Analyzing the Stablecoin "Sandwich": Reshaping the New Model of Global Capital Flow

Stablecoins, as the most representative practical tools in the field of digital currency, demonstrate the ability of blockchain to provide a new and efficient infrastructure for traditional financial payment systems. In the past year, the total market value of stablecoins has grown by more than 50%, currently exceeding $250 billion, and is on the verge of a breakout. This scale is now capable of supporting the efficient circulation of trillions of dollars globally.

Industry insiders are well aware of the value of stablecoins: they fully embody the core advantage of blockchain "instant transfer of funds and value," making it possible to build business closed-loop payments on the chain. However, payment is not just as simple as "peer-to-peer transfer;" true enterprise-level scenarios are far more complex than simple fund transfers.

Currently, most enterprise-oriented stablecoin applications adopt a "stablecoin sandwich" architecture: replacing traditional payment channels with horizontal value/fund transfer using blockchain, while still relying on traditional financial payment systems at both ends. Although this design has brought significant improvements, it also limits the full utilization of blockchain advantages.

This article will explore how stablecoins are applied in cross-border payments from the perspective of global capital transfer:

1. Analyze the existing global cross-border payment system;
2. Analyze the specific improvements of the stablecoin sandwich architecture in fund management, B2B payments, and card network settlements;
3. Discuss how to overcome the challenges at both ends of the stablecoin sandwich to achieve the seamless integration of blockchain value.

1. Background of Stablecoin Payments

Among the many applications of stablecoins, B2B enterprise payments are the most noteworthy. The latest report shows that last year, the monthly B2B enterprise payment volume increased from $770 million to $3 billion. A certain platform reported that stablecoins accounted for nearly half of its trading volume, with 49% of customers actively using stablecoins for payments.

The internal data of leading companies can better reflect the size of niche markets. According to reports, a large payment company has an annual processing volume of approximately $15 billion, with about half coming from B2B enterprise payments. Another company's annual transaction volume is $10 billion, estimated to account for 20% of the global B2B stablecoin cross-border payment market.

The use of global payments is becoming increasingly widespread, primarily because the advantages of blockchain-based stablecoins are amplified as the obsolescence of traditional financial payment infrastructure becomes more pronounced. Although traditional systems facilitate over $100 trillion in global payment volume each year, businesses and banks still face significant complexities and delays.

2. Various Models of Global Cross-Border Payment

2.1 Bank Infrastructure Based on SWIFT

The traditional cross-border payment process is divided into two parts: "message transmission clearing" and "funds settlement": a certain messaging system is responsible for transmitting transfer instructions between banks, while the actual flow of funds only occurs between banks that have pre-established correspondent accounts.

Only when both banks are connected to the system and are partners can the final transfer be completed. If the two parties have not established a direct partnership, they must connect through agent banks that have the corresponding interfaces and positions to complete the fund settlement.

As the need for more intermediary banks increases, issues such as extended settlement times, rising costs, and difficulties in tracking also arise. This means that even cross-border payments between neighboring countries may require routing through banks in developed countries, causing significant inconvenience.

2.2 Cross-Border Fund Pool Model Based on PSP

Cross-border fund transfer providers have emerged, aiming to enable businesses to complete global payments without directly using traditional channels. This capability is also referred to as "global multi-coin accounts" or "local receiving accounts."

Its essence is a cross-border capital pool model, with the core service being to provide enterprises with a multi-coin capital pool, allowing for flexible payments between different countries.

These companies are responsible for managing compliance and banking relationships, while businesses or individuals obtain a single multi-currency banking product, forming a "closed loop". Liquidity is managed internally between accounts.

Although it looks glamorous on the surface, this model is still built on traditional rails and relies on sophisticated liquidity management techniques to "create" an instant payment experience. However, the speed and scale of such designs are always constrained by the available liquidity in specific countries and the settlement efficiency of the underlying settlement rails.

2.3 stablecoin mode

Stablecoins represent a deeper leap: they leverage blockchain technology to reconstruct the way internet commerce operates.

The settlement cycle of stablecoins is equivalent to the block time of their issuing blockchain, which is a magnitude faster compared to traditional transfers. Any system that relies on traditional methods can be replaced by a shared, verifiable ledger.

More importantly, stablecoins are often deployed on top of smart contract platforms, enabling innovative systems and workflows that traditional banking rails cannot achieve. On open, verifiable protocols, anyone can add functionality to stablecoins without permission.

