The Remittance Use Case For Stablecoin (Projects By Hedera And Circle)

In a research report by River, they made a case for how Bitcoin can be used for global payments. However, one core issue with Bitcoin is that it is highly volatile. And so, the organization or the platform that enables the Fiat remittance using BTC rails can suffer a loss due to price fluctuations. Just recently, on Aug 18th, 2023, BTC’s price collapsed by about 9% within 24hrs. Stablecoins such as USDC, on the other hand, reliably hold at $1 dollar when backed by reserves. They are more reliable and, when on Ethereum layer-2 or other layer-1 chains, enable faster transfers than Bitcoin. However, the unfamiliarity and perceived complexity deter many from traditional finance. Our research shows projects are easing this transition. For example, Hedera's collaboration with banks could present stablecoin wallets as regular 'checking accounts'. Furthermore at Coinchange, we believe this could even become a ‘Savings Account’ where the user earns yield on their stablecoin holdings.

Hedera’s Proof of Concepts for International Remittances

Let’s look at two separate proof-of-concept (PoC) pilots by Hedera related to stablecoin international remittances.

Stablecoin International Remittance PoC Pilot-1 by Hedera

Objective: Test the issuance and distribution of stablecoins for international remittances using Hedera Token Service (HTS) and Hedera Consensus Service (HCS).

Institutions Involved: Shinhan Bank and Standard Bank.

Mechanism:

• Shinhan Bank mints stablecoins backed by South Korean Won (KRW).
• Partnering bank mints stablecoins backed by their local currency.
• Users buy KRW-based stablecoin from Shinhan and send it to an account at the partner bank.
• Recipients can collect funds in their locally denominated stablecoin and exchange it for their local currency.
• Hedera Consensus Service is used to track, record, and confirm FX rates during transactions.

Stablecoin Remittance proof-of-concept (PoC) Pilot-2 by Hedera

Objective: Achieve real-time settlement and FX rate integration for remittances across multiple currencies using Hedera's blockchain technology.

Institutions Involved: Shinhan Bank, SCB TechX, and a large financial institution in Taiwan.

Mechanism:

• This pilot managed to achieve real-time settlements and FX rate updates for Thai Baht, New Taiwan dollar, and South Korean Won.
• The PoC is EVM-compatible, allowing various stablecoin issuers to participate.
• Banks use locked liquidity for currency swaps, ensuring the swap doesn't affect currency prices.
• The pilot differs from decentralized finance (DeFi) pools, resembling more traditional FX processes.
• Potential future inclusion of third-party liquidity providers for better remittance services. The concept showcases potential hybrid models and various remittance tokens like stable USD, Euro, or Yen.
• The pilot demonstrates the use of Distributed Ledger Technology (DLT) as infrastructure where customers don't necessarily hold stablecoins.

USDC's Role in Global Remittance

As the global remittance market nears $1 trillion by 2026, Circle partners with key financial institutions worldwide. Here's a snapshot:

SAP & Circle Test USDC for Cross-border Payments

SAP, a German software company, collaborates with Circle testing USDC on Ethereum's test network. The aim? Streamlining international transactions using USDC and EUROC, enhancing efficiency, cost-saving, and transparency. This test is a glimpse into SAP’s upcoming Digital Currency Hub.

Airtm, Circle & Stellar Team Up for Cross-Border Payments

Airtm, a globally connected digital dollar account, adopts USDC for its global retail account, tapping into Web 3.0. Leveraging Stellar, it facilitates speedy, cost-effective cross-border payments to over 100 countries without traditional banking constraints. Airtm offers over 400 local payment connections, promising transactions in under 6 minutes with below 5% fees.

TBD & Circle Collaborate on Global Remittances

TBD, a subsidiary of Jack Dorsey’s Block, partners with Circle to enhance stablecoin protocols, focusing on corridors like U.S.-Mexican remittances. Benefits? Fast USDC remittance receptions, zero fees within Circle accounts, significantly lower transaction costs, and no minimums. Circle’s Native USDC spans multiple chains, ensuring easy bridging without third parties, and enabling interoperability through their CCTP.

EEA Members in Stablecoin Remittance Initiatives

The Ethereum Enterprise Alliance (EEA) promotes Ethereum blockchain's use in business as an open standard. Coinchange, part of this global community, includes Fortune 500 companies, startups, and Ethereum experts like Microsoft and JP Morgan. During our research for this report, we received great help from the EEA team to gather a list of the members that are currently experimenting with the Stablecoin Remittance use case.

Members engaged in Stablecoin Remittances:

Datachain, Inc.

Collaborated with Mitsubishi UFJ Trust and Soramitsu for transfers between stablecoins and digital currencies.

Hyperledger

MUFG, Japan's premier bank, worked with Soramitsu and Datachain for stablecoin interoperability on Progmat Coin, powered by Hyperledger Iroha.

Polygon

Num Finance issues regional stablecoins on Polygon, aiming at the $10 billion remittance market. Additionally, BTG Pactual, a leading Latin American investment bank, introduced its stablecoin on this network.

Streami Inc

A Korean startup focusing on blockchain remittance solutions. After securing $2 million in seed funding, including from major bank Shinhan Bank, it emphasizes cross-border remittance on its LinkedIn profile.

Tata Consultancy Services Limited (TCS)

TCS upgraded its Quartz solution to support Central Bank Digital Currencies. It also launched the Quartz Cross Border Remittances solution, connecting banks to blockchain payment networks like RippleNet.

Read more about stablecoins and their remittance use case in our latest research report Stablecoin Landscape and the Remittance Use Case, co-authored by The Hedera Network, Myna, UnoCoin, Glo Dollar, Brale and Ethereum Enterprise Alliance.