To The Moon

The blockchain and stablecoins are going to disrupt finance. And Stripe just put down a $1.1 billion bet on how they think the industry will play out.

I’ve been bullish on the blockchain for years, but we’ve been in an exploratory phase of what exactly blockchain disruption means. Will payments go to the blockchain? Are loyalty programs moving to the blockchain? Will real-world assets be on the blockchain? Are NFTs a thing?

The future isn’t in focus yet, but it certainly seems bright, and arguably the biggest name in payments made a $1.1 billion deal this week to become a leader in stablecoin payments.

I followed that up last month with this piece on stablecoin growth and $19.9 trillion in stablecoin transactions over the past 12 months, according to $Visa(V)$ .

I’m not certain where the industry goes from here, but the blockchain is more efficient than using Visa, ACH, or wire transfers, and it’s available 24/7. Surely, this is the future of finance, right?!?

Stripe certainly thinks so. They announced the acquisition of Bridge this week, a stablecoin startup that helps transfer money from one digital currency to another or on/off ramps for fiat currencies. In simple terms, Bridge is the plumbing for the stablecoin ecosystem. But this description of stablecoins from Stripe co-founder Patrick Collison is worth exploring:

This post got a lot of flack for being obtuse and in the weeds, but it’s true.

I’ll start with how the U.S. Department of Energy defines superconductivity.

Superconductivity is the property of certain materials to conduct direct current (DC) electricity without energy loss when they are cooled below a critical temperature (referred to as Tc). These materials also expel magnetic fields as they transition to the superconducting state.

So, a superconductor is a material that can move electric current from Point A to Point B with zero loss. The problem is it needs to be super-cooled to -243 degrees Celsius to be superconductive.

A room-temperature superconductor — if it existed — would quite literally change the world. Solar panels in the Mojave Desert could power an electric vehicle in New York. GPUs wouldn’t need the massive amounts of energy they use today. There would be a new wave of innovation.

Collison is saying stablecoins will change the financial world. That’s a big statement!

Financial Friction

The energy loss analogy may not make sense as a user because you don’t see a lot of the friction in financial markets as a consumer. But if you own a business, you do!

Here’s how Toast, the restaurant software company, explains its fees on a $75 check. The restaurant doesn’t get $75, they get $72.94. And they don’t get the money today. It gets deposited 2-3 business days later.

This may not seem like a big deal, but that’s 2.75% of the transaction! Even successful restaurants have net margins in the 2% to 4% range.

And these are pretty standard fees. Stripe charges $0.30 plus 2.9% of transactions. So, a $100 premium subscription to Asymmetric Investing nets me $96.80, not $100.

The fees are similar across the payment landscape. And it’s not Stripe or Toast’s fault. They’re using credit and debit card “rails” that have an established fee structure. Visa’s fee structure is here if you want to see how complicated it is, but the short story is that credit card companies and the banks that issue cards (the one that gives you 2% cash back) make around 2% of the transaction. The remainder goes to the terminal company like Stripe, Toast, Square, and others.

What Collison is saying is stablecoins could allow a company like Stripe to use a “superconductor” stablecoin to make transactions rather than the expensive system Visa and other credit card companies have set up.

We Aren’t “There” Yet

We are early in disrupting the financial system. Credit cards aren’t just good for completing transactions; there’s fraud protection and a way to reverse transactions, among other benefits. The blockchain hasn’t solved those issues yet.

But with a will, there’s a way. And the blockchain is a fundamentally more efficient way to get money from Point A to Point B in a digital world.

Next time you pull out your smartphone and tap to pay for something, ask yourself what rails the transaction ran on to get to the merchant’s bank account, how expensive it was, and how long it took to complete.

Now, would your shopping experience be any different if the rails used were on the blockchain and done using a stablecoin?

You may be surprised to find that the answer is likely no.