Summary

• Crypto stablecoins offer an alternative payment system for cross-border remittance

• The stablecoin system can drastically reduce transaction costs and time

• Adoption and market size will depend on global regulatory norms and standards.

• Active risk management, Availability of liquidity, Audit mechanisms will encourage investor sentiment.

Introduction

Stablecoins are no longer a crypto curiosity — they’re the fastest-growing payment rail on the planet. With over $160B in circulating supply and $9T+ in annual on-chain transaction volume, they now rival major card networks in throughput while operating at near-zero marginal cost. In less than five years, stablecoins have transformed from liquidity tools for crypto traders into programmable, interoperable settlement assets used by fintechs, treasuries, and cross-border remittance platforms.

The shift is structural: stablecoins represent a new internet-native layer of money movement, where value flows as freely as data. They enable 24/7 global settlement, API-level integrations for businesses, and seamless interoperability between banks, wallets, and DeFi.

For investors and policymakers, the signal is clear — the next wave of financial infrastructure won’t be built by banks, but on blockchain rails. Stablecoins aren’t disrupting payments; they’re quietly rebuilding its foundation.

What is remittance? How does it work?

Remittances are payments made between people or businesses across international borders. The most common example of this is someone who works in a different country from their family and sends a portion of their monthly income for family maintenance. The way the system currently works is based on the correspondent banking model. This method is used because the sender’s bank and the receiver’s bank often do not necessarily maintain direct accounts with one another. So, they must utilize an intermediary to facilitate the transaction. (Bank for international settlements)

The transaction flow is complex and involves multiple steps of notification and settlement:

For the account reconciliation, the sender’s and receiver's bank hold pre-funded accounts (in the required currencies) with the intermediary called nostro (on the sender’s side) and vostro (on the receiver’s side) accounts, when a remittance is sent to the intermediary, their receiver’s account is credited. When the intermediary sends this remittance along to the receiver, their sender’s account is debited in the same amount. This requires multiple ledgers to be kept simultaneously for each payment.

The main limitation of this structure is the inefficiency. The requirement for intermediary banks to maintain pre-funded accounts in various foreign currencies locks up billions of dollars globally. This trapped capital is inefficient, not earning interest and introduces significant settlement and counterparty risk due to the prolonged settlement periods.

This inefficiency translates directly into high costs and slow speeds for consumers. Globally, the average total cost for sending a $200 remittance transaction stands at 6.74%.

This cost is segmented into:

·      Average Transaction Fee (4.52%)

·      Average Foreign Exchange (FX) & Margin (2.22%).

and the transaction takes an average of 25 hours. However, the average transaction fees vary heavily across the two different traditional providers: banks and non-bank money transfer operators (MTOs).

In 2024, the global flow of remittances was $905 Billion, and expected to grow faster due to digital & mobile apps making the speed and cost of remittance a key aspect of global remittances. (The World Bank)

What are stablecoins?

Stablecoins are cryptocurrencies specifically engineered to maintain a stable value relative to a specific reference asset, most commonly a sovereign fiat currency, such as the U.S. dollar. They were introduced to provide the speed and security of crypto assets without the extreme volatility inherent in unbacked cryptocurrencies like Bitcoin or Ether.

Stablecoins are built upon decentralized ledger technology, known as blockchain. These networks serve as immutable, transparent ledgers that record all transactions. This foundational technology allows for the creation of systems that can operate 24 hours a day, seven days a week, fundamentally circumventing the need for centralized correspondent banking hours and reconciliation delays. By utilizing cryptographic security, the assets can be transferred globally with high security and finality, removing the reliance on pre-established credit lines or capital lock-up.

Stablecoins were initially used to facilitate efficient trading within crypto markets, to provide a refuge against local currency instability, and crucially, to enable rapid and cost-effective payments across international borders. (Brookings)

How do they work?

