If you have heard the term “stablecoin” and wondered whether it’s just another crypto craze, you are not alone.
In recent conversations with banks and other financial institutions, we have sensed a clear hesitation, at times bordering on apprehension about dealing with stablecoins.
This series aims to demystify stablecoins: what they are (and aren’t), how they work and where they can add real value. We will keep it practical and grounded in the realities of financial services and legal frameworks.
This first instalment in our stablecoins series sets the scene, cutting through the jargon to explain what stablecoins are, how they’re being adopted as a means of payment, who’s using them and why this matters specifically for banks, before we dive into regulatory and prudential questions in the next piece.
If you are curious about how stablecoins could reshape conventional payment methods but understandably cautious, you are exactly who we had in mind. Welcome aboard.
Generally accepted definition of a stablecoin
A stablecoin is generally defined as a cryptographic token issued on a distributed ledger that seeks to maintain a stable exchange value relative to a specified “reference asset” (for example, the US dollar), typically via an explicit stabilisation mechanism.
The Mauritian take on stablecoins
In Mauritius, the Bank of Mauritius (BOM) has adopted this approach in its guidelines, defining a stablecoin as a virtual asset that aims to maintain a stable value relative to a specified asset, or a pool or basket of assets. This guideline has to be followed by banks involved in activities related to virtual assets.
You’ll notice that the guideline adopted by the BOM defines a stablecoin as a type of virtual asset. We won’t bore you with the full legal definition from the Virtual Asset and Initial Token Offering Services Act 2021 (VAITOS), but generally speaking, a virtual asset is simply a digital form of value that you can trade, transfer, or use for payments and investments.
So, in short, the BOM treats stablecoins as a specific category of virtual asset, one that aims to avoid the wild price swings we often see with other virtual assets, while still being usable for everyday payments and investments.
Keep reading, we make it simpler…
What exactly is a stablecoin?
Think of a stablecoin as a digital coin that lives on a blockchain but is anchored to something from the real world, often cash or short-term government bonds (i.e. the reference asset), held in what’s known as a “reserve”. Because its value is tied to that reference asset, the price stays steady rather than fluctuating like other cryptocurrencies. That’s why stablecoins such as USDC or USDT are “pegged” to the US dollar: each coin is designed to be worth exactly one dollar.
Time for a trip to the casino (for educational purposes only)
A useful analogy to understand stablecoin is the coins one may buy at a casino. You hand over cash, receive chips of equal face value and then use those chips at the slot machines or tables; when you are done, you “redeem” them back for cash at par.
There are other types of stablecoins such as algorithmic stablecoins which we will not consider in this article since they have largely fallen out of favour.
The bigger picture
To give you an idea of their magnitude, let us see recent developments in the stablecoin sphere across the world
Why did stablecoins become so popular?
To understand why we are seeing see a surge in the use of stablecoins, we must consider why crypto assets like Bitcoins failed as a means of payment. The concept of Bitcoins was meant to democratise finance by giving everyone easy access to a new way of transferring money. In essence, it set out to end the monopoly of banks on how money moves.
In practice, though, it never quite became the everyday money it aspired to be. Price volatility, its rather slow speed and its costly transactions, made Bitcoins inadequate for routine payments.
Accordingly, stablecoins emerged as a more reliable medium of exchange.
How did they get so popular?
Put succinctly, stablecoins blend the best bits of cash, bank transfers, and card networks while fixing long-standing problems in payments. In a gist, they can be transferred 24/7 across borders, they settle near-instantly, and are programmable. In short, they are boring on price but brilliant on utility.
What make stablecoins so different:
How stablecoins could displace banks
The word “displace” can sound dramatic. In reality, disruption of a system that exist since ages usually starts at the edges. This includes the tardiness and high-cost parts of banking that customers tolerate but don’t love.
Correspondent banking is a maze of intermediaries, cut-off times and opaque FX spreads. We promised to keep this reader-friendly, so what exactly is a correspondent bank? In a gist, it is a bank that provides services to another bank so cross-border payments can move from one financial system to another. In practice, your bank relies on one or more correspondent banks (and their partners) to reach the recipient’s bank in another country, which is why the chain can be long, slow, and costly.
Stablecoins compress that chain to a couple of wallets and, where needed, a regulated on/off-ramp. When we say “on/off-ramp”, we mean the regulated bridge that lets you turn pounds or dollars into stablecoins (on-ramp) and then convert them back/redeem into bank money (off-ramp)-typically via a licensed exchange, payment institution, or bank.
For remittances, that can mean minutes instead of days, and minimum costs instead of their high percentage fees.
What we’re seeing on the ground
Banks will feel this change first in two places: funding and fees. If everyday balances move into stablecoins, banks lose cheap deposits and earn less from payments and FX. There’s also a tech gap: real-time, programmable money is hard to deliver on old core systems and upgrades take time and money.
From our vantage point at PwC Legal, we have seen a steady stream of payment intermediary service providers approach us to design and document stablecoin-based flows between users and merchants-typically to accelerate settlement.
Collectively they start to re-route value away from bank rails.
Time to adapt, not despair
This is not a call to abandon fiat currency and payment through usual means, it is a call to make it competitive.
Banks may start by building on the new rails, offer safe custody, simple wallets and stablecoin payments. If banks start building on these rails, the impact could be faster settlement, lower cross-border costs and a cleaner customer experience, with less reliance on long correspondent chains. It also unlocks new revenue (payments, custody, FX) and can pull flows back onto bank-grade infrastructure as banks become the trusted on/off-ramp. That said, it raises operational and prudential demands such as wallet security, reserve assurance, AML/CTF controls and 24/7 liquidity and collateral management. So early movers will need tight governance and clear regulatory alignment.
Next, banks could consider turning deposits into tokens that can move on public chains (directly or through trusted bridges). That keeps the customer relationship with the bank, while adding near-instant settlement.
Then banks could modernise their maze. They may consider moving collateral, escrow and securities to platforms that support T+0 settlement with compliance built in.
The bottom line…
Stablecoins are moving money from a bank-centred world to an always-on, programmable network. That makes payments faster, cheaper and smarter. Our message to bank leaders is simple: experiment, partner and build on these rails now, while the field is still forming.
… and in Mauritius…
Whilst asking banks to adopt stablecoins, we are aware that stablecoins have existed on the periphery of the mainstream financial system in Mauritius, largely due to a lack of a comprehensive regulatory framework. Adopting stablecoins at scale only works with robust regulation.
The favoured approach
Regulations should aim to address issues such as reserve assets and its audit, disclosures and redemption rights, amongst other things. In our next article, we outline the regulatory essentials and how a pragmatic framework could look for Mauritius.
Article by:
Priyanka Dwarka
Manager, PwC Legal
Tel: +230 404 5405
Email: dwarka.priyanka@pwclegal.mu