviewed such advertisements and does not endorse any advertising content contained therein. 

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