How Programmable Digital Dollars are Transforming Finance
Hi Readers! At Sentinel, we're kicking off a series of deep dives -- larger, longer thematic explorations that tap into the full depth of our team's experience and insights. We’re drawing on our network with institutions and our relationships with founders around the world to explore the deeper forces shaping industries and innovation. In this case, Sylvester Wee and Josh Shaked discuss stablecoins.
TL;DR: Programmable Digital Dollars (PDDs), or stablecoins, are revolutionizing finance by enabling instant, low-cost, global transactions. They address inefficiencies in traditional systems, like slow cross-border payments and high fees, and unlock transformative applications, from micropayments to decentralized finance. Challenges such as regulatory uncertainty and scalability persist, but innovators tackling these hurdles are paving the way for mass adoption. This begins to realize the "Finternet," a seamless, borderless financial internet, as the future of commerce.
Introduction
In just three years, programmable digital dollars (PDDs) have surged from nearly zero to over $180 billion in circulation, with transaction volumes that surpass even Visa. However, we believe mainstream finance continues to overlook their explosive potential as digital infrastructure. At Sentinel Global, we see what others gloss over: PDDs aren’t just digital assets. They have the power to reshape the financial landscape by making money as accessible and programmable as data on the internet.
At Sentinel Global, our foundation in financial institutions and venture capital gives us unmatched strategic insight. With over 50 years in financial services, we engage with more than 20 bank innovation teams every quarter, meet over 200 fintech innovators each year, and have backed fintech pioneers that went public and transformed the industry. Our networks and research decode how programmable dollars are disrupting finance—and why it matters
In this article, we’ll take you through the market landscape, break down the real-world applications of stablecoins, and share why we’re bullish about the future of what we like to call the Finternet.
A Financial System in Flux: Why Programmable Dollars Matter
We believe the global financial system as we know it is slow, expensive, and geographically fragmented. Credit card networks cost U.S. businesses $130 billion annually in fees. ACH transfers take 1–3 days to process and are regionally limited. Meanwhile, national systems like Brazil’s PIX and India’s UPI operate only within borders, limiting global utility. Consumers and businesses are looking for a financial infrastructure that can keep pace with a globally connected world.
This demand is fueling the growth of PDDs. Unlike traditional currencies, PDDs live on open, programmable ledgers, allowing them to move with the same speed and ease as data. These PDDs, which can also be referred to as stablecoins, offer a solution to the inefficiencies plaguing finance. In a conversation we had with Itay Tuchman, former head Global Head of FX at Citi and a digital finance pioneer, he describes the shift as inevitable: “Today’s users want a seamless, interest-bearing asset that can be stored, sent, and received without the high fees or delays of legacy systems.”
At Sentinel, we see PDDs not just as digital cash but as a new category of financial infrastructure. By enabling instant, low-cost transactions globally, stablecoins are fulfilling a need that traditional systems can’t. The potential for a “Finternet”—a financial internet where money moves as freely and securely as email—is no longer a vision; it’s a reality in the making. As Agustin Carstens of the Bank for International Settlements (BIS) puts it, “The Finternet aims to bring the same progress to finance that we’ve seen with data: any asset, any amount, any time, anywhere, at near-instant speed.”
Growing Traction: What the Establishment Tells Us About Digital Dollars
Mainstream finance is starting to recognize the impact of PDDs beyond simple theory. With $180 billion in stablecoins circulating globally and over $2.6 trillion in transactions in just the first half of 2024, PDDs have outpaced traditional payment methods. The widespread adoption of stablecoins is clear evidence that programmable dollars are creating a more agile, efficient financial infrastructure.
For enterprises, PDDs offer more than just a new way to transact—they provide tactical advantages that traditional systems can’t match. Stablecoins are already enabling faster, more affordable cross-border payments, which is essential for global businesses and migrant remittances alike. According to the World Bank, typical cross-border fees average around 6%, with delays stretching days. In contrast, stablecoins reduce costs and process times to near-instant.
Our research indicates that PDDs are also transformative for day-to-day enterprise needs. They provide transparency, reduce fraud, and enhance supply chain management. The programmable nature of stablecoins means that they can power advanced applications like atomic escrow, where funds are securely held until transaction terms are met. We’ve seen this impact firsthand with partners exploring PDDs to manage capital flows, optimize liquidity, and improve cash management across borders.
Real-World Applications: How Digital Dollars are Being Used Today
The growing adoption of PDDs highlights their versatility. Here are some of the practical applications we’re seeing take root in the market:
Global USD Yield Accounts: In regions with volatile currencies, stablecoins allow users to hold interest-bearing accounts in a stable currency. This provides stability and growth potential, offering a lifeline to economies facing inflation and currency devaluation.
