Why will "Stablecoins," not "Cryptocurrencies," become the protagonist of next-generation money?

In the world of crypto assets (virtual currencies), assets with highly volatile prices like Bitcoin and Ethereum are often the topic of conversation. However, at the same time, there has been a demand for "digital currencies close to money" that prioritize price stability and are practical for payments and remittances. Stablecoins, which we will cover here, are the answer to these demands. Stablecoins combine the "efficiency of virtual currency" with the "stability of fiat currency" and are already being utilized for payments, cross-border remittances, and business-to-business transactions. In this article, we will explain the mechanisms, types, practicality, and issues of stablecoins, incorporating the current situation.

1. What are Stablecoins — Basic Concepts and Mechanisms

A stablecoin is a token issued on a blockchain, a crypto asset designed to maintain price stability by linking (pegging) its value to a "specific asset."

For example, it is common to peg "1 coin = 1 US dollar (or euro, Japanese yen, etc.)."

• Due to this stability, one can enjoy the benefits of crypto assets—"high-speed remittances," "global reach," and "cooperation with smart contracts (programmability)"—while avoiding the extreme price volatility of assets like Bitcoin.

It is important that stablecoins function as practical "payments," "remittances," and "stores of value," rather than just speculative assets.

2. Main Types of Stablecoins and Their Characteristics

Stablecoins are classified into several types based on their underlying assets and methods. The representative ones are as follows: 2-1. Fiat-backed / Reserve-backed

This is the most common type, where fiat currencies like the US dollar or euro, or equivalent assets, are held as reserves to back the number of issued coins. Equivalent fiat currency is stored for the issued coins, aiming for a "1:1" value.

This method can be seen as having a structure close to historical "banknotes" (paper money/certificates issued by banks), combining stability and transparency. In fact, most stablecoins currently in circulation are of this type.

2-2. Crypto-backed

This is a method that uses crypto assets like Bitcoin or Ethereum as underlying assets instead of fiat currency. However, since crypto assets have high price volatility, it is common to perform "over-collateralization" to prepare for sharp fluctuations in value.

For example, by collateralizing assets with twice or more the value of the underlying assets, the risk of price fluctuations is absorbed.

2-3. Algorithmic

This is a method that does not have underlying assets and attempts to stabilize value through algorithms that automatically adjust supply and demand. It tries to maintain a peg of 1 coin = 1 dollar by increasing or decreasing the supply. However, there have been historical examples where this method became unstable, so the operation and the trust of market participants are important.

2-4. Others (Commodity-backed, etc.)

There are also stablecoins backed by gold or other commodities. However, these are not mainstream, and their use cases are limited.

3. Benefits of Stablecoins — Why are they attracting attention?

The reasons why stablecoins are attracting attention now and in the future are mainly as follows.

3-1. Low-cost and high-speed payments/remittances

Traditional bank transfers and international remittances are expensive and can take several days. For example, an international transfer of $1,000 might incur a fee of $40 to $150, and processing can take several days.

On the other hand, stablecoins can be sent directly from wallet to wallet on the blockchain, completing in seconds to tens of seconds, with fees that can be less than one cent.

3-2. No intermediaries, transparent and global access

In traditional banking and card networks, multiple intermediaries such as banks, card companies, and payment processors are involved in every transaction, each taking a fee. As a result, retail stores and similar businesses incur costs such as "paying 30 to 50 cents every time they receive a payment" (e.g., there are cases where a fee of 30 cents or more was paid for a $2 coffee).

With stablecoins, you can interact directly without going through intermediaries, reducing intermediate costs. This makes it easier for retail stores and service providers to retain more revenue.

Furthermore, on the blockchain, it has characteristics such as 24/7 operation, the ability for people without bank accounts to send and receive money with just a smartphone, and easy cross-border transactions.

3-3. "Programmability" of payments: Integration with smart contracts

Traditional payment methods (cash, bank transfers, cards) have focused on a simple flow of "transfer -> payment completion." On the other hand, by combining stablecoins with smart contracts, it is possible to "program payments," such as conditional payments, recurring payments, and automatic settlements. This makes it easier to create new business models and service forms (subscriptions, on-demand payments, micropayments, etc.).