From a macro perspective, faster and more interactive financial payments can directly amplify global GDP: businesses can receive payments more quickly, allowing funds to enter downstream processes faster, thereby reducing management costs and capital occupancy. When the settlement cycle is compressed from "days" to "seconds" or "minutes", its chain reaction will sweep through the entire economy. At the same time, the existence of verifiable standards allows financial innovation to occur globally for the first time without permission.

3. The Application of Stablecoins in Global Payments

3.1 Enterprise Capital Management

Taking corporate fund management as an example: A company has an obligation to pay in currency b in country B on a certain date. They must prepare for a fund transfer in currency a from country A before the payment is due.

This is the prepaid funding process, and the corporate finance team must consider the preparation time required to execute payments on time. The team must open accounts with local banks to ensure timely payments. Sometimes, the company may need to seek short-term loans from partners in the region. The longer the global fund settlement delay, the greater the foreign exchange risk exposure, and the higher the capital requirements for the corporate finance department.

Stablecoins simplify this system by eliminating the requirement for control over international settlement delays. Although the initial deposits and withdrawals at both ends must still touch the fiat currency system, the existence of stablecoins allows for a smooth flow of funds between the two fiat "on-ramps."

By using stablecoins, the entire processing is split into local transfers taking place within country A and country B, while the blockchain completes the global liquidity settlement between the two parties in the middle.

3.2 B2B enterprise payment

The process of global B2B enterprise payments is similar to corporate fund management, but B2B scenarios can yield greater benefits because B2B payments are often more complex, and their success or failure may affect other aspects of enterprise operations.

In this type of payment, banks from different countries are usually directly linked to the delivery of a service or goods. This means that all parties will be more sensitive to the tracking of payment progress.

When these B2B cross-border payment processes are executed through stablecoins in the middle of the chain, a series of additional benefits will emerge at the enterprise level:

• Both parties can clearly and in real time manage and monitor the payment status.
• Financing can be directly linked to time-sensitive raw materials or delivery points to avoid significant risks or delays.
• After the risk is reduced, the cost of capital decreases, and the capital turnover speed accelerates.
• The agency banking links, pre-financing needs, and most foreign exchange exposures have basically been removed.
• The entire process has been compressed from the past 3 days to just a few seconds, and there is no need to consider market closures, significantly reducing and simplifying the demand for working capital.

3.3 Card Organization Network Settlement

In the card organization network, the issuing institution sends payment to the acquiring bank of the merchant on behalf of the cardholder, and the acquiring bank receives the payment and credits it to the merchant's account. These banks do not settle debts directly; they are all connected to a payment network that conducts net settlement between banks during the banking hours of business days. Each bank must maintain a prepaid balance to facilitate timely wire transfers.

A large payment company started trialing the use of stablecoins for settlement between acquiring banks and issuing banks as early as 2021. This method of using stablecoins replaces the wire transfer process, opting instead for a certain stablecoin on some public chains. After completing card authorization on specific dates, the company will use stablecoins to debit or credit the banks of both parties involved in the transaction.

Since the system operates within the payment network, its net effect benefits the partners within the network. This is most similar to the closed-loop systems of cross-border money transfer operators, but the large scale of card organization networks benefits issuing/acquiring institutions.

The advantages of stablecoins are similar to those of fund management, but these advantages belong to the banks within the network: they can reduce the capital requirements needed for timely international transfers, thereby avoiding foreign exchange risks. In addition, the openness, verifiability, and programmability of blockchain lay the foundation for credit and other financial infrastructure between banks within the payment network.

4. Looking Ahead

Currently, most stablecoin applications remain at the "sandwich" structure itself and have not further broken through. In reality, very few companies truly use on-chain payments and stablecoins. As long as any link still needs to touch the fiat currency track, we have to sandwich bread at both ends of the "sandwich."

The ultimate goal of stablecoin payments is to completely eliminate the bread at both ends. Once businesses and consumers fully embrace stablecoins, the complete financial and business cycle can be completed on the blockchain, and we will no longer be constrained by outdated traditional rails. Once financial institutions and businesses fully settle in stablecoins, it will unleash an unprecedented scale of business. As the global friction in building, operating, and serving businesses significantly decreases, the growth curve of global GDP will align more closely with the true consumption speed of goods, services, and content brought by the internet.

Therefore, the essence of future payments is stablecoin payments combined with on-chain finance. If we can completely get rid of the sandwich structure and build more on-chain financial services at both ends, the speed of global capital/value circulation will reach an unprecedented height.