Stablecoins utilize various mechanisms to maintain their fixed value, known as the peg. The most dominant form in the market is fiat currency backed stablecoins. These assets, for example, USD Coin (USDC) and Tether (USDT), aim for a 1:1 parity with a fiat currency, typically the USD. The peg is maintained by holding reserves—which may consist of cash, cash equivalents, or short-term, highly liquid debt instruments. The operational integrity of the stablecoin relies on the issuer's willingness and demonstrable ability to redeem tokens for the underlying fiat currency at face value.

This centralized, fiat-backed model stands in sharp contrast to algorithmic stablecoins, which attempt to maintain a peg solely through code, smart contracts, and arbitrage incentives, a model that has proven highly vulnerable to collapse.

Regulated issuers have significantly enhanced transparency and reserve quality. USD Coin (USDC) has positioned itself as a leading example of this institutional approach. USDC reserve holdings are fully disclosed on a weekly basis, detailing mint and burn flows. Furthermore, a highly respected "Big Four" accounting firm provides monthly third-party assurance that the value of USDC reserves consistently exceeds the amount of USDC in circulation. These reports are conducted according to the rigorous attestation standards set out by the American Institute of Certified Public Accountants (AICPA). This move toward institutional-grade auditing and transparency is essential for securing regulatory acceptance and widespread institutional adoption, differentiating compliant stablecoins from earlier, more opaque financial models. (Circle)

The stablecoin ecosystem comprises several stakeholders:

• The issuers (e.g., Circle, Tether) who mint the tokens and manage the reserves

• The custodians who hold the reserve assets

• Regulatory bodies (Central banks and financial authorities)

• Exchanges (both centralized and decentralized) which provide on-ramps (fiat-to-stablecoin conversion) and off-ramps (stablecoin-to-fiat conversion); and the end users, including retail remittance senders and corporate treasuries.

How can stablecoins help cross-border remittance?

Stablecoins can directly address the inefficiencies of the current cross-border remittance system. By settling transactions on a blockchain, they bypass the need for multi-hop verification and the necessity of pre-funded accounts. Transactions can achieve finality in minutes, much faster than the current system.

1. Sender transfers fiat currency

2. Remittance rail provider exchanges fiat with stablecoin.

3. On-ramp Stablecoin provider issues stablecoin equivalent to the fiat currency.

4. Remittance rail provider transfers stablecoin to sender’s wallet

5. Sender transfers stablecoin to receiver’s wallet.

6. Receiver exchanges stablecoin to fiat

7. Remittance rail provider exchanges stablecoin

8. Off ramp issuer provides fiat currency

9. The fiat currency is credited to the receiver’s wallet.

The above diagram shows the operational relationship and payment flow within stablecoin enabled remittances. Everything after step 5 is optional, the receiver can choose to keep the stablecoins in their wallet, convert them to another cryptocurrency, or even have a phased-out withdrawal. Liquidity providers are large treasuries who hold foreign currencies against which stablecoins / tokens can be minted/issued by the exchange or remittance rail.

It is worth noting that the on-ramp and off-ramp liquidity providers are not always external to the crypto exchange/remittance rail as they sometimes play both the roles. The custodian of the wallet in these cases is typically the exchange itself, and the stablecoin is transferred from the sender’s wallet to the receiver’s wallet via the exchange over a centralized or decentralized blockchain protocol.

Another benefit is the cost reduction. Stablecoins drastically reduce the reliance on intermediary banks’ liquidity and partner digitally with all available foreign exchanges, leading to the reduction of the 2.22% average FX margin and mitigating multiple transaction fees. This efficiency can enable the system to move to a flat fee structure, significantly lowering the overall cost of remittance. (FGV Europe)

This cost reduction is particularly impactful in high volume markets. Routes such as the US-to-Mexico, US-to-Colombia, and US-to-Philippines carry high costs, averaging between 6.2% and 6.7%. In BRICS nations, for example, remittance costs currently average 4% to 7%, often soaring above 10% in specific corridors. The combination of high volumes and reduced costs represents a huge opportunity for disruption.

