Part 1 – Programmable Settlement

Summary

The defining innovation of stablecoins is not the technology itself, but the trust architecture they enable. While today’s business architecture will NOT be turned upside down, the stablecoin frame does enable new models for managing legal contracts, systems interaction,  operational governance, all within a new regulatory superstructure.

Key Points:

• A New Settlement Rail: Compared to traditional systems like ACH and CHIPS, which are centralized and operate on banking hours, stablecoins offer a parallel rail for 24/7, near-instant, peer-to-peer settlement. This shifts the locus of trust from the inter-bank clearing process to the stablecoin issuer, making the issuer’s credibility and regulation paramount.   
• Regulation as Codified Trust: The unregulated era, marked by the Terra/UST collapse, demonstrated the necessity of a formal trust framework. Forthcoming legislation, such as the GENIUS Act, aims to provide this by forcing stablecoin issuers to operate like banks, with 1:1 reserve requirements, federal oversight (from the Fed/OCC), and full AML/KYC compliance. This codifies trust into law, making it a prerequisite for institutional adoption.   
• Corporate Strategy and Hybrid Models: Major corporations are not just using stablecoins but building the infrastructure for trust. Stripe’s acquisitions of Privy and Bridge create a “trust-as-a-service” stack, abstracting away the complexity of wallets and on/off-ramps for merchants. Similarly, Shopify’s partnership with Coinbase utilizes a smart contract that mimics the familiar “authorize and capture” logic of card networks, creating a hybrid model that blends on-chain efficiency with trusted, off-chain business practices.   
• The Programmability Paradox: The concept of “programmable money” is more accurately “programmable settlement.” Complex, subjective business logic is likely to remain in traditional off-chain systems where legal recourse is clear . Smart contracts will serve as the automated final settlement trigger after off-chain verification, rather than housing the entire legally enforceable agreement.
• Centralized vs. Decentralized Trust: It is crucial to distinguish the trust model of regulated stablecoins from that of public cryptocurrencies like Bitcoin. Regulated stablecoins rely on centralized trust in a known, regulated issuer operating on a permissioned or centrally governed ledger. This is in direct contrast to the decentralized, trust-minimized ethos of public blockchains, which prioritize anonymity over the accountability required by institutional finance.   
• The future of stablecoins is one of convergence with, not disruption of, traditional finance. Their success will be determined by the strength of their governance and regulatory framework, positioning them as a critical upgrade to the plumbing of financial settlement, particularly for high-friction use cases like cross-border commerce.

Background

Blockchain is core to both Web 3.0/Crypto and stablecoin. Web 3.0’s vision, albeit challenged, is to create a federated anonymous internet that decentralizes the internet to establish a new framework for interaction that is closer to its original egalitarian vision (ie No Google). Within the Web3.0/Crypto, trust is distributed among a network comprising millions of anonymous validators. Anonymity and censorship resistance are key features, enabled by consensus mechanisms like Proof-of-Work. The underlying protocol of Web 3.0 is designed to be trust-minimized.  

Stablecoins provide a much different use of distributed ledger tech (DLT) as they operate on a private ledger with a defined (ie Single entity) Issuer. In this model, trust is explicitly centralized in the Stablecoin Issuer (who also holds the KYC/AML responsibility). While the private ledger could be distributed for fault tolerance of for a tight consortium of regulated members, it is governed by the Issuing entity (the regulatory throat to choke). Stablecoins sacrifice the ideals of anonymity and censorship resistance for accountability, regulatory compliance, and legal recourse, and STABILITY (the exact features required for institutional finance).  

Historically, New technologies are always deployed first by incumbents to gain competitive advantage. For instance, programmability and smart contracts are features of stablecoin inherited from their crypto cousins.  However, few consumers or businesses today provide rules and contractual details to banks which govern the release of funds. Banks are rather a service providers that support the transfer of value, and mitigate the clearing/counterparty risk.  Today the business logic controlling the release of funds sits within systems under the control of the buyer (ie supply chain, bi-lateral agreements, point of sale, …etc). In consumer retail purchase transactions, cards provide the ubiquitous legal framework which govern the release of funds, dispute mechanisms and governance (ex chargeback thresholds). 

The rules of value exchange don’t need to be “all in” ledger, or all in traditional contracts. There are certainly opportunities for standardizing certain aspects of agreements between any two parties. However all designs require a nuanced understanding of where contractual logic should reside, a decision driven by considerations of trust, risk, and legal enforceability.

• Fully Off-Chain: All calculations and rule enforcement occur in traditional enterprise systems (e.g., an ERP or procurement platform). The blockchain is used merely as a settlement layer to record the final, unconditional payment.
• Hybrid: An off-chain event (e.g., a shipping confirmation from a logistics provider’s API) triggers an on-chain smart contract to release an escrowed payment.
• Fully On-Chain: The smart contract attempts to manage the entire lifecycle of the agreement, relying on external data feeds (oracles) to verify conditions.

On-Chain vs. Off-Chain: The Trust Trade-Off

On-Chain Logic (Smart Contracts) equates to a trust model where “Code is Law.” Trust is placed in the deterministic, immutable execution of the smart contract code. Once deployed, it cannot be easily altered, providing a strong guarantee of execution as written. This offers transparency and automation but suffers from rigidity, complexity, and the “oracle problem” a reliance on external data feeds that become centralized points of failure. It is difficult for these smart contracts to adapt to analog (ie, nuanced) real-world commercial disputes that require subjective judgment and legal interpretation.

