The stablecoin infrastructure framework

Despite sometimes being discussed in monolith terms, stablecoin infrastructure is not a single alternative rail, but a stack of interoperating systems. These include not only the stablecoins themselves and the processes that enable them to be issued, redeemed or exchanged, but also a host of other intersecting elements.

These include the blockchain networks on which they move, of which there are a number of high-liquidity default options, as well as less widely used options that provide different choices in terms of settlement and transaction fees. In some cases, networks will provide incentives to encourage their use, while some companies are increasingly making use of ‘Layer-2’ networks that sit on top of widely used ‘Layer-1’ networks to reduce costs and increase speeds.

Wallets are another fundamental element, acting not as a kind of virtual pocket to store value, but as addresses from which transactions and other critical steps in the payments orchestration process can be initiated and managed. They are a foundational part of stablecoin infrastructure, serving as essential nodes in the on-chain movement of funds as well as being used to store value both for providers’ clients and their end users, and how they are securely managed can be configured in a wide variety of ways depending on their application, the client’s risk appetite and their regulatory requirements.

Other elements include the on and off-ramping of funds from fiat to stablecoin and viceversa, the provision of compliance solutions including KYC/KYB and liquidity solutions at both ends of the payment process.

However, how companies engage with this stack varies significantly depending on the types of providers they opt to use. While the capabilities of each provider vary, they can be broadly grouped into two types:

Managed payment providers

Combine multiple parts of the infrastructure stack into a combined solution, typically handling many technical and compliance elements and reducing the technical and regulatory burden on their clients. Typically, they offer faster time-to-market for companies with limited stablecoin expertise.

Self-managed payment providers

Provide modular solutions that can be implemented as part of a broader technical stack, offering greater direct control and flexibility over areas including pricing and execution, although carry a higher technical and regulatory burden. Often favoured by companies with higher volume requirements and technical capabilities.

Insights by FXC INTELLIGENCE