Original author: Daniel Barabander
Original translation: AididiaoJP, Foresight News
There's currently a lively discussion about stablecoins in the US consumer payments space. However, most consider them a "maintaining technology" rather than a "disruptive technology." They argue that while financial institutions will leverage them for more efficient settlements, for most US consumers, the value they offer isn't enough to convince them to abandon credit cards, the current dominant and most reputable payment method.
This article demonstrates how stablecoins can become a mainstream payment method in the United States, not just a settlement tool.
How credit cards build payment networks
First, we must acknowledge that getting people to adopt a new payment method is incredibly difficult. A new payment method is only valuable if enough people in the network use it, and people only join when the network is valuable. Credit cards overcame this "cold start" problem by following two steps and became the most widely used method for consumer payments in the United States (accounting for 37%), surpassing previously dominant methods like cash, checks, and earlier charge cards that were limited to specific merchants or industries.
Step 1: Leverage built-in advantages that don’t require a network
Credit cards initially expanded the market by solving a small number of pain points for consumers and merchants across three dimensions: convenience, incentives, and sales growth. Take BankAmericard, the first mass-market bank credit card launched by Bank of America in 1958 (which later evolved into today's Visa credit card network):
Convenience: BankAmericard allows consumers to make a lump sum payment at the end of the month, eliminating the need to carry cash or write checks at the register. While merchants have previously offered similar deferred payment cards, these cards were limited to a single merchant or specific categories (such as travel and entertainment). BankAmericard, on the other hand, can be used at any participating merchant, making it practically universal.
Incentives: Bank of America boosted credit card adoption by mailing 65,000 unsolicited BankAmericard credit cards to Fresno residents. Each card came with a pre-approved, flexible credit line, an unprecedented initiative at the time. Cash and checks offered no similar incentives, and while early charge cards offered short-term credit, they were typically limited to high-income or established customers and could only be used at select merchants. The BankAmericard's broad credit coverage particularly appealed to lower-income consumers who had previously been excluded.
Sales Growth: BankAmericard helps merchants increase sales through credit spending. Cash and checks fail to expand consumer purchasing power. While early charge cards could boost sales, they required merchants to manage their own credit systems, customer onboarding, payment collection, and risk management, resulting in extremely high operating costs that only large merchants or associations could afford. BankAmericard provides small merchants with sales growth opportunities through credit spending.
BankAmericard achieved success in Fresno and subsequently expanded to other California cities. However, due to regulations at the time restricting Bank of America to operating only in California, it quickly realized that "to make a credit card truly useful, it had to be accepted nationwide." Therefore, for a $25,000 franchise fee and transaction royalties, it licensed the card to banks outside California. Each licensed bank used this intellectual property to build its own network of consumers and merchants in its region.
Step 2: Credit card payment network expansion and connection
At this point, BankAmericard had evolved into a series of fragmented “territories,” each of which employed the card based on its inherent strengths. While each territory worked well, the overall system failed to scale.
On an operational level, interoperability between banks was a major issue: when using BankAmericard intellectual property to authorize cross-bank transactions, merchants needed to contact the acquiring bank, which in turn contacted the issuing bank to confirm the cardholder's authorization, while customers had to wait in the store. This process could take 20 minutes, leading to fraud risks and a poor customer experience. Clearing and settlement were equally complex: although acquiring banks received payments from issuing banks, they lacked the incentive to share transaction details in a timely manner so that the issuing bank could collect the funds from the cardholder. On an organizational level, the program was run by Bank of America (a competitor of the authorized banks), leading to a "fundamental distrust" between banks.
To address these issues, the BankAmericard program was spun off in 1970 into a non-stock, for-profit membership association called National BankAmericard Inc. (NBI), later renamed Visa. Ownership and control shifted from Bank of America to participating banks. In addition to adjusting control, NBI established a set of standardized rules, procedures, and dispute resolution mechanisms to address these challenges. Operationally, it built an exchange-based authorization system called BASE, which allowed merchants' banks to route authorization requests directly to the issuing bank's system. Interbank authorization times were reduced to less than a minute, with 24/7 support, making it "competitive with cash and check payments, eliminating one of the key barriers to adoption." BASE subsequently further streamlined the clearing and settlement process, replacing paper-based processes with electronic records and transitioning bilateral settlements between banks to centralized processing and netting through the BASE network. Processes that once took a week could now be completed overnight.
By connecting these fragmented payment networks, credit cards overcome the "cold start" problem of new payment methods by aggregating supply and demand. Mainstream consumers and merchants are now motivated to join the network because it allows them to reach additional users. For consumers, the network creates a flywheel effect of convenience, increasing the value of credit card usage with each additional merchant. For merchants, the network generates incremental sales. Over time, the network begins to provide incentives through interchange fees generated by interoperability, further driving consumer and merchant adoption.