Off-Chain Logic is today’s world where the trust model is in existing systems and government by legal agreements. Trust is placed in the counterparty and financial risk is managed across an array of data exchange (ie work in process), quality controls, inspection/testing and alternate suppliers. The contract is a governing document, and enforcement occurs through traditional dispute resolution mechanisms. This model offers flexibility and direct integration with the established systems and legal regimes.

IMHO the next 20 yrs will see the vast majority of business rules remain in off-chain systems. Businesses must to verify not only that a shipment of goods arrived but also that it meets complex, often subjective, quality specifications. This complex risk management cannot be easily encoded into a smart contract. This is not to say smart contracts won’t develop, but they will be focused in areas where existing intermediaries play today. For example

Shopify Example – Authorize and Capture Smart Contract 

The Shopify-Coinbase-Stripe partnership to enable USDC payments is a masterclass in adapting new technology to existing, trusted commercial workflows. The most significant innovation is not the use of USDC itself, but the joint development of a smart contract that mimics the two-step “authorize and capture” process familiar from credit card networks. This functionality is critical for e-commerce, as it allows merchants to authorize funds at checkout, reserve inventory, and only “capture” or finalize the charge upon shipment. This demonstrates that for mainstream adoption, the technology must bend to the needs of the business process, not the other way around. This authorize and capture adapts Stablecoin to perform at parity to card networks’ established, well-understood commercial logic. Of course consumers still need to buy a stablecoin and use it. Something that will happen in edge UCs and non OECD 20 markets.

Programmable Settlement (Vs Programmable Money)

The term “programmable money” is misleading for enterprise use cases. A more accurate concept is “programmable settlement.” “Programmable money” implies that the money itself contains the complex business logic. As outlined, it is unlikely that businesses will embed their core commercial agreements into immutable on-chain smart contracts due to their rigidity and lack of legal nuance. Instead, they will program the settlement event. The smart contract’s role is not to be the entire agreement but to function as a highly reliable, automated escrow and payment agent that acts on a trigger from a trusted, off-chain source. This is what Kinexsys and IBMs hyperledger do financial markets that require multiple intermediaries to complete a stock trade and register it (financial settlement and asset assignment). 

This choice between on-chain and off-chain logic is a direct proxy for the type of trust a transaction requires: algorithmic trust versus institutional trust. Placing logic on-chain is a bet on the infallibility of code (algorithmic trust), suitable for simple, digitally native transactions with binary conditions. Keeping logic off-chain is a reliance on the existing system of commercial law, reputation, and institutional enforcement (institutional trust). The global financial system is built entirely on the latter. Therefore, stablecoin’s programmability will only be the DRIVER OF ADOPTION when Stablecoin Issuers have a governance model that supports and integrates with existing enterprise trust processes and legal regimes.

TRUST as the Core “Feature”

The advent of stablecoins fundamentally redefines the concept of “settlement” from an inter-bank process to a peer-to-peer value transfer. This model shifts how trust is managed. For example, The Clearing House’s (TCH) CHIPS (which clears nearly $2 trillion/day) operates as bank owned consortium. Trust within TCH is managed by its Charter, Operating agreement, collateral requirements, and a long history of operational integrity. Settlement is a multi-step process involving net settlement. CHIPS is robust and highly trusted but with limited operational hours excluding non-bank participants from direct access . 

In contrast, stablecoin settlement involves no collateral requirements as each digital bearer asset was purchased, with the Issuer holding all balances centrally. When value is exchanged from from one wallet to another there is no bank intermediary. Banks are not fond of this model, as low cost liabilties would be tied up in settlement within a counterparty they don’t own or control. It also introduces counterparty risk as the holder of the stablecoin (ie bearer asset) is entirely dependent on the promise of the Stablecoin Issuer to redeem it 1:1 for the underlying fiat currency. For banks, the stablecoin model shifts the locus of trust from the bank (and the process inter-bank clearing) to the stablecoin issuer.  This explains why banks are working to create their own stablecoin, and the drivers behind the GENIUS Act’s regulation of Issuers.

Key point. Banks are best positioned to educate consumers on what stablecoins are  (and where they should be used), and also influence their adoption by the products and services they expose. For example

• Stablecoin Sweep. While pending regulation prohibits paying interest on stablecoin balances, banks can provide consumers with instant issuance and redemption of stablecoin (ie keep your balance in your savings and we will issue stablecoins on demand). 
• Card as the off ramp (ie use your card instead of stablecoins for purchases with merchants to ensure you are protected).
• Stablecoin issuenace/redemption speed. 
• Services, support, alerts, wallet integration

Wrap up

Given the constraints on programmability, what will stablecoins “do better” than cards? In eCommerce

• Cross Border
• Non-card holders (youth and unbanked)
• USD “stability” vs local fiat 
• Speed to use (but this does NOT include time to buy a stablecoin)
• Low value payments 
• ??

IMHO cards are under no threat at all. This may change IF a big consumer champion like Google, Walmart or Amazon comes to play. But even then their focus will be in areas where Cards don’t play today, with the realization that Banks are in the leading position to influence HOW CONSUMERS USE Stableoins (and when). 

Thoughts appreciated.