The Chicken-and-Egg of Payments
The Stablecoin Stalemate Problem
The adoption of a new payment system has always faced challenges, epitomized by the classic "chicken-and-egg" problem.
The dilemma often hinges on mutual dependency: consumers will not embrace a payment method unless merchants widely accept it, yet merchants have little incentive to adopt it without pre-existing consumer demand. Historical examples illustrate this dynamic vividly, but also have shown how a strong trigger can break the stalemate, transforming a once-nascent payment method into a mainstream standard.
Stalling Stablecoins
Stablecoins face a similar adoption challenge today. Despite their promise of low-cost, borderless, instant transactions, they have yet to achieve widespread use in everyday commerce. The core issue mirrors the payment adoption paradox: merchants hesitate to integrate stablecoin infrastructure without clear consumer uptake, while consumers see little reason to shift from familiar options like credit cards absent merchant acceptance or a standout use case. And the truth is that we have yet to see a use case where it’s overwhelmingly advantageous or even completely necessary to pay with stablecoins.
The Merchant Perspective
While the chicken-and-egg problem stalls stablecoin payment adoption on both sides of the market, the consumer side is theoretically the more difficult hurdle to clear. In contrast, the merchant side of the market should theoretically face a lower barrier to achieving adoption. This is due to the tangible economic incentives and the scale-to-impact influence that merchants wield.
Merchants stand to gain immediate, quantifiable benefits from stablecoin adoption, particularly in cost savings. To draw comparisons to traditional payment systems, credit cards seem like the most logical example to use. Credit card purchase volume amounted to $19.6 trillion in 2023 and has consistently been on the rise. The acceptance of credit cards imposes interchange fees for merchants averaging upwards of 2% in a country like the US and even higher in some emerging markets. These fees, compounded by additional charges from payment processors, erode merchant margins—a pain point that stablecoins can address.
Payment Methods Comparison (source: a16z crypto)
Not only do stablecoins promise savings to a merchant’s bottom line, but their faster settlement times enhance overall cash flow. These savings provide a clear value proposition: merchants can boost profitability without relying on immediate consumer scale, provided the infrastructure is accessible.
Merchants also wield a much large scale-to-impact influence. The merchant pool is orders of magnitude smaller and more concentrated than the consumer base, but early adopters will have an outsized impact on widespread adoption. If a few thousand merchants—especially high-volume players like e-commerce platforms or regional chains—are convinced to fully shift towards stablecoin payment rails, this would be much more likely to create a ripple effect, exposing millions of consumers to stablecoins practically overnight.
The Consumer Challenge
The stalemate problem is particularly pronounced on the consumer side, however, where entrenched systems (like credit card rewards and seemingly “free” payment methods) offer little incentive to switch, particularly in high-value regions with adequate banking infrastructure.
Credit cards dominate consumer spending, fueled by rewards programs offering 1-5% cashback, points, or travel miles on purchases. These incentives effectively “pay” consumers to use cards, creating a powerful economic and psychological hook.
(Fun watch: people in 1993 react to credit cards being accepted at Burger King)
For the average user, payments feel "free" (or even profitable) since interchange fees (borne by merchants) are effectively invisible at the point of sale. This dynamic undercuts stablecoins’ value proposition. While they may offer merchants lower transaction costs, this benefit is irrelevant to many consumers who don’t generally perceive these costs. Switching to stablecoins, then, requires abandoning tangible rewards for an abstract promise of efficiency or future utility—a trade-off few are willing to make without a compelling reason.
This has played out before. Past efforts to bypass this consumer hurdle, such as the Merchant Customer Exchange (MCX) launched in 2012, floundered precisely because they failed to sway consumers. MCX’s CurrentC app aimed to sidestep interchange fees for merchants by linking payments to bank accounts, but it couldn’t compete with the entrenched rewards system and folded by 2016. The lesson is clear: merchant-led initiatives alone cannot kickstart adoption when consumers are already satisfied with a system that feels costless and delivers immediate perks.
Scaling Niche Payments to Mass Adoption
The discernible approach for creating mass adoption of a payment method then is two-sided. You need to either get widespread consumer adoption of the payment method, which will force merchants to accept it, or have merchants use one specific payment method, which will force consumers to adopt it. The theory is simple, yet achieving this in reality is much more difficult, and practically involves a large-scale shift or trigger that pushes us past this two-sided stalemate.
Past examples from history reflect this idea. Prior to 2012, credit cards were incredibly niche in Latin America, a region where cash dominated and formal banking penetration lagged. Their limited use reflected the classic chicken-and-egg trap—consumers saw little need for cards without broad merchant acceptance, and merchants saw no reason to invest in card infrastructure without a critical mass of cardholders.
