Mastercard (MA +0.10%), one of the world's largest card payment service companies, has made a big push into stablecoins over the past five years. Let's see why it's so bullish on the cryptocurrency, and what its expansion might mean for the broader crypto market.
What are stablecoins?
Stablecoins are cryptocurrencies pegged to a stable fiat currency, such as the U.S. dollar or the Euro. They're usually backed by cash and Treasuries, can be held without a bank account, and facilitate faster, cheaper settlements than conventional bank transfers.
Their payments can also be settled 24/7, 365 days a year, without any concerns regarding banking hours or holidays. Stablecoins can also be deposited into third-party lending markets, automated market makers, and liquidity pools to earn higher yields than those offered by bank savings accounts.
Image source: Getty Images.
Why does Mastercard care about stablecoins?
By treating stablecoins as native settlement currencies alongside fiat currencies, Mastercard can accelerate its cross-border disbursements, treasury operations, and merchant payouts. Integrating those stablecoin settlements into its own framework also protects its customers with the same fraud checks and dispute-resolution tools as its card-payments network.
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In 2021, Mastercard joined a pilot program to test Circle's (CRCL -3.33%) USD Coin (USDC +0.00%) stablecoin for settling financial transactions. Over the following years, it launched a full suite of stablecoin settlement tools, launched crypto-linked cards, and facilitated on-chain remittances. It deepened its partnership with Circle to bring its USDC and EURC (EURC +0.37%) stablecoin settlements to more countries in Eastern Europe, the Middle East, and Africa. It also partnered with Thunes, a global payout network, to integrate Mastercard Move (its global money transfer tools) into stablecoin wallets in more than 130 countries.
Earlier this year, Mastercard launched continuous intraday and weekend card settlements for regulated stablecoins. In August, it acquired the enterprise stablecoin infrastructure platform BVNK to bolster its cross-border payment pipelines, and it partnered with Borderless.xyz and several regional fintechs to pilot a single-audit compliance model for stablecoin transfers.
What does Mastercard's move mean for crypto investors?
Mastercard's bullishness on stablecoins won't boost the value of leading stablecoins like USDC or EURC, since they're designed to track their underlying fiat currencies. It also won't be a meaningful development for other major cryptocurrencies like Bitcoin or Ether, since they're much more volatile than stablecoins.
But Mastercard's moves could generate tailwinds for Circle, which mints those stablecoins. Most of Circle's revenue comes from the interest it collects on the cash and Treasury holdings backing its own stablecoins, and that reserve income will rise as it mints more tokens. Circle's other stablecoin-minting peers, like Tether, will also likely profit from that expansion.