Furthermore, stablecoins facilitate payments without requiring access to a traditional bank account or credit history. This enhanced accessibility is critical for the unbanked population. This is particularly interesting for countries like South Africa, India, and the Philippines.

The market is overwhelmingly dominated by B2C payments, positioning stablecoins to compete directly with MTOs in this segment. Geographic analysis confirms the highest value targets are the high-friction corridors.

While retail B2C volume drives the headline figures, the technological advantages of instantaneous clearing and settlement are equally valuable for B2B cross-border payments. Stablecoins are rapidly gaining traction in corporate use cases, such as trade finance and supply chain settlements, providing a dual growth path beyond just retail remittances.

It is worth noting that it is not only with regards to cross-border remittances where stablecoins could be positioned to disrupt the landscape. The cost and time savings could extend to credit card transactions and the larger credit card landscape globally, with large retail players like Amazon and Walmart allowing stablecoin payments on their platforms. (Economic Times). This is why large credit card providers like Visa have extended their merchant network to allow for stablecoin transactions. (Visa)

What is the current landscape in India?

The Indian B2B payment market was estimated to be at $563.6 billion in 2024. Assuming 5% of these transactions are cross-border, this creates a market size of around $28.2 billion. These payment methods are typically evenly split between electronic fund transfers, wire transfers, clearing house transfers, cheques, and card payments. This leaves a large market for payments that is comparably untouched by stablecoins. (Custom Market Insights)

Meanwhile, the increased cryptocurrency adoption in India is largely centred around B2C retail investments. This represents a clear market opportunity to optimise the growing B2B cross-border payments market by introducing it to the stablecoin infrastructure which is largely unadopted in India for this use case.

Are stablecoins risky?

The reason why stablecoins and their usage as a payment rail are debated so heavily revolves around the systemic risk posed by the fragility of the peg and the potential for run off, of the reserve. If confidence is lost, and an issuer is unable to redeem tokens at face value, the stablecoin will fail. Historically, a lack of transparency regarding reserve composition causes widespread scepticism among policymakers.

However, for the purpose of cross-border transactions, where stable-coins are mainly being used as an "interchange" mechanisms, there is little risk as the conversion from crypto to fiat and vice-versa can be almost instantaenous.

A big risk with regards to stablecoin instability is the risk of contagion. The high leverage inherent in decentralized finance (DeFi) platforms, which rely heavily on stablecoins for liquidity and collateral, means that a stablecoin failure can rapidly spill over, potentially destabilizing broader financial markets. This necessitates immediate and proactive regulatory intervention to safeguard financial stability.

There have been a couple of severe de-pegging events that demonstrate critical vulnerabilities in the stablecoin system. The most catastrophic failure occurred in May 2022 with TerraUSD (UST). As an algorithmic stablecoin, its peg relied on smart contracts and arbitrage, not physical reserves. The ensuing meltdown erased over $50 billion in the market capitalization of UST/LUNA and triggered cascading losses exceeding $400 billion across the wider cryptocurrency ecosystem. The failure was rooted in technological design flaws and structural vulnerabilities, specifically the shallow liquidity of the Curve pools, which were exploited by large players engaging in arbitrage.

However, even fiat-backed coins are susceptible to stress events. In 2023, Tether (USDT) temporarily lost its dollar peg, dipping to $0.977 after an imbalance developed in Curve's 3pool, a key stablecoin liquidity hub. This demonstrates that operational risks, such as market liquidity crises or large, coordinated trading activities, can threaten confidence even in reserve-backed assets. Furthermore, Tether’s high minimum redemption threshold, reportedly $100,000, means that most retail holders are reliant on centralized and decentralized trading platforms to exit their positions, increasing retail counterparty risk. (Kraken)

There are multiple reasons for these failures, including technological and design flaws, a lack of institutional-grade transparency, counterparty performance risk (operational, financial, or legal), network issues, and regulatory uncertainty.

