Stablecoins are blowing up the financial ecosystem. They are quickly evolving from a crypto-native concept into a mainstream financial tool. As proof, we saw news last week that major retailers Walmart and Amazon are exploring developing their own stablecoins.
If retailers are jumping onto the stablecoin bandwagon, should your firm or fintech be considering doing so, too? To answer that, let’s take a look at the benefits of issuing proprietary stablecoins. We’ll consider Amazon’s and Walmart’s possible strategy, discuss pros and cons, and identify who might be next.
Walmart
Walmart filed a patent for a USD-backed digital currency in 2019. The retailer would use the stablecoin for internal settlement, supply chain payments, employee payroll, and in-store consumer purchases. As an additional benefit of issuing its own stablecoin, Walmart would be able to provide a direct-to-consumer financial product geared toward underbanked customers that would offer a low-fee, efficient alternative to traditional banking.
Amazon
While not officially confirmed, Amazon has also explored blockchain-based payments. The Wall Street Journal revealed (paywall) that Amazon has listed job postings hinting at its crypto ambitions. The retailer could use its own stablecoin to power consumer incentives such as rewards programs, marketplace settlements, and cross-border payments.
Benefits of stablecoin issuance
Both retailers have massive internal ecosystems that stand to benefit by reducing interchange fees by eliminating or reducing third-party payment processing fees from traditional players such as Visa and Mastercard. They would also benefit from the real-time settlement that stablecoins offer, which would save costs on both sides of the transaction. Additionally, issuing their own proprietary stablecoins could foster more loyalty if customers are incentivized by rewards built into stablecoin usage. Control would be another benefit, as stablecoins could offer retailers full control over the payment rail and user data, and they could leverage stablecoins to enhance fraud detection efforts and improve analytics.
It is worth noting that neither retailer has officially announced plans to issue a stablecoin, as that hinges on the passage of the Genius Act, which, if passed, would offer a regulatory framework for stablecoins.
Should you issue your own stablecoin?
These benefits sound appealing, but does all of this mean that your firm should launch its own stablecoin? The answer is likely, “no,” but here are three major things to consider before launching your own.
1) What is your use case?
If your business processes a high volume of payments or regularly encounters steep interchange fees, issuing a stablecoin could help lower transaction costs. For companies that move money across borders or between vendors, stablecoins offer the advantage of near-instant settlement. And for consumer-facing businesses that offer rewards or loyalty programs, stablecoins present an opportunity to merge loyalty and payment into a single, seamless digital currency.
2) What is your level of consumer trust?
If customers already trust you with financial transactions or stored value (such as gift cards or mobile wallet accounts), you may already have the trust foundation needed to support a proprietary token. Additionally, you’ll need some sort of ecosystem that facilitates spending, saving, and earning that customers trust and frequently engage with in order to facilitate stablecoin transactions.
3) Are you prepared for regulatory implications?
Firms with skilled, in-house blockchain capabilities are best poised to succeed when it comes to launching their own stablecoin. Make sure you have resources in place to engage with regulators on stablecoin licensing, AML/KYC, and reserve requirements and that you can support one-to-one asset backing.
Alternatives to issuing
As with many things in financial services, the majority of firms will have more success partnering with an existing stablecoin provider when it comes to leveraging stablecoins. If your firm can’t rationalize issuing your own stablecoin using the framework above, consider working with established issuers like Circle, which issues USDC, or Paxos, which issues PYUSD, or another alternative. This will reduce development cost and time, eliminate legal requirements, and reduce operational costs. It can also facilitate a faster time-to-market without the need to build infrastructure or receive regulatory approvals.
Alternatively, offer multi-stablecoin support by enabling wallet use for USDC, PYUSD, or other popular stablecoins. Leveraging this existing infrastructure can help reduce risk while still reaping the benefits of stablecoin usage.
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