Stablecoins: "Room-Temperature Superconductors for Financial Services"

Introduction

Stablecoins offer fundamental improvements to a better form of money; cheaper, faster, globally-accessible, and programmable. Despite lacking the glamor of 10x returns and number-go-up technology, stablecoins present the most promising crypto instrument for onboarding billions of individual users to onchain financial rails and penetrating into mainstream adoption. The advantages that stablecoins transacted on onchain rails have to offer are sometimes so simple, basic, and obvious that the scale of the potential impact can often be overlooked, discounted, or dismissed. Infinitesimal improvements compounded over millions of events can produce profound results. From the Stripe Annual Letter, “Why care about stablecoins? Improvements to the basic usability of money make economies more prosperous.”

Stripe’s co-founder Patrick Collison, in their acquisition of the stablecoin payments platform Bridge for $1.1B, described stablecoins as, “room-temperature superconductors for financial services.” What exactly could have been meant by this? Most materials, at room temperature, demonstrate electrical resistance when conducting electricity. Copper has low resistance, while rubber has high resistance. Resistance results in the loss of energy as an electrical current is passed through the material, representing inefficiency. Superconductors, however, exhibit zero electrical resistance, allowing an electric current to flow through the superconductive material indefinitely without the loss of energy. Superconductivity can be achieved in some materials at incredibly low temperatures, but require artificial cooling and large costs to maintain this environment. At room temperature or normal pressure environments, however, superconductivity is lost or degrades, making many potential applications of the materials impractical. How does this relate to stablecoins? Stablecoins exhibit properties that are analogous to the characteristics of a room-temperature superconductor.

Cheap

Blockchains offer financial rails to conduct value that are orders of magnitude cheaper and cost-efficient than legacy systems. Fees on these rails represent resistance. Domestic wires can cost a median of $15 per transfer, while international wires can cost $45. Automated Clearing House (ACH), while relatively quite cheap, can cost a median of $.30. The global average cost to send a remittance is 6.65% of the transfer value. 

High-performance blockchains like Solana, Sui, Base, and other L2s can process transactions with costs as low as $0.001. While the differences nominally are small, their impact at scale can be large. 

To simulate this, imagine a starting a balance of $1,000, transferred in its entirety once a day over various payment rails, and paying the according fee. How long does it take until the starting principal decays to $0? The balance would hit $0 after 23 days over international wire, 67 days on domestic wire, 500 days on Ethereum, 3334 days on ACH, and 1M days on solana.