Crypto at the Point of Sale: Bitcoin Versus Stablecoins


Florida Gov. Ron DeSantis announced Thursday (Dec. 9) that he wants to allow businesses to pay state fees with cryptocurrencies. He’d be wise to include stablecoins like USD Coin among them.

Celebrities and athletes like (most recently) the Rams’ star wide receiver Odell Beckham Jr. are taking their salaries in bitcoin — and BTC-boosting Miami Mayor Francis Suarez said a week ago that he wants to do the same, as well as taking municipal fees in bitcoin.

Indeed, bitcoin was intended to be a tool of day-to-day online payments and research is pretty clear that people want to be able to spend crypto. Earlier this year, PYMNTS’ research showed that about 18% of the U.S. population — approximately 46 million people — would be interested in transacting with crypto. More recent findings showed two-thirds of cryptocurrency buyers purchased them to make a transaction.

Read more: Crypto Rewards Drive Sales For Online Merchants

But it consistently runs into a problem. The price of bitcoin and other cryptocurrencies is too volatile, and the transaction fees can be brutal.

But mostly, people who buy bitcoin see it as a speculative asset and investment. You don’t want to buy milk with your IRA. You’d like to buy a Coke with a flat $2 than 0.000021 BTC — which will change in five minutes, to say nothing of overnight.

And besides, no one want to be Laszlo Hanyecz, who spent 10,000 bitcoins — currently worth half a billion dollars — on two pizzas on May 22, 2010. The anniversary is of the first known use of bitcoin to pay for goods is now a crypto-community holiday: Bitcoin Pizza Day.

And while bitcoin payments are a big topic of discussion, other than places where the local fiat currency is in serious trouble, like Venezuela and to a lesser extent Argentina, it’s not in use very much. According to crypto payments app BitPay — which is working hard to make BTC a functional currency at the point of sale — a little more than 79,000 of its customers made payments in crypto in November, 55% of them using bitcoin.

Why Stablecoins

Stablecoins pegged one-to-one with the U.S. dollar, like Circle’s USDC, Paxos’ Pax Dollar, or USDP, and industry leader tether’s USDT could become far more effective choices for point-of-sale payments than any cryptocurrency.

Also read: Scenes From the Five-Hour Congressional Hearing on Crypto

For proof, just look at the reaction of central bankers, elected officials and financial industry insiders to Facebook’s Libra stablecoin proposal (since renamed Diem): Give nearly 2.9 billion users the ability to pay for goods with a stablecoin, and it could undermine the use of national currencies.

Economist Xavier Vives, a leading regulatory expert and professor at the IESE Business School suggested in a recent PYMNTS interview that the growing interest in fiat-denominated central bank digital currencies is at least in part a way of fighting off stablecoins — “to protect control.”

And really, that’s how they’re used. Top stablecoin Tether has a market cap of $76.1 billion, and a 24-hour volume of more than $70 billion — the vast majority of it spent at a specific point of sale: cryptocurrency exchanges.

By and large, stablecoins are now used to buy and trade cryptocurrencies. It’s easy enough to swap No. 1 bitcoin for No. 2 ether, but when buying smaller cryptos it’s a lot easier to pay in stablecoins, if for no other reason than most exchanges sell most smaller currencies for stablecoins, their own exchange tokens, and a few top cryptos.

And they are gaining favor on the back end of financial transaction. PYMNTS research has found more than half of multinationals have used cryptocurrency — and of that group, nearly a third have used stablecoins.

See: Stablecoins’ Use Cases Still Emerging As Changes, Regulations Loom

And there is a strong case for them as the as the President’s Working Group on Financial Markets was eager to point out in its November stablecoin report.

Read also: President’s Working Group: Stablecoin Risks Warrant Legislation

“If well-designed and appropriately regulated, stablecoins could support faster, more efficient, and more inclusive payments options,” the report said. “Moreover, the transition to broader use of stablecoins as a means of payment could occur rapidly due to network effects or relationships between stablecoins and existing user bases or platforms.”

Related: Meta’s WhatsApp Launches Payments Pilot With Novi Crypto Wallet

Why Not Stablecoins

Still, the report also found that there’s a substantial downside risk that comes with stablecoins, among them “illicit finance concerns and risks to financial integrity,” it said.

The report also pointed to stablecoins’ intended use in cryptocurrency trading: “Speculative digital asset trading, which may involve the use of stablecoins to move easily between digital asset platforms or in decentralized finance arrangements, presents risks related to market integrity and investor protection.”

There’s also a broader risk to stablecoins, specifically their ability to maintain the one-to-one dollar (or other currency) peg. While a number of stablecoins, like Circle’s USDC, Paxos’ USDP and Gemini’s GUSD, are backed by dollars or very liquid investments like Treasury notes, others are more questionable.

There have been questions for years whether top stablecoin issuer Tether really has $76 billion in assets backing USDT, and a recent accounting — forced by a settlement with New York’s Attorney General — showed that less than 3% was in cash and 65.4% in unspecified commercial paper otherwise, known as corporate debt, of unknown quality and liquidity.

And others, like No. 5 stablecoin Dai, with a $6.4 billion market cap, are based on algorithms that rise and lower supply to keep prices stable, which relies on market demand.