Volatility and Loss of Peg
Stablecoins are designed to maintain a fixed value, usually pegged to the US dollar or another stable asset, but they are not immune to volatility. Technical failure, poor asset backing, or extreme market pressure can cause a stablecoin to lose its peg. Instances like the TerraUSD (UST) crash have shown that stability cannot be guaranteed. Merchants may face unexpected losses if the stablecoin’s value suddenly drops.
Even stablecoins can lose their peg and suddenly lose value, risking merchant revenue.
Regulatory Uncertainty
Regulations around stablecoins are still evolving and differ between countries. Governments may suddenly impose strict rules, ban particular stablecoins, or place heavy compliance requirements on businesses. This can create legal headaches for merchants who may inadvertently violate local regulations. Staying up to date with compliance guidelines is vital when working with digital assets like stablecoins.
Regulatory changes can disrupt payment acceptance and expose merchants to legal risk.
Cybersecurity, Hacking, and Fraud Risks
Payments made with stablecoins are irreversible, making them a target for cybercriminals and fraudsters. Weak wallet security and phishing attacks are frequent concerns. If a merchant’s wallet is compromised, funds can be stolen with no recourse. This requires robust security protocols and employee training to protect digital assets.
Merchants must take cybersecurity seriously when dealing with stablecoin payments.
Operational and Liquidity Challenges
Integrating stablecoins into business systems can be technically complex and require new processes. Merchants may face liquidity issues if stablecoins are hard to exchange for local currency or if conversions take time. Additional processing fees or lack of support from payment processors can also impact profitability. Managing these operational hurdles is essential for efficient business operations.
Operational and liquidity issues can create real bottlenecks for merchants using stablecoins.
Be Honest About the Uncertainties
Merchants must honestly assess their risk tolerance and operational capacity before adopting stablecoins. Not all risks are immediately apparent, and the technology is still developing. Inadequate preparation or overconfidence can lead to financial loss or compliance issues. A sober, well-researched approach is always recommended.
Merchants should thoroughly understand stablecoin risks and their own readiness before adoption.
Helpful Links
What Are Stablecoins? (Coinbase Learn): https://www.coinbase.com/learn/crypto-basics/what-are-stablecoins
Stablecoin Risk Analysis (International Monetary Fund): https://www.imf.org/en/Publications/WP/Issues/2021/09/08/Stablecoins-Risks-Potential-and-Policy-93551
Guide to Stablecoins for Merchants (Stripe): https://stripe.com/docs/crypto/accept-crypto#stablecoins
Explainer: Risks of Stablecoins (Bank for International Settlements): https://www.bis.org/publ/othp41.htm
What Happened to TerraUSD? (The Block): https://www.theblock.co/post/146516/terrausd-depeg-explainer