Could stablecoins disrupt instant payment schemes?

Stablecoins are an alternative means of storing and transferring value usually pegged to a fiat currency (or other relative stable asset) using distributed ledger technology (DLT) solutions. The explosive growth in the number and usage of stablecoins and their widening potential for positive use cases are attracting the eye of regulators as shown in this recent quotation from the US Federal Reserve: “In the past year, USD-pegged stablecoins circulating on public blockchains have seen explosive growth, with a combined circulating supply of nearly $130 billion as of September 2021 – a more than 500% increase from one year ago…[additionally,] payments companies could use an internal, permissioned DLT to settle payments efficiently, which would be conceptually equivalent to a stablecoin.”

But how might the growth of stablecoins affect the deployment of instant payment schemes (IPSs)? Are they more likely to disrupt or complement them? The newer generation of stablecoins is already starting to offer competitive functionality in some use cases. But there remain important questions to address before we can conclude that they will work at large scale; and they may end up as complements rather than substitutes to instant payment schemes.

As DLTs continue to evolve in sophistication and security, the winning model in domestic payments will likely be determined by which model – account based or token based payments – best addresses the needs and challenges of public sector regulators, private sector stakeholders, and end users from the general public.