Chainfeeds Summary:
The new technology stack for global finance is still under construction, and its importance goes far beyond what can be reflected in the single narrative of payments.
Article source:
https://x.com/a16zcrypto/status/2048782971289890888
Article Author:
a16z
Opinion:
a16z: Stablecoins have made substantial progress in the "middle link" of cross-border payments; that is, in the intermediate step of transferring funds from one country to another digitally. Stablecoins offer faster settlement, reduced reliance on pre-funded correspondent bank accounts, and lower friction in cross-border transfers. The remaining issue is liquidity between stablecoins and local fiat currencies, particularly in emerging market flows. In most geographical corridors, this liquidity remains thin; and thin liquidity means slippage, delays, and unreliable pricing. If these issues are not addressed, they could severely hinder the adoption of stablecoins in business-to-business scenarios, which have significant potential. This gap is being gradually bridged through three channels: stablecoin-compatible foreign exchange (FX) providers; regional exchanges with strong local fiat currency relationships; and, over time, banks supporting stablecoin settlement of FX transactions. All three are essential. FX providers bring technological integration; regional exchanges bring local market depth; and banks bring balance sheets and correspondent banking relationships. No single channel can bridge this gap independently. The stablecoin infrastructure technology stack is almost entirely built outside the traditional banking system by fintech companies, non-bank payment companies, and crypto-native entities. This brings advantages in speed and openness, but also creates a structural problem: stablecoin infrastructure is architecturally incompatible with the traditional core systems that most banks run. Integrating the two requires a dedicated "translation layer." The "bank connectivity" category is this layer. These companies are building infrastructure that allows banks to offer stablecoin capabilities on top of their existing systems without undertaking a full system replacement that most banks wouldn't undertake. Some of the most forward-thinking players in this space have begun expanding their reach from crypto capital markets and payments to on-chain lending and other areas where banks will eventually want to incorporate stablecoin infrastructure. Two dynamics are reshaping the application layer. The first is the convergence between fintech new banks and crypto wallets. Exchanges are adding virtual accounts, cards, and rewards; new banks are integrating crypto with traditional investment products. The boundaries between these categories are rapidly narrowing, and the final form is almost certain: a unified financial application serving both crypto-native and mainstream users through a single interface. The company that wins this race will not necessarily have the best product currently available. Rather, it's companies that can combine distribution capabilities with trust and products that meet customer needs. The second dynamic is the adoption of stablecoins in corporate banking. In markets where local dollar banking infrastructure is limited, unreliable, or prohibitively costly (such as much of Latin America, sub-Saharan Africa, and Southeast Asia), stablecoins are enabling dollar-denominated operations in ways previously inaccessible to most businesses. This includes supplier payments, global collections, and treasury management. But the more important long-term dynamic at the application layer is what happens after the account. Dollar access is just the entry point. The payments layer is where accounts are opened. The credit and investment layers are where businesses are built.
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