These frictions are indeed a hindrance to business. Whether it’s paying an international supplier or managing cash flow, companies would be wrong not to look at stablecoins, especially in the face of rising inflation. The rapid evolution of a modern economy requires reliable, affordable, and scalable B2B payment technology.
At Lugh, we are convinced that stablecoins will play a major role in various corporate use cases in the following years.
In recent months, the hype around stablecoins was mainly fueled by individuals investing in cryptocurrencies and DeFi. Yet B2B payments have a colossal potential to make payments borderless, almost instantaneous, accessible, and operational 24/7. In recent years, fintechs like Stripe have sought to transform existing payment infrastructures, but few technologies hold as much promise as stablecoins.
On blockchains such as Tezos, transactions cost only a few cents regardless of the amount of funds transferred without cutting back on the level of security. By comparison, traditional bank transfers today are subject to fixed fees that range from 1 to 3% for each transaction. According to the World Bank, the average cost of sending $200 was nearly 7% in 2021. Territories such as sub-Saharan Africa have even higher costs reaching almost 10%. These fees and delays are a burden to the world’s poorest countries.
One of the reasons stablecoins are so popular is that they eliminate the need for bank intermediaries. This is especially true since B2B transactions often require an intermediary to facilitate the process. For example, if a bank wants to buy another currency without having a branch in the country, it must use an intermediary, who will take a fee. Sometimes, the funds even remain blocked in intermediate banks. McKinsey has estimated that these payment intermediation activities are worth nearly $2 trillion.
“If you’re a business that processes payments internationally, you need to stop overpaying international payout and accept stablecoins. Savings on payout costs will be at least 50%”
Ran Goldi, CEO of FirstDAG
Businesses looking to avoid late payment fees or make emergency payments should also look into stablecoins. Nearly 20% of invoices sent by U.S. micro-businesses are late. Disruptions in supply chains are not helping the situation. Indeed, companies see payment delays increase. This puts cash flow out of balance and increases working capital. Companies are increasingly looking for solutions to accelerate payment cycles.
The inflationary environment will likely be a catalyst for stablecoin adoption. Being paid several weeks late can lead to higher prices for raw materials.
Cross-border payments are overgrowing and are expected to reach nearly $5 trillion within five years. Yet most businesses still rely on bank cards and wire transfers to make cross-border payments, which take an average of two to five days.
One of the SWIFT payment system characteristics is the existence of numerous bottlenecks. For example, the different time zones between countries or the opening hours of the banks are significant obstacles. Cross-border payments are also heavily impacted by current legislation.
Therefore, the adoption of stablecoins would greatly simplify this system and allow trading outside of market hours. They would replace the myriad of small, closed networks that range from credit cards to payment networks. Where it was necessary to engage with local processors in each jurisdiction, stablecoins simplify the process.
VISA seems to have understood the interest of stablecoins and announced last March the integration of the USDC in its network to settle transactions directly in stablecoins. Visa’s goal is to reduce the number of intermediaries such as SWIFT or ACH through distributed ledgers. Its Fast Track program will allow businesses to issue and receive USDC in 20 seconds using a corporate card.
A few companies are also beginning to conduct experiments. For example, Korea’s first bank, Shinhan Bank, completed its stablecoin testing phase in December 2021. The bank used stablecoins to make cross-border payments with Standard Bank, the most prominent African institution.
“More and more traditional players are starting to see the value of blockchain to provide a fast, affordable, and transparent method for payments — especially for B2B cross-border payments and remittances”
Denelle Dixon, CEO and executive director of Stellar Development Foundation
Today, a company can pay its customers, suppliers, or even its staff with the benefits of stablecoins. Many companies currently use the ACH system to pay their suppliers or government taxes. The originator transmits the transaction to a financial institution that credits or debits that account and sends instructions to the other party’s bank. This complex system is no longer adapted to the global digital economy.
Solutions are being developed to improve the conversion of stablecoins into fiat and reduce friction. For example, Circle designed Circle Payments to meet the payment needs of businesses. It is now possible to automatically pay suppliers in USDC or make traditional wire transfers through one unified API.
“There has been a surge in companies paying vendors through third-party platforms, which offer much faster and more cost-effective payment solutions. The need for instant, low-cost payments channels will further accelerate this transition in 2022”
Karim Ben-Jaafar, president & COO at Beanworks
Programmability knows no bounds and can enhance the delivery versus payment (DvP) process. This method ensures that the transfer of assets only takes place once payment has been validated. Distributed ledgers and stablecoins make it possible to automatically synchronize these two operations in a unified approach and eliminate settlement risk.
Paxos (USDP) has developed its solution, “Paxos Settlement Service” allowing the simultaneous transfer of the asset and its payment. Since July 2021, the company has been facilitating transactions in the commodity markets. Institutions such as Credit Suisse have already used the service in the U.S. equity market.
Cash management is an important activity for a company. It must ensure that sufficient cash will always be available to meet unexpected business needs. It can also mean transferring funds from a parent company to subsidiaries to manage internal cash flow.
Early guidance from regulators has clarified the integration of stablecoins into corporate cash flow. One of the most critical decisions was announced by the OCC in January 2021. The institution allowed banks to use stablecoins issued on public blockchains, allowing corporate finance departments to adopt these tokens.
More and more solutions are being developed to facilitate this cash management. Recently, Fireblocks acquired First Digital to expand B2B payment capabilities through stablecoins with a range of APIs spanning payments to cash management.
Stablecoin could also serve as an access ramp to DeFi without being exposed to volatile assets and thus optimize cash-flow management.
Stablecoins open up new possibilities in the way we pay. For example, the sub-$20 digital payment market has been relatively untapped to date due to transaction fees. Even the most affordable debit cards cost at least $0.30 per payment. On a $1 charge, that’s nearly a third of the amount paid. A whole economy based on micropayments is becoming possible again.
For example, the Sablier protocol allows companies to pay their employees through a per-second payment system. Built on Ethereum and Polygon, the solution leverages USDC and Dai stablecoins to achieve this feat. Salaries arrive directly into the employee’s wallet, and they no longer have to wait several weeks to get the fruits of their labor. A few years ago, such a project was unthinkable.
This payment model would be very well received by employees, as it would allow them to access their money more quickly and align their income with their current expenses. Indeed, nearly 70% of companies in the United States are under financial stress due to a financial deficit related to payment delays.
« Today payroll tends to happen every two weeks or maybe once a month. And why is that the case? Part of it is the payment rails that payroll runs over have been around for decades, and they are not optimized to pay someone by the second. And so now what stablecoins represent are a set of technologies and new payment rails where it is now technically possible to pay employees by the second »
Cuy Sheffield, Visa’s head of Crypto, October 2021
At Lugh, we are convinced that stablecoins will become a must-have tool for businesses. Our digital economy needs a frictionless, instantaneous, borderless payment system, and today only stablecoins hold such promise.
Lugh has an ambition that goes far beyond hedging against risk in the crypto markets, and aspires to be the leading euro stablecoin for corporate use cases in Europe. That’s why we decided to create the most reliable euro stablecoin: EURL is a 1:1 stablecoin backed by euros held in a major financial institution, Société Générale, and whose reserves are audited by top international audit firm.
Thanks to distributed ledger technology, EURL is transferable instantaneously to anyone, anytime, anywhere, and thus serve various corporate uses-cases.