Stablecoin payments and global capital flow models

Written by: Awang

Stablecoins are the most representative practical tools in the digital currency field, demonstrating how blockchain provides a new and efficient infrastructure for traditional financial payment systems. In the past year, the total market value of stablecoins has grown by over 50%; since Trump’s re-election in November, it has accelerated sharply. Currently, the total market value of stablecoins exceeds $250 billion and is at the forefront of a surge. This volume has already facilitated the efficient circulation of trillions of dollars in global payment funds.

Industry insiders are well aware of the value of stablecoins: they embody the core capability of blockchain to “instantaneously transfer funds and value,” making it possible to build a commercial closed loop on-chain—payments. However, payments go far beyond the “peer-to-peer transfer” stage; real enterprise-level scenarios are much more complex than simply “sending money from A to B.”

Currently, most enterprise-oriented stablecoin applications adopt a “Stablecoin Sandwiched” architecture, a term first introduced by Ran Goldi, Senior Vice President of Payments and Networks at Fireblocks, in 2021: that is, using blockchain to replace traditional payment channels for horizontal value/fund transfer, while still relying on the outdated financial payment systems at both ends.

This design, while bringing significant improvements, also limits the full release of blockchain advantages. This is also the point that Airwallex CEO Jack criticized, noting that he has not seen the cost reduction and efficiency improvement brought by stablecoin payments.

Therefore, we will rely on Jesse’s article Unpacking the Stablecoin Sandwich to examine how stablecoins are applied in global cross-border payments from the perspective of global capital transfer. This article will:

Disassemble the existing global cross-border payment system;

Analyze the specific improvements of the stablecoin sandwich architecture in fund management, B2B payments, and card network settlement;

Discuss how to overcome the challenges at both ends of the stablecoin sandwich, allowing the value of blockchain to run through the entire process.

1. Background of Stablecoin Payments

Among the many applications of stablecoins, B2B enterprise payments are the most eye-catching. The latest Artemis report provides data from frontline payment companies: last year, the monthly B2B enterprise payment amount grew from $770 million to $3 billion. Fireblocks also reported that stablecoins accounted for nearly half of its platform’s transaction volume, with 49% of customers actively using stablecoins for payments.

The internal data of leading companies better reflects the scale of the segmented market. According to a report by FXCIntelligence, BVNK (considered one of the largest players in the field) has an annual processing volume of approximately $15 billion, with about half coming from B2B enterprise payments – which is also the largest segment in cross-border payments. Conduit has an annualized transaction volume of $10 billion, and the company estimates this accounts for about 20% of the global B2B stablecoin cross-border payment market; Orbital has announced an annualized scale of $12 billion.

Specifically, the use of global payments is becoming increasingly popular, as the advantages of stablecoins based on blockchain infrastructure are amplified when traditional financial payment infrastructures become more outdated; the SWIFT and correspondent banking networks successfully facilitate over $100 trillion in global payments each year, yet businesses and banks still face significant complexities and delays.

2. Various Models of Global Cross-Border Payments

2.1 Bank Infrastructure Based on SWIFT

First, let’s take a look at how the current global payments based on SWIFT operate.

For interbank transactions between different countries, the entire process is divided into two parts: “message transmission clearing” and “fund settlement”: SWIFT is responsible for transmitting transfer instructions between banks, while the actual flow of funds only occurs between those banks that have pre-established correspondent accounts and can directly conduct debit/credit transfers.

Jesse, Unpacking the Stablecoin Sandwich

Only when both banks have connected to the SWIFT system and are partners can the final transfer—fund settlement—be completed. If the two parties have not established a direct cooperative relationship, it is necessary to connect correspondent banks that have the corresponding interfaces and positions to complete the fund settlement.

The image below shows a typical transaction on the SWIFT network: connecting two banks that have no direct relationship through a common correspondent bank.

Jesse, Unpacking the Stablecoin Sandwich

As the need for more intermediary banks arises, issues such as settlement times extending to several days, rising costs, tracking challenges, and other problems also emerge. This has resulted in cross-border payments between neighboring countries with underdeveloped financial infrastructure requiring detours through banks in the Global North, causing significant inconvenience.