Store of Value: For individuals in countries with unstable currencies, such as Argentina or Turkey, stablecoins offer a way to hold value in dollars, providing a reliable asset that isn’t subject to the same volatility as local currencies.
Aid Distribution: Stablecoins simplify and speed up aid distribution, reducing corruption and administrative costs by enabling direct, transparent payments. This has been particularly impactful in crisis situations where traditional banking channels are inefficient.
Trading and Hedging: For financial professionals, stablecoins facilitate efficient trading and hedging on decentralized platforms, providing a stable unit of account and liquidity in an otherwise volatile market.
Case Studies Highlighting Early Institutional Adopters of Digital Dollar Solutions
As digital dollar frameworks evolve, prominent financial and payment institutions have begun exploring and adopting PDD solutions. Key cases include:
PayPal: In 2023, PayPal launched its own stablecoin, PYUSD, enabling users to make payments using a digital dollar tied to the U.S. dollar. This move underscores PayPal’s commitment to fostering secure and seamless digital transactions within its ecosystem, signaling a major endorsement of stablecoins within mainstream payment platforms.
Visa: Visa introduced the VTAP (Visa Tokenized Access Platform), a platform that enables banks to issue fiat-backed tokens on blockchain networks. This system is designed to simplify digital dollar transactions across financial institutions and networks. Banks like BBVA have already piloted this platform, positioning Visa as a pioneer in bridging fiat currency with blockchain infrastructure.
Stripe: Stripe integrated USD Coin (USDC) stablecoin support on its platform, allowing businesses to access and transact with stablecoins worldwide. This strategic expansion includes a partnership with Coinbase to promote broader stablecoin adoption globally. Stripe’s recent $1.1 billion acquisition of Bridge further enhances its blockchain capabilities, emphasizing its commitment to facilitating digital dollar use cases in global e-commerce.
SWIFT: The global financial messaging network SWIFT has announced plans to initiate digital asset transaction trials by 2025, a significant step toward enabling seamless digital currency transactions between traditional financial institutions. This move signals an increasing interest among established financial players in supporting digital dollar and other digital asset transactions.
Additional institutions, such as JPMorgan Chase, UBS, Ant Financial, the Monetary Authority of Singapore (MAS), Siam Commercial Bank, and State Street, are exploring or piloting similar initiatives, indicating widespread institutional interest in integrating digital currencies into the global financial infrastructure.
Challenges in the First Iteration of Stablecoins: Strategic Hurdles and Problem Solving
As stablecoins push the boundaries of digital finance, early-stage challenges expose areas for strategic investment and innovation. Addressing these issues is key to transforming stablecoins from niche digital assets into the backbone of a digital economy.
Fragmented Ecosystem: Opportunity for Interoperability Leaders
The stablecoin landscape is an open field, with multiple players—USDC, USDT, PYUSD—each charting different paths for regulatory compliance and technical frameworks. This fragmented approach creates interoperability challenges that prevent a seamless exchange between these assets and the broader digital finance ecosystem.
SOLVE THE PROBLEM: Strategic investment in interoperability solutions and standardized frameworks represents a high-growth opportunity. Companies that can bridge this divide will secure a vital foothold in the stablecoin market, establishing themselves as the linchpins of a unified digital currency network.
Limited Integration with Traditional Payment Systems: Bridging the Divide
Stablecoins currently operate on the outskirts of mainstream financial systems, constraining their potential for mass adoption. Lacking direct integration with legacy banking systems, stablecoins face usability challenges for consumers and businesses alike.
SOLVE THE PROBLEM: Advanced API layers, partnerships with established financial players, and novel regulatory-compliant infrastructure are required. The intersection of digital currency with fiat systems is a space ripe for innovators who can build secure, scalable on- and off-ramps. The potential ROI is considerable for companies able to create seamless, compliant connectivity between fiat and stablecoin ecosystems. Watch for Josh Shaked’s upcoming report on Stablecoin Settlement, which will dive deeper into these integration opportunities.
Regulatory Scrutiny and Uncertainty: Clear Pathways Needed for Scalable Growth
Stablecoins sit at the intersection of innovation and regulatory oversight, with shifting guidelines and regulatory bodies—like the SEC and ECB—pushing for clarity. The regulatory uncertainty has created hurdles for operators and suppressed broader adoption,
SOLVE THE PROBLEM: This is a window for well-positioned companies to shape and set the standard for compliance. Startups and established players that proactively engage with regulators can help define these frameworks, opening the door to exponential growth and trust-building. Clear and consistent regulatory pathways will catalyze market expansion.