This impasse persisted until Uber arrived and fundamentally disrupted the status quo. By offering a safer and (initially) cheaper alternative to traditional taxis—and pushing credit card payments for its app-based service—Uber created a compelling reason for consumers to acquire cards. As adoption surged, merchants and subsequent on-demand platforms had no choice but to adapt in order to capitalize on the growing pool of smartphone-equipped, card-holding users. This sparked a virtuous cycle: more card users drove wider acceptance by merchants, which in turn fueled further consumer uptake, cementing credit cards as a regional standard within a few years.
Moving Towards Mass Adoption
The Uber case underscores a critical insight: breaking the two-sided adoption deadlock often requires a catalyst that delivers undeniable value to one side, compelling the other to follow. In this case, the incentive for merchants was clear: the access to a newly empowered customer base outweighed the costs of adoption.
This dynamic suggests that stablecoins, too, could transcend their current niche status if a similar trigger emerges. Yet as of now, no such moment has materialized at scale. Stablecoins offer merchants lower transaction fees and faster settlement, while promising consumers borderless, efficient payments. However, these benefits remain theoretical without a use case that forces widespread adoption on either side. Perhaps the question becomes: how might we replicate such disruption to the payments status quo, but with stablecoins?
Multiple catalysts could push us in this direction, and many of them seem increasingly plausible. New developments and targeted use cases are bringing stablecoins front-and-center, not only within the crypto industry itself but also within traditional industries where consumers and merchants alike are sensitive to traditional payment inefficiencies.
A few of the more evident catalysts are:
1). Remittances
Stablecoin-based remittance solutions slash costs and settlement times and have gained prominent traction in high-remittance corridors across the globe. Both senders and recipients have increasingly began adopting stablecoins for their time/cost-savings, creating a consumer base that pressures local merchants to accept them for spending.
As remittance volumes continue to grow, this could be a major factor in tipping the scales, especially in high-volume remittance corridors where stablecoins are starting to command an increasing market share of cross-border payments.
2). Crypto cards
Stablecoin-backed cards are emerging as a Trojan horse for adoption, blending the familiarity of traditional payments with the efficiency of crypto payment rails. Companies like Crypto.com and BitPay have issued Visa or Mastercard-linked cards that convert stablecoins (e.g. USDC, USDT) to fiat at the point of sale, allowing users to spend at millions of merchants worldwide without merchants needing to directly accept crypto.
Crypto Credit Card Market (source: Business Research Insights)
The value here lies in accessibility and cost. For unbanked or underbanked populations, these cards offer a financial lifeline without requiring a traditional account and leverage stablecoins’ stability over volatile local currencies. For merchants, adoption is seamless, as little new infrastructure is needed. While not yet forcing a consumer-driven surge akin to Uber’s credit card push, the growing issuance of these cards builds a bridge to adoption, acclimating users to stablecoins and laying more groundwork for direct acceptance.
3). Payment innovations onchain
Onchain payments in general unlock a host of innovative services, from Ethena’s access to institutional-grade funding rate arbitrage yields to conditional payment logic through smart contracts and everything else in between. These product innovations could offer compelling use cases for both consumers and merchants to take advantage of, helping to spur more widespread demand for stablecoins overall.
For example, micropayments are an area that’s uniquely interesting. Traditional payment systems falter at small-value transactions. Credit card fees make a $0.10 tip uneconomical, and bank transfers lack speed for real-time interactions. With near-zero fees on several networks and major divisibility, stablecoins enable frictionless micropayments and may open use cases most legacy systems can’t touch.
Tipping creators, in-game purchases, pay-per-article news, or charity micro-donations could all thrive with micropayments, each fostering a consumer habit that merchants—online or physical—would need to accommodate. The key is the "net new" angle. These behaviors don’t replace existing payments but may create demand where none existed, sidestepping the competition of entrenched systems like credit cards.
On the Path to Disruption
While none of these catalysts have shown true potential as forceful disruptors yet, it’s clear that we’re still moving in the overall direction of widespread stablecoin adoption. The stalemate problem between consumers and merchants remains a formidable barrier, echoing the early struggles of legacy payment methods like credit cards before their disruption moment. Stablecoins have yet to find their equivalent “Uber moment”—a use case so compelling that it forces one side of the market to adopt them, pulling the other along in a virtuous cycle. However, the building blocks are falling into place, driven by incremental innovations and shifting economic factors.
Exciting use cases on the consumer side are narrowing the gap, while the merchant-side adoption edges forward, lured by lower transaction costs and faster settlement. But while compelling, these advantages still await the consumer demand to fully activate them. Historical precedent suggests that disruption often requires more than gradual progress, and sometimes demands a spark. Whether or not we’ll experience a forceful spark to tip the scales for mass adoption is yet to be seen, or if instead stablecoins’ slow chip away at legacy limitations will eventually be enough. But while disruption may not be imminent, the trajectory is set, and it seems only a matter of time before stablecoins achieve the critical mass they’re vying for.