3 Big Predictions for the Future of Stablecoins

Key Points

• Stablecoins are going to become important financial infrastructure.

• That doesn't mean you will need to think much about them in the long term.

• Legal uncertainties probably won't hamper these assets much.

• 10 stocks we like better than Solana ›

Stablecoins are the next big technology that's going to reshape the plumbing of the financial system. Today, the stablecoin segment's market value sits near $279 billion, led by assets issued by Tether and Circle Internet Group's USDC, and it keeps climbing as stablecoin utility grows.

So what's going to change as these assets mature? I have three predictions in particular regarding the future of stablecoins, so let's dive in and map out the future of the sector and examine how investors might get some exposure.

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1. Stablecoins become everyday money

Soon enough, I predict that people will not say "I paid with a stablecoin," they will just click "Pay" and go on with their way. They probably won't even realize it's how their payments are being processed, because it might be hidden in the financial backend of the applications they use.

This is realistic because it's already how many stablecoin pilot programs are designed.

Merchants and processors settle in assets like USDC while presenting a familiar checkout interface. For instance, in 2023 Visa expanded its stablecoin settlement pilot to Solana, (CRYPTO: SOL) and, more recently, outlined plans to support more stablecoins, more chains, and more use cases.

But which platforms are the most likely to win?

Solana is built for speed and very low fees, as is XRP (CRYPTO: XRP). There's no guarantee that they will eventually carry a large portion of the global stablecoin payment flow, but they're both well-positioned to win at least a decent share of the market.

If this all sounds pretty boring, it's because it is. It probably should be -- having more bells and whistles makes for more potential points of failure within a system. Payments that just work tend to be used in high volumes, and they often reward the platforms that carry them, one teeny tiny micro-fee at a time.

2. Cross-border transfers become an even bigger use case

Where stablecoins shine the most is where the pain is worst -- in cross-border money transfers and payments.

Remittances and business-to-business (B2B) transfers often carry sizable fees, often in excess of $25 per transfer, and they typically take days to arrive, even in today's global economy where major business decisions require much tighter turnaround times. I therefore predict that the cross-border transfers market is where stablecoins will gobble up market share the fastest of all of the possible applications.

Using a stablecoin to process an international transfer means bypassing currency exchange fees and settling transactions within seconds. That dramatically simplifies the different currencies that banks and other financial institutions need to keep on their balance sheets in order to transact, so working capital requirements end up being lower, which frees up more capital for investing in growth. So there's a big incentive to transition from legacy money transfer systems (like SWIFT) to stablecoins.

XRP is specifically positioning itself to be the place where international businesses can execute stablecoin transfers across borders. But other blockchains, including those that focus on stablecoins, like the forthcoming chain developed by Circle, could end up being major venues as well.

3. One chain for generating yield, another for spending

My final prediction is that a counterintuitive twist is coming. Investors will increasingly park their stablecoins on one network to earn a yield, and keep a separate balance on a faster chain for day-to-day spending. This dynamic may not last forever, but it will be in play for at least the next few years.

On the yield side, Ethereum's (CRYPTO: ETH) decentralized finance (DeFi) ecosystem is deep, and its myriad number of yield-focused projects suggest that it will be the default place for investors seeking to turn their stables into modest cash flows. The fact that it isn't currently legal under U.S. law for stablecoin providers to directly offer a yield to holders is unlikely to stop investors from parking their digital cash with third parties where they can get a return that's on the order of a typical money market fund.

Nor has it stopped certain crypto exchanges in the U.S. from offering yields on stablecoins, as questionable as the legality may be. Importantly, other jurisdictions internationally, like Singapore, have already created the appropriate frameworks for such yields in keeping with regulations, and the U.S. could eventually do the same.

On the spending side, typical Ethereum gas (user) fees as well as transaction times are still dramatically higher than equivalent costs on Solana, making Ethereum better for capital-markets-style activity than for retail settlement. Therefore investors will need to keep some of their stablecoin value on chains where it can be spent quickly and easily, like Solana or XRP.

So the synthesis of these two concepts is that investors will have holdings that are stored on a chain that's roughly the equivalent of a checking account for easy access, and they will also have the bulk of their funds stored on a chain where yields are earned, like a savings account or money market account. Keep in mind that there is no inherent reason Solana or another chain can't eventually have an ecosystem of yield-bearing platforms for stablecoins, it's just that at the moment, their bench isn't as deep, nor is their liquidity.

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Alex Carchidi has positions in Circle Internet Group, Ethereum, and Solana. The Motley Fool has positions in and recommends Ethereum, Solana, Visa, and XRP. The Motley Fool has a disclosure policy.