Mitigating counterparty risk is paramount. Regulators are focused on mandating financial integrity through reserve backing and transparency. Additionally, operational resilience is crucial, requiring issuers to maintain robust systems capable of withstanding technological failures, network disruptions, or hacking attempts, which represent persistent threats to stability.

What do the regulators say?

The design of decentralized crypto assets presents many challenges to regulatory oversight and law enforcement. Transactions on basic protocols are often anonymous, international, and irreversible. The transaction history recorded on the blockchain is not necessarily linked to the real-world identity of the participant, which severely restricts the usefulness of the blockchain for monitoring transactions and detecting suspicious activity.

Applying traditional legal tools is difficult because there is no central contracting party or administrator who can identify and control the assets. Law enforcement cannot target a central entity for investigative purposes, except for the exchanges that facilitate on- and off-ramps.

The Financial Action Task Force (FATF) established by the G7 has attempted to mitigate this by requiring Virtual Asset Service Providers (VASPs)—a category that includes regulated exchanges and centralized stablecoin issuers—to implement rigorous Know Your Customer (KYC) and Anti-Money Laundering (AML) controls. This regulatory requirement necessitates the introduction of compliance friction at the gateway, effectively requiring regulated systems to sacrifice the original low-friction, anonymous ideal for the sake of institutional trust and traceability. (University of Cyprus)

In India, the regulatory landscape for the stablecoin transformation leaves a lot to be desired. For stablecoin inflows, there is a system in place, companies will have to maintain end-to-end visibility of all transactions to show that there is no illicit activity as per FEMA, MTSS, and PMLA regulations. To convert INR to a stablecoin for outward remittance, the conversion must be taken care of by a regulated channel, which is registered under the FIU (Financial Intelligence Unit), a national agency under the ministry of finance, India.

This comes with its own tax implications. For remittances into India, there is a 1% tax deducted at source (TDS) when using a stablecoin as the remittance rail, if the transaction value exceeds INR 50,000 in a year for individuals and INR 10,000 in a year for all other types of transactions. However, this is only the case if the reason for the transaction is a transfer of virtual digital assets (VDA), which has been defined by the Indian government. For outward remittances, the tax collected at source (TCS) depends on the purpose of the transaction, and the amount. There is no TCS if the money is for repayment of education loans. If the money is for non-loan education or medical costs, the TCS rate is 5% if the amount exceeds INR 10 lakhs. For overseas tour spending, the TCS rate is 5% up to INR 10 lakhs, and 20% beyond that. For outward remittances for any other purpose the TCS rate is 20% if the amount exceeds INR 10 lakhs. (Cleartax)

The EU’s Markets in Crypto-Assets Regulation (MiCA) provides a unified, comprehensive legal framework across member states. MiCA covers crypto assets not regulated by existing financial services legislation and establishes strict rules for issuers and traders. Key provisions govern transparency, public disclosure, and authorization requirements for Asset-Reference Tokens (ARTs) and E-Money Tokens (EMTs), which encompass fiat-backed stablecoins. This framework ensures consumer protection and market integrity by subjecting stablecoin issuers to strict oversight and supervision, effectively treating them as highly regulated payment service providers. (ESMA)

In the US, legislative proposals, such as the Genius Act, focus intensely on defining the status of stablecoins and enforcing reserve integrity. Key requirements mandate that issuers establish clear redemption procedures and provide periodic reports on outstanding stablecoins and reserve composition, which must be certified by executives and independently "examined" by registered public accounting firms. Issuers with over $50 billion in outstanding stablecoins face the added requirement of submitting audited annual financial statements. Furthermore, the proposals prohibit issuers from paying interest to stablecoin holders. (Govt of the USA)

Crucially, these proposals grant stablecoin holders' priority over all other claims against the issuer in the event of bankruptcy. This measure provides a vital layer of consumer protection and de-risks the asset, clarifying that payment stablecoins are explicitly not considered securities or commodities and are not federally insured.