The inherent advantages of stablecoins
Stablecoins can become a mainstream payment method by following the same strategy that credit cards used to replace cash, checks, and earlier debit cards. Let’s analyze the inherent advantages of stablecoins from three perspectives: convenience, incentives, and sales growth.
Convenience
Currently, stablecoins are not convenient enough for most consumers, requiring them to convert fiat to crypto first. The user experience needs significant improvement, for example, even if you've already provided sensitive information to your bank, you still have to repeat the process. Furthermore, you need another token (like ETH for gas fees) to pay for on-chain transactions and ensure that the stablecoin matches the merchant's chain (for example, USDC on the Base chain is different from USDC on the Solana chain). From a consumer convenience perspective, this is completely unacceptable.
Despite this, I believe these issues will be resolved soon. Under the Biden administration, the Office of the Comptroller of the Currency (OCC) banned banks from holding cryptocurrencies (including stablecoins), but this ban was rescinded a few months ago. This means banks will be able to hold stablecoins, vertically integrating fiat and cryptocurrencies and fundamentally resolving many of the current user experience issues. Furthermore, important technological developments such as account abstraction, gas subsidies, and zero-knowledge proofs are also improving the user experience.
Merchant Incentives
Stablecoins offer new ways to incentivize merchants, especially through permissioned stablecoins.
Note: Permissioned stablecoin issuance channels are not limited to merchants but include a wider range of sectors, such as fintech companies, trading platforms, credit card networks, banks, and payment service providers. This article focuses only on merchants.
Permissioned stablecoins are issued by regulated financial or infrastructure providers (such as Paxos, Bridge, M^0, BitGo, Agora, and Brale) but branded and distributed by another entity. Brand partners (such as merchants) can earn interest on the stablecoin's float.
Permissioned stablecoins bear clear similarities to the Starbucks Rewards program. Both invest the system's float in short-term instruments and retain the interest earned. Similar to Starbucks Rewards, permissioned stablecoins can be structured to provide customers with points and rewards redeemable only within the merchant ecosystem.
While permissioned stablecoins are structurally similar to prepaid rewards programs, important differences suggest that permissioned stablecoins may be more viable for merchants than traditional prepaid rewards programs.
First, as permissioned stablecoin issuance becomes commoditized, the difficulty of launching such programs will decrease. The GENIUS Act provides a framework for issuing stablecoins in the United States and establishes a new class of issuers—non-bank licensed payment stablecoin issuers—with a lighter compliance burden than banks. Consequently, a supporting industry will develop around permissioned stablecoins. Service providers will abstract away user experience, consumer protection, and compliance functions. Merchants will be able to launch branded digital dollars with minimal marginal cost. For merchants with sufficient influence to temporarily "lock in" value, the question becomes: why not launch their own rewards programs?
Second, these stablecoins differ from traditional rewards programs in that they can be used outside the issuing merchant's ecosystem. Consumers are more willing to temporarily lock in value, knowing they can convert it back into fiat, transfer it to others, and ultimately spend it at other merchants. While merchants can request custom, non-transferable stablecoins, I believe they will realize that transferability significantly increases the likelihood of adoption; permanently locking in value would be a significant inconvenience for consumers, reducing their willingness to adopt.
Consumer incentives
Stablecoins offer a fundamentally different approach to consumer rewards than credit cards. Merchants can indirectly leverage the revenue earned from permissioned stablecoins to offer targeted incentives like instant discounts, shipping credits, early access, or VIP queues. While the [GENIUS Act] prohibits sharing revenue solely for holding stablecoins, I anticipate these types of loyalty rewards will be acceptable.
Because stablecoins offer programmability unmatched by credit cards, they provide native access to on-chain yield opportunities (to be clear, I'm referring to fiat-backed stablecoins connected to DeFi, not on-chain hedge funds disguised as stablecoins). Applications like Legend and YieldClub will encourage users to earn yield by routing their float to lending protocols like Morpho. I believe this is the key to stablecoins' breakthrough in terms of rewards. Yields will entice users to convert fiat to stablecoins to participate in DeFi, and if spending within this experience is seamless, many will choose to trade directly in stablecoins.
If there’s one thing that cryptocurrencies are good for, it’s airdrops: incentivizing participation through instant value transfers on a global scale. Stablecoin issuers can employ a similar strategy by airdropping free stablecoins (or other tokens) to attract new users to the cryptocurrency space and incentivize them to spend their stablecoins.
Sales growth
Stablecoins, like cash, are held as assets and therefore don't inherently incentivize spending the way credit cards do. However, just as credit card companies built the concept of credit on bank deposits, it's easy to imagine providers offering similar programs based on stablecoins. Furthermore, a growing number of companies are disrupting the credit model, believing that DeFi incentives can drive a new sales growth primitive: "buy now, pay never." In this model, "spent" stablecoins are held in escrow, earning yield in DeFi, and a portion of that yield is used to pay for purchases at the end of the month. In theory, this encourages consumers to spend more, and merchants hope to capitalize on this.