Stablecoins: Leapfrogging Africa’s Financial System, Ayush Ghiya and Uchenna Edeoga

2.2 Cross-Border Fund Pool Model Based on PSP

The process described above is exactly the path that enterprises must go through when handling international wire transfers today: banks must connect to SWIFT and have clearing and settlement capabilities in the target payment corridor.

As a result, the service model of cross-border money transmitters (XBMT), also known as the familiar cross-border payment companies, has emerged. They aim to enable businesses to complete global payments without having to go directly through the SWIFT channel. This capability is also referred to as “global multi-currency accounts” or “local receiving accounts.”

Its essence is: cross-border capital pool model.

The core of its service: to provide enterprises with a multi-currency fund pool, enabling flexible payments between different countries.

XBMT is responsible for managing compliance and banking relationships, while enterprises or individuals obtain a single multi-currency banking product, forming a “closed loop” that means there are no external operators or dependencies to increase costs or complexity. If compared to a sandwich, the internal ledger is the meat inside the sandwich, while the local collection accounts in each region are the bread. Liquidity is managed internally across different accounts:

Jesse, Unpacking the Stablecoin Sandwich

XBMT has now occupied an important position in the global B2B enterprise payment and corporate fund management market. They operate in a closed-loop model, preparing and scheduling the required liquidity in advance, and then distributing it to corporate clients on demand. By controlling the end-to-end process, XBMT has set strict limits and risk control rules for its clients.

Despite its shiny surface, XBMT is still built on the SWIFT framework, relying on sophisticated liquidity management techniques to “create” an instant payment experience. However, the speed and scale of this design are always constrained by the available liquidity of XBMT in specific countries and the settlement efficiency of its underlying settlement framework.

Considering the capacity of bank accounts and liquidity management, Airwallex has already built a relatively complete “global multi-currency account” or “local collection account” in the currently developed G10 countries, and is able to achieve relatively “zero-cost” fund disbursement. In comparison, the “stablecoin sandwich” model requires inbound and outbound costs at both ends, which presents a greater fee advantage.

Therefore, the adoption of stablecoin payments requires clear situational advantages, and cannot be generalized.

2.3 Stablecoin Model

If XBMT is a meticulously designed “structured product” for B2B enterprise payment scenarios, then stablecoins represent a deeper leap: they leverage blockchain technology to reconstruct the operational model of internet commerce.

The settlement cycle of stablecoins is equivalent to the block time of the blockchain on which they are issued - this is an order of magnitude faster compared to SWIFT and correspondent bank transfers. Any system that relies on traditional methods can be replaced by a shared, verifiable ledger that can track the issuance and ownership of stablecoins.

More importantly, stablecoins are often deployed on smart contract platforms, enabling innovative systems and workflows that traditional banking rails cannot achieve. For example, if XBMT wants to overlay a certain logic, it would need to do API integrations with banks in each country one by one; whereas on open, verifiable protocols (such as Ethereum’s ERC or Solana’s SPL standards), anyone can add functionalities to stablecoins without permission.

From a macro perspective, faster and more interactive financial payments can directly expand global GDP: businesses can receive payments more quickly, allowing funds to flow into downstream processes more rapidly, thereby reducing management costs and capital occupancy caused by settlement delays. When the settlement cycle is compressed from “days” to “seconds” or “minutes”, its ripple effect will sweep across the entire economy. At the same time, the existence of verifiable standards allows financial innovation to occur globally without permission for the first time—this is a qualitative change that the traditional financial system cannot reach.

3. The Application of Stablecoins in Global Payments

In light of the advantages of the aforementioned stablecoins, we can now observe some specific global payment use cases that benefit from stablecoins. We will explore how global fund management, B2B corporate payments, and card organization network settlements operate today, and discuss the applications and advantages of stablecoins in various fields.

3.1 Corporate Fund Management

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

Jesse, Unpacking the Stablecoin Sandwich

This is the prepaid funding process, and the corporate finance team must consider the preparation time required to execute payments in a timely manner.

