Stablecoins and the Evolution of Market Infrastructure
Stablecoins and the Evolution of Market Infrastructure
By Mr. J. Oliver, CPA, CFA, MBA
Chief Executive Officer, LIAM
Ask someone waiting for an international payment what matters most, and the answer is usually straightforward: When will the money arrive, what will it cost, and when can I use it?
Those questions explain much of the interest in stablecoins.
For all the discussion about digital transformation, businesses still encounter practical difficulties moving money. A payment may cross several institutions before reaching its destination. Different operating hours, currencies, documentation requirements, and internal processes can complicate what appears to be a simple transfer.
For a business owner, those complications affect working capital. For an investment firm, they affect settlement and access to liquidity. For a family office managing obligations across jurisdictions, they affect planning.
Stablecoins offer another way to move value. Their significance will depend on whether they can make these everyday financial activities more dependable and efficient.
That is what interests me most about the subject. The technology deserves attention, but its commercial usefulness deserves closer examination.
Understanding what you actually hold
A stablecoin is a digital token designed to maintain a value relative to a reference asset, commonly a currency such as the US dollar.
That description is a starting point. Different stablecoins use different mechanisms to support their value, and those differences matter. A token backed by reserves presents a different set of questions from one dependent on crypto collateral or an algorithmic mechanism.
Even among reserve-backed tokens, the details can vary considerably.
What assets are held in reserve? Who holds them? How quickly can they be converted into cash? What obligations does the issuer owe to the holder? Who is eligible to redeem directly, and under what conditions?
My training in accounting, investment analysis, business administration, and corporate law makes me reluctant to accept a financial label without examining the arrangement behind it. “Stable” describes the intended behaviour of the token. Understanding the basis for that stability requires further work.
The Financial Stability Board’s recommendations emphasise governance, disclosures, and effective redemption rights. They provide an international framework for authorities, with implementation dependent on the relevant jurisdiction. Financial Stability Board, stablecoin recommendations.
For an institution evaluating a stablecoin, I would begin with a direct question: What exactly do we own, and how do we recover its value?
The infrastructure matters as much as the instrument
Market infrastructure is the collection of systems and arrangements that allows financial activity to function. It includes payments, settlement, custody, recordkeeping, and the reconciliation of information between parties.
Much of this work happens out of sight. Investors see an account balance. A supplier sees an incoming payment. Behind those results are instructions, approvals, transfers, and records that need to agree.
Stablecoins introduce a transferable digital instrument into that process. Their usefulness depends on the surrounding infrastructure: the network, wallet or custodian, issuer, trading venue, banking connections, and internal controls of the organisations involved.
A good way to assess the opportunity is to follow the entire payment.
How does the sender acquire the stablecoin? How is the recipient verified? Who authorises the transfer? What happens after receipt? Can the recipient use the token directly, or must it be converted into local currency?
The weakest part of that journey can determine the experience of the whole transaction.
A practical example: paying an overseas supplier
Consider a company that needs to pay a supplier in another country.
A stablecoin transfer may be attractive if both parties have suitable arrangements for sending and receiving it. The transfer between wallets may take place outside conventional banking hours, giving the parties more flexibility.
But suppose the supplier needs local currency to meet payroll. The supplier must then have access to a reliable conversion and withdrawal process. If that process is unavailable, expensive, or delayed, the speed of the earlier transfer has only solved part of the problem.
This is why I would measure the transaction from the moment the payer commits funds to the moment the supplier can use the proceeds.
The assessment should include acquisition costs, network fees, conversion spreads, custody charges, withdrawal costs, and any time spent resolving exceptions. A low advertised transfer fee is useful information, but it does not establish the total cost.
For some payment routes, stablecoins may offer a meaningful improvement. For others, an existing banking or payment service may work better. The commercial case should be established for the particular transaction.
Faster movement changes liquidity management
The ability to move value more quickly can affect how an organisation manages capital.
A treasury team may gain flexibility in deciding when to fund a payment or move resources between approved counterparties. Yet faster transfers do not automatically reduce the amount of capital needed.
An organisation may still have to acquire tokens in advance, maintain balances with service providers, or retain enough funds to meet obligations during periods when conversion services are unavailable.
I would want to understand those requirements before drawing conclusions about capital efficiency.
How much must be committed? Where will it sit? How long will it remain there? What happens if the expected conversion or payment route becomes unavailable?
These questions become especially relevant when activity is spread across several platforms or networks. Each additional balance may serve a purpose, but together they can make cash management harder to oversee.
The objective should be a clearer view of available resources and obligations.
Round-the-clock capability brings new responsibilities
A system that permits transfers at any hour raises a straightforward management question: Is the organisation equipped to operate at any hour?
Who can approve a weekend payment? Who checks the destination? What happens if a key employee is unavailable? Who responds when an instruction appears suspicious?
An institution should resolve those questions before relying on the system for material transactions.
I would expect approval limits, separation of duties, verified destination details, and a clear escalation process. There should also be an agreed response to failed transfers, service interruptions, and compromised access.
These arrangements need to work in practice. A policy that depends on one person always being available can create a serious operational weakness.
The convenience of continuous availability is valuable when the controls supporting it are equally dependable.
Custody deserves its own discussion
It is easy to focus on the token and overlook how it will be held.
For an institution, custody involves decisions about access, authority, recovery, and oversight. Who can initiate a transfer? Can one individual act alone? How are changes to authorised users managed? What happens when an employee leaves?
Where a third-party custodian is involved, I would examine its contractual responsibilities, reporting, security arrangements, and procedures for handling service disruption.
