You may have been misled about stablecoins.

Author: Jonah Source: Token Dispatch Translation: Shan Ouba, Jinse Finance

Everyone says stablecoins are better for cross-border payments. Is that really true?

When you transfer money to someone who already wants stablecoins, stablecoins are indeed a good cross-border solution. You can transfer 24/7, almost for free, and the funds arrive instantly.

The real challenge—and the focus of this article—is cross-currency scenarios: what happens when one end is US dollars and the other end wants to receive foreign currency (such as Mexican pesos)?

The real challenge—and the focus of this article—is cross-currency scenarios: what happens when one end is US dollars and the other end wants to receive foreign currency (such as Mexican pesos)?

Most opinion leaders in the cryptocurrency world would say that stablecoins uniquely compress time and costs. But what these bulls don't mention is that fintech companies have already done this faster and cheaper without stablecoins. So what exactly do stablecoins solve? Let's first look at how the traditional correspondent banking system works and how modern fintech companies like Wise have transformed this model—this will help us understand what problem stablecoins are actually solving. Correspondent Banking System Suppose Alice in the US wants to transfer pesos to her friend Bob in Mexico. Neither bank has a branch in the other country, so they can't make direct payments. Therefore, they use a larger bank (the correspondent bank) to act as a bridge. Alice's bank holds US dollars in this bank (let's call it GlobalBank), and GlobalBank holds pesos in a Mexican bank (let's call it BancoMX). When Alice makes a payment, her bank first deducts her money, then instructs GlobalBank to transfer $100 from the US dollars Alice holds in her bank, convert it at its own exchange rate, pocket the difference, and then have BancoMX credit Bob's account, deducting its own transaction fee. The entire process is coordinated via SWIFT (which also incurs fees for sending and receiving messages). This system is extremely expensive and slow, mainly because it involves several layers of intermediaries. The average cost of using a correspondent bank is around 15% (transaction fees plus the foreign exchange rate difference hidden in the exchange rate, calculated based on a typical consumer-scale remittance). Not to mention that a transfer typically takes one to five business days because each intermediary needs time to complete its own process. The Solution from Modern Fintech In 2011, two friends in London faced mirroring needs: one earned a salary in euros but needed pounds to live in London; the other earned a salary in pounds but had a euro mortgage in Estonia. So they bypassed banks and made payments to each other locally—pounds into a London account, euros into an Estonian account, neither transaction crossing borders. Later, this system evolved into Wise. The two friends believed that this type of hedging traffic could be matched at scale, and it actually worked. Many other fintech companies have also come up with the same idea. Let's run through Alice and Bob's example again, this time using a Wise-style system. Alice pays money into the fintech company's US account; the company pays Bob using pesos it already holds in Mexico. No money crosses borders. What Alice thinks is a cross-border transfer is essentially just the company sending money out of one pocket and receiving it in another. This is why the payment experience feels instant. The cost is that the company bears the balance sheet risk of holding all those currencies. To avoid disrupting the traditional system, fintech companies try to "net" transactions. For example, someone might be sending pesos in the opposite direction, so the company can internally offset the two flows. Only if the currency pool becomes too unbalanced will they turn to the traditional system. At its core, fintech companies rely on a network of partner banks and licenses; wherever they lack their own qualifications, local partners fill in. If all goes well, this approach will outperform the traditional system. Wise charges a small upfront fee, settles at the true intermediary market exchange rate, doesn't hide price differences, and the final overall fee rate is only 0.52% (it doesn't separately disclose the pure foreign exchange rate, so this figure includes some same-currency transfers). The World Bank estimates that the typical digital remittance service fee rate is about 3.5%, placing Wise on the cheaper end. So, fintech companies like Wise have already provided a faster and cheaper alternative to traditional systems for cross-border transfers. What makes stablecoins different? Let's run the same scenario again with stablecoins. Alice deposits $100 (on-ramp) into 100 USDC. The USDC is delivered to Bob in Mexico within seconds via blockchain, costing less than a penny. Bob then withdraws the USDC (off-ramp) to a local bank and receives pesos. This is called a "stablecoin sandwich." From Alice and Bob's perspective, it's hard to say this is a better experience than Wise. In terms of cost, stablecoins aren't significantly cheaper either. Transferring USDC is almost free and instant, and even deposits are nearly free due to near-zero fees. However, withdrawals remain a point of friction—the local exchange rate for USD to Peso can be quite expensive. ¹ The real unlocking of stablecoins: Open competition. Building a network like Wise is extremely difficult; only a handful of companies throughout history have succeeded. Stablecoins have broken down this wall. You no longer need a global network to do cross-border business; you only need good deposits on one end and good withdrawals on the other. In short, stablecoins have "unbound" fintech companies, turning previously closed networks into open markets. Previously, a single service provider captured the entire spread along a corridor; now, local withdrawal providers can compete for each currency exchange, driving down costs in the long run. This cost saving is most evident in long-tail corridors. Once a global network is no longer needed, regional specialists can focus on a specific area on Earth, rather than trying to cover the entire globe. Yellow Card (a BCAP portfolio company) is doing just that in African countries. This unbinding leads to market fragmentation, and fragmentation fuels competition to lower consumer costs. You might say this can't last: there are already a ton of stablecoin orchestrators stitching these pieces together, and the leading players are reintegrating vertically. Perhaps the market will re-centralize, and this advantage will disappear. But an open track… is ultimately open. It's hard to monopolize. If any middleman profits too much from the price difference, the local payment provider can bring it down. Anyone can play. As the overall fees in cross-border payments are continuously compressed, the profits previously taken by arbitrageurs should rightfully return to consumers and businesses, resulting in cheaper cash flow. If you're a founder of a startup focused on cross-border payments, we'd love to hear your story. Regarding the actual cost of stablecoin sandwiches, I found it difficult to find reliable figures online. Almost everyone cites the middle segment of the sandwich—the near-free cost of transferring the stablecoin itself—and very few provide a total cost that includes both deposits and withdrawals. This in itself signals that either those citing these figures are promoting the product and deliberately omitting all costs, or they simply don't understand where the costs of such transfers actually lie. Either way, this is precisely the reason for this article. Based on my inquiries with top cross-border business executives, on major corridors like the US-Mexico route, stablecoins are at best on par with fintech alternatives; however, on long-tail corridors like the US-Africa route, they may have an advantage.