Stablecoins have already proven they can move money across blockchain rails in seconds. The harder problem sits on either side of that transaction: what happens to the money before it moves, and where it goes once it lands.
For corporate treasurers, that gap is fast becoming the real test of a stablecoin’s usefulness. Settlement speed matters less than whether liquidity can move efficiently among bank deposits, stablecoins, Treasury bills, tokenized Treasuries and other cash-equivalent instruments, without stranding balances or forcing finance teams to sit on excess cash.
In other words, the problem is migrating from payments to liquidity management.
And an unlikely model for how that market could evolve comes from one of traditional finance’s least glamorous but most important pieces of plumbing: the Treasury repurchase agreement market.
The Federal Reserve Bank of New York last week published a framework for understanding the overnight Treasury repo market, where transaction volumes underlying the Secured Overnight Financing Rate have grown from roughly $1 trillion in early 2022 to about $3 trillion today. Rather than behaving as one giant pool of money, the market consists of distinct liquidity segments connected largely through dealers that redistribute cash and collateral between institutions that often cannot transact directly with one another.
For stablecoins, the lesson is less about copying repo than understanding what makes a mature liquidity market work: the asset is only the beginning. The real infrastructure determines how efficiently liquidity can be found, priced, transformed and moved.
See also: How 21 Banks Changed the Conversation Around Stablecoins and Tokenized Deposits
The Repo Market Has Turned Into a Liquidity Machine
A repurchase agreement is conceptually simple, and plays out when one party obtains cash against securities and agrees to reverse the transaction later. Underneath that transaction, however, sits an elaborate system for matching institutions with very different liquidity needs.
The New York Fed’s new Client Segments Framework divides the market into three broad components. Money market funds and other cash providers supply funding to dealers. Dealers redistribute liquidity among themselves. Dealers then provide funding to leveraged institutions such as hedge funds. Rates differ among those segments because the counterparties, risks and uses of liquidity differ. The result is a hub-and-spoke market rather than one homogeneous liquidity pool.
Stablecoins are approaching a similar problem from the opposite direction. The digital asset ecosystem has many of the raw materials of a liquidity market, such as regulated and unregulated stablecoins, tokenized deposits, Treasury-backed tokens, tokenized money-market products, bank deposits and conventional short-term government securities. What remains comparatively immature is the machinery connecting those assets.
Consider a company that wants to use stablecoins to pay overseas suppliers. Moving the token may take seconds. But the treasury operation surrounding that transaction is considerably more complicated.
Read more: Nobody Told the ERP That Blockchain Won
Stablecoins Have Assets; Treasury Teams Need Mobility
Finance teams know well that the payment itself is only one moment inside a much larger liquidity cycle. That, of course, is where mature money markets have an advantage. Repo infrastructure allows enormous quantities of liquidity to be continuously recycled between institutions rather than sitting idle on individual balance sheets. The New York Fed notes that repo facilitates both liquidity and maturity transformation across dollar funding markets.
Batch-based financial systems are slow, but their delays create opportunities to aggregate transactions. If 100 payments can be netted before settlement, a company may need considerably less liquidity than if each payment settles individually the instant it is initiated. Stablecoins can eliminate the settlement delay while simultaneously eliminating some of that liquidity cushion.
The repo analogy becomes especially interesting when considering who could occupy the dealer’s position in digital finance. In repo, dealers connect participants that frequently cannot transact directly, borrowing in one segment and lending into another while earning an intermediation spread. Digital finance may eventually require its own version of that connective layer.
Read also: Why Stablecoins Are a Money Story, Not a Consumer Story
Banks, custodians, stablecoin issuers, exchanges, tokenization platforms and treasury technology providers are all plausible candidates. Their opportunity may be less about issuing another form of digital money than about allowing companies to move seamlessly among existing forms of money.
Repo took decades to develop the clearing, intermediation, collateral and risk-management machinery that allows trillions of dollars to circulate through the market every day. That infrastructure continues to evolve: expanded central clearing is now changing how participants transact and potentially reducing balance-sheet costs through greater netting.
Stablecoins do not need to reproduce that system exactly. But they do need to solve the same fundamental problem. Money that moves instantly is useful. Money that can be continuously repositioned, invested, borrowed against and made available wherever the corporation needs it is considerably more valuable.
Still, the June installment of PYMNTS Intelligence’s Credit Union Tracker Series, “The Wallet Effect: How Credit Unions Can Close the Digital Currency Access Gap,” a collaboration with Velera, revealed that stablecoin awareness falls short for 70% of credit union members.
For all PYMNTS digital transformation and B2B coverage, subscribe to the daily Digital Transformation and B2B Newsletters.
