In January of this year, the Office of the Comptroller (OCC) in the United States approved the use of stablecoins for banking transactions. A discussion paper published this month by the Bank of England shows that the United Kingdom is moving in the same direction.

This shift in how stablecoins are viewed by regulators is not just good news for crypto investors, but also for anybody who regularly sends money overseas - international transactions are set to become cheaper, faster, and much more transparent. The effect this technology will have on banks cannot be understated.

What are stablecoins?
A stablecoin is a blockchain-issued token or coin that has been developed in such a way so as to maintain a constant value in relation to some other asset. These assets are most commonly fiat currencies, but there also exist stablecoins pegged to the value of precious metals and even to other tokens and cryptocurrencies.

Most stablecoins are collateralized. These tokens are issued by a centralized organization which purchases one unit of the backing asset for each minted token. The organization behind Tether (USDT), which is currently the largest stablecoin in terms of market cap, purchases and stores one dollar for each token.

Non-collateralized stablecoins are also actively traded, such as MakerDAO's DAI token. These tokens maintain their value using algorithms that burn (destroy) and mint tokens in line with supply and demand.

Regardless of how they are backed, every popular stablecoin is compatible with the vast majority of the software and hardware wallets that are currently available on the market. Stablecoin transactions can be carried out in exactly the same way as any other cryptocurrency. They can be traded P2P, as well as on cryptocurrency exchanges.

Stablecoins have already attained a high level of adoption, leading the charts with the highest 24-hour trading value of all cryptoassets. Additionally, they are the most used medium for the acquisition of other cryptocurrencies, being involved in nearly 60% of Bitcoin trades.

Replacing an imperfect international payments system
The infrastructure by which banks and Fintech currently carry out international payments is surprisingly inefficient. Stablecoins are set to provide a solution to a number of long-standing issues.

Think of it this way: when you hit 'send' on a payment in your internet banking account, your payment processor must decide between one of three options. First, they might be able to carry out the transaction directly. However, this is only possible if your payment provider holds an account at the recipient's bank, which isn't likely on a global scale. Second, they may try to transfer the funds using an information exchange system like SWIFT or SEPA - but these systems vary from country to country. Failure here would lead to the bank choosing the third option, where they would need to send the money via one or multiple intermediaries.

Intermediary banks are utilized when the sender and receivers' banks are not part of the same information sharing system (or when local banking limitations in particular regions and countries prevent direct transfers from taking place). While a direct transaction would only involve two financial institutions - those of the sender and the receiver - intermediary (also called correspondent) banking brings in additional banks that relay the payment from one place to another.

Sometimes, a single intermediary bank is not sufficient, and payments must hop from account to account, from country to country, until finally reaching their final destinations. This adds additional cost to the transfer and increases transaction time significantly. During the intermediary banking process, neither the sender nor the receiver is likely to be able to see the status of the payment, adding additional discomfort.

Stablecoins make things better
Thanks to stablecoins, money transfer services can bypass this entire system of intermediary banking. Banks that decide to offer stablecoins as a service will only have to maintain a cryptocurrency wallet in which the tokens can be held. If Acme Inc in New York wants to transfer 1000 USD to Teatime Limited in London, their bank will simply send that amount in Tether or another stablecoin to the wallet address of the counterparty's bank.

At the time of writing, it remains unclear how banks will charge for this stablecoin transfer service. The most likely scenario is that they will ask the client to cover network fees, charge currency exchange fees, and find some other way to cover withdrawal costs.

It is already possible to pay suppliers directly using tokens, and many major businesses around the world have started accepting stablecoins. There is really no reason for your company to wait for the banking system to catch up. The infrastructure already exists to begin transforming your company with stablecoins today.

What you need:

1. A cryptocurrency wallet: For the vast majority of stablecoins, any ERC-20 compatible wallet will do. If you intend to hold your funds long term, it is recommended to get a hardware wallet. If not, a software-based solution may do. You can learn more here.
   
   
2. An exchange account: For deposits and withdrawals, you will need to have access to a licensed cryptocurrency exchange. This will enable you to purchase stablecoins with fiat currency or to sell them later. We highly recommend our EU-based exchange partner, ALTERXE. Unlike other exchanges, they specialize in business clients and offer ultra-fast corporate account onboarding.
   
   
3. Tax guidance: While it is unlikely to be the case, stablecoins may be subject to capital gains taxes in your jurisdiction. You can contact us in order to get more clarity regarding this question.
   

Which stablecoin should you choose?
Coin Market Cap currently tracks more than fifty stablecoins with a total daily trading value of about $100 million. Of the most active of these tokens, each offers users certain advantages. Here's just a few stablecoins you and your business might want to consider:

Tether (USDT)
Absolutely dominating the stablecoin market in terms of both market value ($84 million) and trading volume ($64 million), Tether is currently the go-to for most crypto traders. In terms of integration, Tether also leads the pack, trading on virtually every major crypto exchange, including ours and accepted as a means of payment by a number of popular online services and stores. The stablecoin is hosted on the Ethereum blockchain.

USD Coin (USDC)
In terms of technical infrastructure and financial backing, USD Coin really doesn't differ from Tether at all. That said, owing to its domestic integrations, USDC is probably the best fiat-backed choice for businesses located in the United States. Issued by publicly-traded American crypto-behemoth Coinbase, this stablecoin can be automatically tracked by Gilded, an accounting platform that helps US-based businesses achieve tax compliance.

DAI
Unlike the above stablecoins, DAI is issued by a decentralized autonomous organization (DAO). This particular organization, called MakerDAO, ensures that DAI maintains a stable value not through the purchase and custody of a backing asset, but through an algorithmically-powered system of smart contracts that govern the burning and issuance of tokens in line with the laws of supply and demand. DAI is a good alternative to centralized stablecoins from the point of view of diversification.