Where the organisation controls its own wallets, I would want to understand how access is protected and how continuity is maintained without concentrating excessive authority in one person.
A wallet balance tells management how much is recorded at an address. Management also needs confidence that the organisation can access those assets appropriately and prevent unauthorised movement.
That is a governance issue as much as a technical one.
Transparency has to be interpreted carefully
Public blockchain records can make certain transaction information visible. That visibility is useful, but it has boundaries.
A record of token movements does not by itself explain the issuer’s reserve position, the beneficial ownership of an address, or the commercial reason for a payment. Nor does a visible balance provide a complete assessment of a counterparty’s financial standing.
From an accounting perspective, I would want to reconcile several sources of evidence: internal records, custody statements where applicable, transaction records, and relevant issuer disclosures.
Each answers a different question.
There is also a distinction between observing activity and understanding it. A transfer may be visible while its underlying purpose remains unclear. An organisation still needs documentation linking the movement to an approved obligation.
Good financial oversight depends on that connection.
Technical confirmation and commercial completion
A transfer can be recorded on a blockchain while questions remain about whether the parties’ agreement has been fulfilled.
Was the correct token sent on the agreed network? Did the intended recipient receive it? What level of confirmation had the parties agreed to accept? Is the recipient able to access the funds through its service provider?
My corporate law training leads me to pay close attention to these details. I would want the agreement to describe the payment asset, destination, acceptance criteria, and responsibilities if an error occurs.
The same care applies to preliminary tests. A small successful transfer can help confirm that a payment route works. Its evidential value should remain tied to that purpose.
For a significant transaction, the parties still need a sound understanding of authority, counterparty identity, and the underlying obligations.
When the documentation and operational process agree, there is less room for uncertainty after funds have moved.
Programmable settlement opens useful possibilities
One of the more promising developments is the ability to connect a payment with the delivery of another asset.
In a suitably designed system, those two actions can be made conditional on each other. This is known as delivery versus payment. It aims to reduce the risk that one party delivers while the other fails to complete its obligation.
The Bank for International Settlements identifies coordinated transfers and programmable settlement as potential benefits of tokenisation. Its analysis also considers tokenised commercial bank money and central bank reserves, demonstrating that the development extends beyond stablecoins. BIS, The next-generation monetary and financial system.
The practical applications deserve careful examination. Could a process reduce manual reconciliation? Could it coordinate payment and asset delivery more reliably? Could it improve the handling of collateral?
I would also examine what the system depends on. If an action requires information from outside the platform, who supplies it, and how is its accuracy established? If the automated instructions produce an unexpected result, who has authority to respond?
Programming can make an agreed process easier to execute. The quality of that process remains essential.
Institutions need arrangements that work under pressure
A system can perform well during a demonstration and still face difficulties when transaction volumes rise or confidence weakens.
Before relying on a stablecoin arrangement, I would want the organisation to consider a period of disruption.
What if a major service provider is unavailable? What if conversion becomes more expensive? What if the issuer’s redemption process takes longer than expected? What if the preferred network cannot be used?
The purpose is to establish how obligations would continue to be met.
That may involve limits on exposure, alternative payment routes, or a decision to retain accessible funds elsewhere. The appropriate response depends on the organisation’s needs and the consequences of delay.
A treasury function should be able to explain its contingency arrangements as clearly as its normal operating process.
A sensible adoption process begins with a defined problem
For an institution considering stablecoins, I would start with one specific use case.
Perhaps an existing payment route is slow or difficult to track. Perhaps an approved counterparty already operates in digital assets. Perhaps a particular settlement process involves substantial reconciliation work.
Define the problem, establish the current cost and timing, and then assess whether a stablecoin arrangement improves the result.
A limited pilot can help answer practical questions before larger commitments are made. The measures should be agreed in advance: total cost, completion time, reliability, staff effort, quality of records, and the handling of exceptions.
This also helps avoid adopting a system simply because it is receiving attention. A successful implementation should have a purpose that the finance team, operations team, and governing body can all explain.
How I see the next stage
I expect the evolution of market infrastructure to involve several forms of money and several types of institution. Banks, custodians, payment companies, stablecoin issuers, and technology providers will each have opportunities to improve parts of the process.
Their contributions will be judged by how well they fit together.
From LIAM’s perspective, the right approach is to remain open to useful innovation while examining the financial and operational foundations carefully. An attractive interface or a fast transfer is encouraging. Dependable access to value, clear responsibilities, and reliable records are what make the arrangement suitable for sustained use.
Stablecoins have helped bring attention to a familiar frustration: money does not always move as efficiently as the businesses relying on it need.
Their lasting contribution will depend on whether they improve that experience.
Can a supplier receive usable funds with greater certainty? Can an institution settle an obligation with less administrative work? Can a treasury team maintain a clear view of its resources while retaining appropriate control?
Those are the questions I would keep asking as the market develops. The answers will tell us which innovations are becoming useful infrastructure.
Mr. J. Oliver, CPA, CFA, MBA
Chief Executive Officer
LIAM | LI Investment Advisory & Management Services
Disclaimer
This article is published by LIAM for general information and educational purposes only. It does not constitute investment, financial, legal, or tax advice, or a recommendation to use any particular asset or service. Stablecoins involve risks, including loss of value, redemption restrictions, issuer failure, and cybersecurity threats. Their name does not guarantee stability or protection of capital. Information and opinions may change after publication. Readers should conduct their own due diligence and seek qualified professional advice suited to their circumstances before making financial decisions.