Market Volatility and Trust: Rebuilding Confidence Amidst Skepticism
Stablecoins promise stability, but recent high-profile failures, such as FTX and TerraUSD/Luna, have rattled user confidence and illustrated vulnerabilities in the current ecosystem.
SOLVE THE PROBLEM: Building robust systems that withstand market volatility and establishing transparent reserve backing are essential steps in restoring trust. The companies that can prioritize security, transparency, and robust governance will stand out and capture a trust premium, making them attractive candidates for investment. As trust in stablecoins stabilizes, these early leaders will reap the rewards of a loyal user base and increased market share.
Adoption and Infrastructural Scalability: Scaling for Mass Market Utility
Although stablecoins have gained momentum, scaling up for widespread adoption will demand investment in both user education and underlying blockchain infrastructure.
SOLVE THE PROBLEM: Drive awareness and education in tandem with technological advancements. Scalability on blockchain networks, particularly regarding transaction speed and throughput, is critical to support high-volume use cases. Backing projects that focus on infrastructural improvements will pay dividends as stablecoins move from niche applications to mainstream, high-frequency financial tools.
Unlocking the Future: New Applications for Programmable Digital Dollars
By overcoming key hurdles in interoperability, regulatory clarity, and scalability, the stablecoin ecosystem opens the door to a new wave of financial applications that have the potential to reshape global commerce, digital interaction, and personal finance.
Micropayments and In-App Transactions
Imagine a world where every interaction holds tangible value. Stablecoins make it possible to send a few cents instantly and affordably, unlocking microtransactions for digital interactions. A “like” on social media could translate to a 5-cent payment, and users might instantly earn a few dollars for survey responses or for sharing their insights. This micro-economy enables greater engagement and allows individuals to monetize everyday interactions, giving rise to new revenue streams and user experiences across platforms.
Integrated Financial Systems
In a world where stablecoins are fully interoperable with mainstream payment systems, users can move funds seamlessly across digital wallets, bank accounts, and global payment networks. Stablecoins become an everyday payment option, accepted at point-of-sale terminals, online checkouts, and financial apps alike. This level of integration democratizes access to fast, secure, low-fee transactions across borders, enabling individuals and businesses alike to manage finances more flexibly and inclusively. Imagine the potential for a truly borderless financial system where stablecoins serve as the backbone of global commerce.
Programmable Marketplaces with Atomic Escrow Contracts
With programmable stablecoins and atomic escrow contracts, marketplaces can be transformed into secure, automated ecosystems where transactions are transparent, self-executing, and fraud-resistant. Picture a smart-contract-powered digital marketplace where assets are bought, sold, and transferred securely, with funds held in escrow until all conditions are met. This programmable layer of trust offers enhanced security and efficiency, fundamentally changing how goods, services, and even data are exchanged.
Real-Time Streaming Payments
The concept of streaming payments becomes a reality with stablecoins, allowing users to receive earnings in real time. Instead of waiting for bi-weekly or monthly payroll cycles, imagine being paid by the hour, minute, or even second, enabling individuals to access earned wages whenever they need them. This model, enabled by stablecoin infrastructure, could redefine personal finance and wage accessibility, providing greater financial stability and liquidity for workers, contractors, and freelancers.
Decentralized Finance (DeFi) Accessible to All
A world where stablecoins are seamlessly integrated into DeFi platforms opens up new opportunities for individuals to access savings accounts, loans, and investment products directly from a digital wallet. This ecosystem extends financial tools traditionally limited to institutions or affluent individuals to anyone with internet access, creating an open, decentralized, and more inclusive financial landscape.
Cross-Border Remittances and Aid Distribution
Stablecoins simplify the process of cross-border remittances, allowing families and communities to send and receive funds with minimal fees and instant settlement. Imagine aid organizations using stablecoins to provide direct, transparent support to recipients globally, bypassing traditional intermediaries and ensuring that funds reach those who need them most. Stablecoins could become a powerful tool for financial inclusion, especially in underbanked regions.
The Road Ahead: Sentinel’s Vision for the Finternet Era
The Finternet is set to transform how we think about and interact with stores of value. At Sentinel, we bridge the gap between innovation and adoption, guiding enterprises, investors, and individuals toward a future where financial transactions flow as freely and securely as data over the internet.
The programmable future of finance is here, with PDDs at its core. By staying ahead of market trends, forging strategic networks, and conducting evidence-based research, Sentinel is leading this financial revolution with our partners and portfolio companies, empowering the world to embrace a digital-first economy.
We invite you to join us in building this new future. Reach out at hello@sentinelglobal.xyz to explore collaboration opportunities.
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