Getting Money Back Could Be Stablecoins’ Next Big Selling Point

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Highlights

Then the supplier says the money never arrived. The transaction may be technically complete. The commercial obligation is not.

A new report published Monday (Oct. 12) by the Financial Stability Board (FSB), ahead of the G20 finance ministers and central bank governors meeting Thursday (Oct. 15), suggests that the infrastructure for moving digital money is advancing faster than the mechanisms for managing its cross-border vulnerabilities

That distinction is emerging as one of the more consequential unresolved questions in cross-border payments. Stablecoins promise to remove the delays, intermediary costs and operating-hour restrictions associated with traditional international transfers. But in doing so, they can also shift responsibility for payment errors, liquidity shortfalls and disputes toward the businesses using them.

Perhaps the receiving wallet was compromised, or the funds reached the wrong address, or maybe the supplier received the tokens but can’t convert them into local currency without taking a loss.

For corporate treasurers, the question is not whether digital dollars can move across borders in seconds. It is who stands behind those dollars when something goes wrong.

Read more: Stablecoins Have a $10 Million Problem: All That Money Is Going Back to the Bank 

Settlement Finality Is Not Financial Finality

Traditional cross-border payments are frequently criticized for their complexity. Correspondent banks, compliance checks, currency conversions and local clearing systems introduce delays and costs that businesses increasingly consider unnecessary.

Stablecoins are being positioned as a neat and innovative solution to those endemic and legacy frictions. The PYMNTS Intelligence report “From Asset to Everyday Money: Making Digital Currencies Spendable” found in July that cross-border B2B transfers are already one of the largest use cases for stablecoins and represent the majority of global stablecoin payment volume.

But the FSB’s October report examined the cross-border vulnerabilities of global stablecoin arrangements, and found that the ecosystem includes structures through which risks could spread as well as highlighted the limitations of available monitoring data. The FSB’s central concern is that global stablecoin systems can span multiple entities, industries and national regulatory frameworks, making their risks difficult for any single jurisdiction to assess or contain.

A company might purchase stablecoins from one intermediary, transfer them across a blockchain, rely on another institution for custody and use a third provider for redemption. If a failure occurs, determining which party owes the company money may be considerably more complicated than identifying which network processed the transfer.

For a multinational treasury operation, the question becomes whether the same protections apply when a transaction begins in New York, settles on a globally accessible blockchain and is redeemed through an institution operating elsewhere.

See also: SAP and Samsung Shift Stablecoin Competition From Issuance to Distribution

The Liquidity Problem Hiding Behind Instant Payments

A second vulnerability concerns what happens after the tokens arrive.

The PYMNTS Intelligence report “Waiting for Certainty: Why Most CFOs Are Holding Back on Crypto and Stablecoins” found in March that 88% of firms receiving stablecoins convert them immediately into U.S. dollars. But stablecoins can transfer around the clock, including weekends and holidays. The banking systems and reserve-asset markets supporting their redemption generally cannot operate with identical flexibility.

That creates a mismatch between the continuous availability of digital payments and the liquidity infrastructure needed to turn those payments into spendable local currency.

If stablecoins reduce the cost of transferring value, financial institutions and payments companies may increasingly compete over the services surrounding the transfer: guaranteed conversion, transaction screening, fraud recovery, dispute management and contractual protection against operational failures.

Such services would not make blockchains inherently reversible. Instead, they could create an additional commercial layer in which providers assume defined responsibilities when a transaction fails to deliver its intended business outcome.

The FSB’s latest warning is not evidence that stablecoin payments cannot work. It is a reminder that payment infrastructure is more than a mechanism for transferring value.

It is also a system for assigning responsibility when transfers fail to produce their intended economic result.

For the next generation of cross-border payments, the defining innovation may not be making money move instantly. It may be making recovery, liquidity and accountability as dependable as settlement itself.

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