In this way, the ability to design payments more flexibly and sophisticatedly, rather than just being a means of remittance, is a major strength of stablecoins.

4. The current state and adoption of stablecoins — Why now?

Stablecoins are rapidly spreading as one of the most practical categories among crypto assets.

• In recent years, the total market capitalization of stablecoins has continued to expand, becoming an important presence in financial markets and payment infrastructure.

• Existing payment providers and fintech companies are also showing moves to incorporate stablecoins. For example, some payment services have officially introduced "low-cost, high-speed payments using stablecoin payments."

• Furthermore, because stablecoins can be a powerful payment method for "people without bank accounts," they are expected to lead to the promotion of financial inclusion around the world.

Against this background, recognition is steadily spreading that stablecoins are not just "something used by cryptocurrency experts," but a payment infrastructure that should be realistically used by "general consumers, companies, and in the field of international trade and remittances."

5. Points to note and risks — "Stability" is not absolute

However, stablecoins have not only advantages but also risks and challenges to be aware of.

5-1. Challenges of peg maintenance reliability and transparency

The value stability of stablecoins is supported by the holding of backing assets and the transparency of operations. However, if those backing assets are not managed properly or information is insufficient, there is a risk that the value will deviate from the "peg" (so-called "de-peg"). In fact, there have been cases in the past where algorithmic stablecoins have collapsed.

Also, the reliability of the issuer, audits of reserves, and securing liquidity are important points, and if these operations are opaque, users may suffer significant losses.

5-2. Issues with Regulations and Legal Systems

Because stablecoins have different characteristics from currencies managed by existing banks or central banks, new regulatory frameworks are being developed in various countries. For example, in Japan, legal preparations are underway to treat stablecoin issuance as "electronic payment instruments."

However, since treatment varies by country and region, and conditions may change during the regulatory process, future legal risks cannot be ignored.

5-3. Provider Dependency, Operational Risks, and Systemic Risks from Scaling

Many stablecoins are issued and managed by specific companies or providers. Therefore, the issuer's financial status, operational policies, and internal management systems are key to their credibility. Furthermore, if stablecoins become widely used as money and are integrated into the entire system, risks have been pointed out where failures in managing backing assets or excessive withdrawals ("runs") could trigger macroeconomic financial instability. Recent research has also proposed a "hybrid mechanism combining public currency (central bank money) and stablecoins" to mitigate such risks.

6. Future Outlook — The Future of Payments and New Applications

The "low cost, high speed, and programmability" of stablecoins hold the potential to significantly change the concepts of payment and remittance as we know them.

• For retailers, it becomes a means to reduce fees for card payments and bank transfers, thereby improving profitability.

• For international remittances and B2B transactions, it eliminates the need for complex procedures, high costs, and long delays associated with traditional interbank correspondent banking.

• It facilitates the realization of new business models and service forms, such as subscription services, micropayments, usage-based billing, and IoT payments.

• It also has the potential to expand financial access for the unbanked and in regions where banking networks are not well-developed.

Furthermore, recent academic proposals have highlighted a "hybrid currency system" that combines public currency (central bank money) with stablecoins as a model that balances financial stability with innovation. This suggests the possibility that stablecoins may become an element of future financial infrastructure rather than just a "type of cryptocurrency."

Conclusion

Stablecoins are a new form of digital currency that combines "price stability" with the "flexibility and efficiency of crypto assets." Stability of value linked to fiat currency, high-speed and low-cost remittances leveraging blockchain, and flexible payment design via smart contracts—these have the potential to remove many of the constraints that traditional payment and remittance methods have faced.

On the other hand, challenges such as the transparency of backing assets, the reliability of issuers, regulatory development, and system stability still exist. Stablecoins are not a panacea. However, as discussions and improvements regarding these issues progress, they could become an infrastructure that fundamentally updates the mechanisms of "payment," "remittance," and "value transfer" in our daily lives. We are now at a time to view that possibility as a reality.

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