How to build a stablecoin network
We can summarize the inherent advantages of stablecoins as follows:
Stablecoins are currently neither convenient nor directly lead to sales growth.
Stablecoins can provide meaningful incentives for merchants and consumers.
The question is how can stablecoins follow the “two-step” strategy of credit cards to build a new payment method?
Step 1: Leverage built-in advantages that don’t require a network
Stablecoins can focus on the following niche scenarios:
(1) Stablecoins are more convenient for consumers than existing payment methods, leading to sales growth;
(2) Merchants have an incentive to offer stablecoins to consumers who are willing to sacrifice convenience for rewards.
Niche 1: Relative Convenience and Sales Growth
While stablecoins are currently inconvenient for most people, they could be a better alternative for consumers who are underserved by existing payment methods. These consumers are willing to overcome the barriers to entry, and merchants will accept stablecoins to reach previously unserved customers.
A prime example is transactions between US merchants and non-US consumers. Consumers in certain regions, particularly Latin America, find it extremely difficult or expensive to obtain US dollars to purchase goods and services from US merchants. In Mexico, only those living within 20 kilometers of the US border can open a US dollar account; in Colombia and Brazil, US dollar banking services are completely prohibited; and in Argentina, while US dollar accounts exist, they are strictly controlled, limited in value, and often offered at an official exchange rate far below the market rate. This means US merchants lose these sales opportunities.
Stablecoins provide non-US consumers with unprecedented access to US dollars, enabling them to purchase these goods and services. For these consumers, stablecoins are a relative convenience, as they often lack other reasonable ways to obtain US dollars for spending. For merchants, stablecoins represent a new sales channel, as these consumers were previously inaccessible. Many US merchants, such as AI service companies, have significant demand from non-US consumers and therefore accept stablecoins to attract these customers.
Niche 2: Incentive-driven
Customers in many industries are willing to sacrifice convenience for rewards. My favorite restaurant offers a 3% discount on cash payments, which is enough to make me go to the bank to withdraw cash, even though it's very inconvenient.
Merchants will be motivated to launch branded, white-label stablecoins as a way to fund loyalty programs, offering discounts and perks to consumers to drive sales. Some consumers will be willing to endure the hassle of entering the cryptocurrency world and converting their value into white-label stablecoins, especially if the incentive is strong enough and the product is one they're passionate about or use frequently. The logic is simple: if I love a product, know I'll use my balance, and earn a meaningful return, I'm willing to endure a poor experience and even keep my money.
Ideal merchants for white label stablecoins have at least one of the following characteristics:
Avid fan base. For example, if Taylor Swift asked fans to buy concert tickets with TaylorUSD, they would still do so. She could incentivize fans to hold onto TaylorUSD by offering priority access to future tickets or discounts on merchandise. Other merchants might also accept TaylorUSD for promotions.
High-frequency usage within the platform. For example, on the used goods marketplace Poshmark, 48% of sellers spent a portion of their revenue on on-platform purchases in 2019. If Poshmark sellers began accepting PoshUSD, many would retain the stablecoin to transact with other sellers as buyers.
Step 2: Connect to the stablecoin payment network
Because these scenarios are niche, stablecoin adoption will be ad hoc and fragmented. Each party in the ecosystem will define its own rules and standards. Furthermore, stablecoins will be issued on multiple chains, increasing the technical complexity of their acceptance. Many stablecoins will be white-labeled and accepted only by a limited number of merchants. The result will be a fragmented payment network, each operating sustainably in a localized niche but lacking standardization and interoperability.
They require a fully neutral and open network to connect. This network will establish rules, compliance and consumer protection standards, and technical interoperability. The open and permissionless nature of stablecoins makes it possible to aggregate these fragmented supply and demand. To address coordination issues, the network needs to be open and collectively owned by participants, rather than vertically integrated with the rest of the payments stack. Turning users into owners enables the network to scale massively.
By aggregating these isolated supply and demand relationships, a stablecoin payment network will solve the "cold start" problem of new payment methods. Just as consumers today are willing to endure the one-time inconvenience of signing up for a credit card, the value of joining a stablecoin network will eventually outweigh the inconvenience of entering the stablecoin world. Thus, stablecoins will enter mainstream adoption for US consumer payments.
in conclusion
Stablecoins won't directly compete with and replace credit cards in the mainstream market. Instead, they will begin to penetrate marginal markets. By addressing real pain points in niche scenarios, stablecoins can create sustainable adoption based on relative convenience or superior incentives. The key breakthrough lies in aggregating these fragmented use cases into an open, standardized, and participant-owned network to coordinate supply and demand and achieve scalable development. If this is achieved, the rise of stablecoins in US consumer payments will be unstoppable.