Payments industry insiders have whispered about stablecoins for years, speculating on how the virtual currencies could help make payments faster and cheaper.

Those whispers are now crescendoing into a cheer as a new presidential administration prepares to take office with a receptive view of digital currencies. But what are stablecoins and do they have any practical uses? This primer is intended to give industry professionals and others a better understanding of the part these digital assets play in payments and commerce.

Cryptocurrencies have existed for nearly two decades, and stablecoins were introduced in 2024 as a less volatile alternative. However, payments companies have been largely reluctant to use them because they are unregulated and most merchants don’t have the ability to accept them, according to major payments players and industry consultants.

Uncertainty about cryptocurrency still reigns even as President-elect Donald Trump intends to fill his administration with digital currency supporters, such as entrepreneur and lobbyist Paul Atkins, executives and analysts say. Trump’s election doesn’t seem to change the notion that trading in traditional fiat currencies is less of a risk than dabbling in digital ones.

But the incoming administration might create a set of rules that can act as a foundation for a burgeoning crypto industry to build on, and stablecoins could play an important role in that new realm.

“A significant shift toward stablecoins will depend on a clear regulatory framework,” Juniper Research analyst Lorien Carter, who specializes in fintech and payments, said in an interview.

What are stablecoins?

Stablecoins are a type of cryptocurrency tied to the value of a traditional fiat currency such as the dollar. Some of the biggest stablecoins include USDC, which is backed by Circle and Tether, which is backed by cryptocurrency firm iFinex. While one cryptocurrency firm, Binance, said earlier this year that it will stop supporting its stablecoin this week, another company, Ripple, said it will issue a new stablecoin this week.

Companies like the trading platform Coinbase, which allows consumers to buy and sell cryptocurrencies, maintain assets that are expected to cover the value of their portfolio and sometimes tap stablecoins in a way that makes them more stable than other cryptocurrencies, like bitcoin, that frequently surge or plummet in value.

“The aim is to ensure that they do not fluctuate,” said Kwamie Dunbar, director of fintech programs at Worcester Polytechnic Institute, in a phone interview.

Stablecoins were used to settle $10.8 trillion worth of transactions in 2023, according to Coinbase. While that was a 17% rise from 2022 it was still miniscule compared to the $1.8 quadrillion worth of transactions processed by the payments industry last year, per an estimate from the consulting firm McKinsey.

What are practical uses for stablecoins?

When stablecoins do maintain their value, the digital assets can be traded just like U.S. dollars, British pounds or euros.

The practical uses for stablecoins include smoothing out payment processes that are expensive and complicated, such as sending money across borders, said Jochen Kaempfer, a partner at the consulting firm EY-Parthenon who specializes in payments and banking.

Converting money into stablecoins, then sending those stablecoins to a foreign merchant who converts the digital assets into their preferred currency, is a potentially faster and cheaper way to settle international debts, Kaempfer explained in a phone interview.

And now that the majority of Americans have smartphones and internet access, stablecoins can give the unbanked and underbanked another point of entrance into the financial system.

Communities of color and low-income families are less likely to have bank accounts compared to the U.S. population as a whole, said Yesha Yadav, a law professor and associate dean at Vanderbilt University who follows the payments industry. So stablecoins could make a difference for those communities.

“Without a bank account, they can't access the fullest spectrum of payment services, which leaves them to use things like payday lenders and prepaid cards,” she said in an interview. “Stablecoins are a way potentially to access payment services.”

“All you have to do is open a wallet on a blockchain [a digital ledger attached to a cryptocurrency],” Yadav added. “That can be a lot simpler than opening a bank account, and it's free as long as you have an internet connection. One of the critiques of banks is that it's expensive to have a bank account,” because of overdraft charges and application fees.

Will stablecoins ever be widely used?

While stablecoins are almost always as stable as the currency they are pegged to, those digital assets occasionally surge or decline in value even as the underlying currency holds steady, Dunbar said.

“For those who have been around long enough, it reminds us when the U.S. dollar was pegged to gold,” he said. “But it’s hard to maintain that peg.”

Stablecoins are sometimes connected to assets — rather than actual dollars — such as Treasury bonds, government debt or even other cryptocurrencies, and those assets sometimes shift in value, Dunbar said. “When the Fed changes interest rates, those products change” in value, he said.

The value of the stablecoin Terra, for example, collapsed when cryptocurrency prices plummeted in 2022. Otherwise, stablecoins have held steadier than other digital currencies.

While Trump won’t offer more practical uses for digital currencies, he might provide something equally important: legal certainty, said John McNaught, head of payouts at the Cincinnati-based payment processor Worldpay.

“I don’t believe that the use cases suddenly become more compelling, although there is a greater expectation of regulatory clarity in the U.S., after which there will almost certainly be more activity in this space,” he said in an email.

When merchants and consumers deal with traditional financial institutions, they know they are working with an organization operating under a clear set of rules, McNaught said. That doesn’t yet exist for cryptocurrencies like stablecoins.

“Regulation is critically important for adoption,” he said.

Barriers remain to the widespread adoption of stablecoins, Carter said.

“Stablecoins are mainly used within the crypto ecosystem, with few transactions occurring to make everyday retail purchases,” she said. “While payment service providers are beginning to integrate acceptance of cryptocurrencies into their payment processing services, the majority of merchants do not have the ability to accept cryptocurrencies, limiting their use in an everyday context.”

And payments industry executives say they don’t yet see a call for digital currencies in consumer commerce or business-to-business payments.

“We're not currently seeing a lot of demand from our customers for stablecoins,” Philipp Reichardt, head of platform sales for North America for the Singapore-based financial technology company Airwallex, said during a break at the Money 20/20 conference in October in Las Vegas.

Even so, stablecoins have proven to have staying power in spite of their flaws and a few hiccups — and will almost certainly remain part of the conversation as the U.S. moves into a second Trump administration.