The implementation of such rigorous compliance standards, including Big Four auditing and detailed reporting, dramatically increases the operational cost for issuers. This necessary regulatory overhead will be passed to the consumers and will narrow the pure cost advantage that regulated stablecoins hold over MTOs. As a result, the primary competitive advantage for institutional grade stablecoins shifts from being the cheapest rail to becoming the most trusted and most compliant rail.

How will geopolitics impact things?

The adoption of stablecoins as an alternative to the traditional remittance system must be assessed against the backdrop of sovereign digital currency initiatives. A Central Bank Digital Currency (CBDC) is the digital expression of a sovereign currency, relying on the central bank’s established trust and acting as a central bank liability. In contrast, stablecoins are privately issued liabilities that depend on the trust built around the issuer's management of private reserves. (Prof Bill Buchanan)

Project M-Bridge, for example, is a joint CBDC project by China, Singapore, the UAE, Saudi Arabia, and others, that will allow seamless digital transactions internationally.

Another important geopolitical topic is the view of the BRICs countries with regards to de-dollarisation. Whilst a stablecoin could be pegged to any fiat currency in theory, currently, in practice, the most used stablecoins are pegged to the US dollar. To mitigate the recent sanction risks, as well as the increased economic influence of the member nations, the BRIC nations have been discussing decreasing their reliance on the USD for international trade.

The proposed BRICS payment system is conceptualized as a decentralized financial messaging system designed to facilitate cross-border trade transactions using their national currencies. It aims to bypass SWIFT, operating as an open-source protocol with the capacity to process high volumes (up to 20,000 messages per second) and requiring no mandatory transaction fees. This is very similar to the UPI system in India, with UPI expanding to 7 nations for cross-border transactions, and payment volumes increasing. (GIS)

Comparison of alternative payment systems available for remittances

Startup Corner

Whilst established MTOs in the remittance space like Remitly, PayPal, and Stripe are expanding into stablecoins, there is an expanding startup ecosystem globally, here is a list of interesting startups in this space that may be worth a deeper look:

• Bridge (acquired by Stripe): Offer the infrastructure for cross-border remittances using stablecoins, they create the blockchain addresses and can liquidate and transfer stablecoins.

• TransFi: 100+ country stablecoin network that offers cross-border payments

• YellowCard: Powers conversion between fiat currencies and stablecoins

• Conduit: Stablecoin cross-border payment enabler between businesses in Africa and South America

• Borderless Pay (Formerly Stockal): Offer a technology platform to banks and other fintechs that allows them to offer cross-border investment and payments.

Disclaimer: July Ventures is an existing investor in Borderless Pay at the time of this publication.

Conclusion: Will stablecoins take off for cross-border remittance?

Whilst de-dollarisation is a consistent theme in the BRICs proposed payment system, even if the system takes off, the US corridors are still the largest with regards to the volume of cross-border remittances to BRICS nations, so the demand for stablecoins pegged against the dollar won’t erode much in value.

The most pressing issue with respect to adoption is global regulation. Large-scale regulatory reform is necessary to transition from the existing correspondent banking system into a stablecoin payment system, this juxtaposed with geopolitics, domestic interests, capabilities will play key roles in shaping the payments space.

The hope is that compliance costs does not eat into the savings on transaction fees, but the added security and time benefits will lead to a safer, and easier remittance system globally. If the regulatory landscape evolves, stablecoins can be a rapidly scaling alternative to traditional remittance systems, creating value for end users and financial institutions alike.

It is a waiting game to see, if the policymakers will take a conservative, low risk, highly regulated route to roll out a mechanism under CBDC & UPI or a more flexible, innovative and collaborative approach to address the opportunity.