# Stablecoins Poised to Dominate Payment Sector: Lightspark Co-Founder Catalini
Christian Catalini, co-founder of Lightspark and founder of the MIT Cryptoeconomics Lab, asserted that stablecoins have moved beyond the fringes of the cryptocurrency world and are set to become significant players in the payment sector. Catalini made these remarks in an April 29th Forbes Digital Assets column.
Over the past week, several major companies have unveiled strategies surrounding stablecoins. PayPal and Coinbase have collaborated to bolster PYUSD, unsettling their existing partnership with USDC. Tether, in alliance with SoftBank, has invested $3.6 billion in Twenty One Capital, a Bitcoin SPAC, enhancing its U.S. presence. Moreover, Stripe hinted at a long-awaited stablecoin product, while Circle announced a payment network targeting SWIFT, Visa, and Mastercard, as it prepares for its IPO. In response, card companies are formalizing their own stablecoin payment networks.
Catalini highlighted his previous warnings, with UCLA Professor Jane Wu, that stablecoins would ignite full-scale competition in the payment market by 2024. He noted that the clash is intensifying, albeit mostly behind closed doors, as traditional players like Tether and Circle face off against new entrants.
# Central Bank Proximity and Traditional Finance Relations as Competitive Edges
According to Catalini, the competitiveness of stablecoin issuers hinges on how cheaply and rapidly they can digitize the dollar. He elaborated that “proximity to central bank vaults” is a metaphor for the strength of their relationships with commercial banks and financial institutions. The closer these ties, the lower the cost of securing reserve assets, enhancing the issuer’s competitiveness.
Stablecoin issuers derive their revenue from interest income on reserve assets (stock) and fees from transfers and payments (flow). However, decreasing interest rates can sharply reduce profitability, and fierce fee competition may drive revenues towards zero. Catalini emphasized that to maintain market share, issuers, like PYUSD offering an annual 3.7% reward on balances, must reinvest earnings back into user incentives.
# A Battle for Payment Network Dominance: The Stablecoin “Sandwich” Model
Catalini pointed to the “stablecoin sandwich” model as the most practical application of stablecoins. This method addresses the limitations of domestic real-time payment networks, such as Brazil’s PIX, India’s UPI, and Mexico’s SPEI, crossing borders. Payment orchestration startups convert local currencies to stablecoins, transmit them over blockchain, and reconvert them to local currencies for settlement. While seemingly complex, this process occurs in real-time with low fees. It’s estimated that between $10 billion to $30 billion are moving using this model monthly.
He stressed that the key to these rapid, low-fee transactions is substantial liquidity pools. Larger transaction volumes result in minimized exchange rate losses and smoother trades.
Stablecoins also function as digital dollar vaults in high-inflation regions like Latin America, Africa, and Southeast Asia. Tether has capitalized on this opportunity, expanding its user base. The expected legislative clarity from the U.S. Congress could further broad the adoption of stablecoins as an asset storage medium among institutions and individuals.
However, stablecoins face growing threats as major asset managers like BlackRock introduce on-chain government bonds and tokenized money market funds, signaling traditional finance’s incursion into the crypto asset space.
# Distribution Networks Over Currency Issuance
Catalini posited that the ultimate victor in the stablecoin arena will be determined by how effectively they can make their coins usable, rather than the specific attributes of the coins themselves. He argued that the focus is shifting from what coin users hold to which wallets, apps, and payment methods they employ.
Currently, Coinbase positions PYUSD alongside USDC, and Robinhood and Kraken have joined Paxos’ USDG network. Stripe and Revolut are reportedly developing their own stablecoins. Visa and Mastercard are constructing blockchain-based direct settlement infrastructure, while Circle’s Circle Payment Network (CPN) targets card companies directly.
Catalini concluded by stating that fintech firms, banks, and digital platforms are fiercely vying to secure payment pipelines and distribution channels. If stablecoins fail to penetrate the mainstream payment sector, they risk becoming an inconspicuous background technology.