The team must open an account at a local bank to execute payments on time. Sometimes, to support this, the company may seek short-term loans from partners in the region. The longer the global fund settlement is delayed, the greater the foreign exchange risk exposure and the higher the capital requirements for the corporate finance department. For companies that only want to execute global payments, managing derivatives to hedge currency risks and calculating short-term liquidity can significantly increase operational expenses.

Stablecoins simplify this system by eliminating the requirement for control over delays in international settlements.

Jesse, Unpacking the Stablecoin Sandwich

We can see the role of the “stablecoin sandwich” structure: although the initial deposits and withdrawals at both ends must still touch the fiat currency system, the existence of stablecoins allows for smooth flow of funds between the two fiat “ramps.”

By using stablecoins, the entire processing is divided into local transfers conducted within the borders of Country A and Country B, while the blockchain facilitates global liquidity settlement between the two parties in the middle. (Note: For this exchange to succeed, there must be sufficient liquidity on chain to convert stablecoin A into stablecoin B. )

3.2 B2B Enterprise Payment

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

In this type of payment, banks in 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. For example, in the aforementioned “pre-financing” diagram, the cost of pre-financing may depend on the real-time status of an inbound payment.

In addition, if the payment channels required by enterprises are relatively obscure, they often need to complete fund transfers through multiple international transfer routes—such paths may lack a clear progress reporting mechanism and are limited by banks’ non-24/7 operating hours, which can easily extend the payment time.

Let’s look at another example: A company in Country A wants to make a payment to a company in Country B, but there is not frequent business interaction between the banks of the two countries. If the bank in Country A does not have a direct connection in any suitable channel leading to Country B, this payment will have to take an extra detour:

Jesse, Unpacking the Stablecoin Sandwich

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 materials or delivery points with strong timeliness, allowing companies that are highly dependent on the timely arrival of goods to avoid significant risks or delays.

After the risk is reduced, the cost of capital decreases, and the capital turnover speed increases; as stablecoin integration solutions mature, this effect will bring considerable productivity improvements on a global scale.

Similar to the corporate fund management scenario, the agency bank link, pre-financing demands, 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, without the need to consider market closures, significantly reducing and simplifying the operational capital requirements.

3.3 Card Organization Network Settlement

In the card organization network, the issuing institution sends payments on behalf of the cardholder to the acquiring bank of the merchant, 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 VisaNet, and Visa performs net settlement between banks during regular banking hours on business days. Each bank must maintain a prepaid balance for timely wire transfers.

Visa began trialing the use of stablecoins for settlement between acquiring banks and issuing banks as early as 2021. This method of using stablecoins replaced the wire transfer process, opting instead for USDC on Ethereum and Solana. After completing card authorizations on specific dates, Visa will debit or credit the banks of both parties using USDC:

Jesse, Unpacking the Stablecoin Sandwich

Since the system operates within VisaNet, its net effect benefits the partners in the network. This is most similar to the closed-loop system of XBMT, but the vast scale of the card organization network benefits issuing/acquiring institutions (as they previously had to manage global payments).

The advantages of stablecoins are similar to those of capital 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. Moreover, the openness, verifiability, and programmability of blockchain lay the foundation for credit and other financial fundamentals among the banks within VisaNet.

IV. Written at the End

Through the previous discussion, we have seen that “stablecoin sandwich” is indeed useful in certain scenarios; however, most stablecoin applications currently remain at this sandwich structure itself and have not further broken through. Why is this the case?

In reality, very few enterprises actually use on-chain payments and stablecoins. As long as any link still needs to touch fiat currency channels, we have to sandwich in bread at both ends. We are just adding some protein to the original vegetarian sandwich, but it remains a sandwich.

The ultimate goal of stablecoin payments is to completely eliminate the bread at both ends. When businesses and consumers fully embrace stablecoins, the entire financial and commercial 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 commerce. With significantly reduced global friction in building, operating, and servicing businesses, the growth curve of global GDP will be much closer to the actual consumption speed of goods, services, and content facilitated by the internet.

So the essence of PayFi is actually: Stablecoin Payments + On-Chain Finance. If we can completely get rid of the sandwich structure and build more on-chain financial services on both ends, then the speed of global capital/value circulation will reach unprecedented heights.