How Decentralized Transactions Are Displacing Traditional Payments
Last week, I examined how legacy banking platforms are being supplanted by more modern, faster payment technologies. This week, I continue to look at how traditional transaction tools are being usurped by newer decentralized technologies.
Ripple (XRP) is Disrupting SWIFT with On-Demand Liquidity, On-Demand Liquidity (ODL):
Ripple’s ODL platform leverages XRP — a decentralized, public blockchain led by a global community of businesses and developers — as a bridge currency to facilitate near-instant cross-border payments, eliminating the need for pre-funded accounts in multiple currencies. Not only does this significantly reduce transaction times and costs, it is helping to make Ripple a leading solution for financial institutions (FIs) and SMEs. As a result, Ripple’s network now spans 80 countries and 50 currencies, positioning it as a key player in the global payments landscape.
In fact, small and medium enterprises (SMEs) in India, Mexico, and China have increasingly adopted Ripple’s solutions to improve the completion of their cross-border payments, particularly in the post-pandemic era where up to 75 percent of businesses increased their global transactions.
Stellar (XLM): Enabling Financial Inclusion
Stellar’s DEX, a decentralized trading platform built on the Stellar network, enables seamless currency conversions and low-cost transfers across borders. This makes it ideal for remittances and microtransactions, which in turn promotes financial inclusion. Stellar’s network is designed to provide access to financial services for underbanked populations in regions like Africa and Latin America, where traditional banking systems are limited.
Stellar has also formed partnerships with more mainstream global remittance companies such as MoneyGram, allowing users to convert fiat money into digital currencies and vice versa. This is critical for underbanked regions. It also enables affordable, fast cross-border remittances, particularly beneficial for developing economies. Stellar has been a platform of choice for issuing stablecoins, which are increasingly seen as a solution for bridging fiat currencies with the crypto world. The Stellar Development Foundation has worked closely with central banks and private companies to explore digital fiat solutions.
Quant: Interoperability Across Blockchains
Central bank digital currencies (CBDC) are issued by a country's central bank. In that way, they are similar to cryptocurrencies, except that their value is fixed by the issuing bank. Quant’s Overledger technology enables different blockchains to communicate with one another, ensuring interoperability across various financial systems. This helps ensure that CBDCs, stablecoins, and other decentralized platforms can operate together in a cohesive global payments ecosystem.
This interoperability is crucial for cross-border payments, allowing different financial networks to seamlessly exchange value. Quant’s solution could make it easier for central banks, FIs and private enterprises to adopt blockchain technologies without having to forfeit their legacy systems.
Hedera Hashgraph: Enterprise-Grade Decentralized Payments
Hedera Hashgraph (HBAR) is a highly scalable and highly secure public ledger designed for enterprise applications. Its unique Hashgraph consensus algorithm enables fast transaction finality with low fees, making it ideal for high-volume payment applications.
HBAR is built for enterprises looking for decentralized solutions to handle payments, tokenization, and digital asset transfers. Its governance model, which includes engagement from companies like Google and IBM, lends it credibility in the enterprise space. Hedera’s fast and low-cost transactions make it suitable for micropayments, enabling new business models such as pay-per-use services. Hedera’s governing council includes major global corporations like Google, IBM, and Boeing, positioning it as a leader in enterprise-level decentralized finance (DeFi) and payments
Finally, HBAR offers a unique value proposition for large enterprises looking for decentralized solutions without sacrificing speed and cost efficiency. Its partnerships with large corporations and its focus on enterprise-grade scalability make it a strong contender for leading the transition to a new financial infrastructure.
XDC Network: Optimizing Trade Finance
XDC is designed to streamline the tokenization of trade finance instruments, such as letters of credit, and digitize trade documents. This addresses the inefficiencies in global trade finance, providing liquidity to SMEs while potentially reducing costs.
XDC’s unique hybrid architecture combines the privacy of private blockchains with the security of public ones, making it attractive to enterprises looking to digitize their trade finance operations. The network caters to large enterprises and FIs by offering high throughput, low transaction costs, and scalable solutions. The XDC token is also used for staking, network governance, and as a liquidity mechanism.
XDC's institutional focus makes it a strong contender in the next generation of financial infrastructure, particularly in areas where traditional systems are inefficient. Its emphasis on trade finance and regulatory compliance gives it an edge in serving enterprise clients, particularly in emerging markets where trade finance is critical. XDC’s enterprise-focused approach and commitment to interoperability with existing systems make it a standout in the trade finance space. Its success will depend on further adoption by FIs and regulatory support.
Aladdin, BlackRock’s Asset Management Platform
Aladdin is a risk management and investment platform used by BlackRock to manage its assets, and it is now exploring the crypto space for future integration.
Aladdin’s use of BlackRock’s assets hints at the growing institutionalization of crypto. The ability to manage crypto assets alongside traditional ones could bring a significant competitive advantage to BlackRock. The entry of major asset management firms like BlackRock into the crypto space signals maturity and increased legitimacy for crypto in institutional finance.
The Role of Stablecoins & CBDCs in Global Payments
Stablecoins and Central Bank Digital Currencies (CBDCs) are becoming central to the evolution of the global payments system, providing a more stable bridge between fiat and crypto. Stablecoins like Tether (USDT) and U.S. DCoin (USDC) are pegged to traditional fiat currencies, such as the U.S. dollar, serving as a bridge between crypto and fiat. They are widely used in the crypto economy to settle transactions without exposing users to the volatility of cryptocurrencies such as Bitcoin or Ethereum.
Stablecoins are increasingly being used for remittances and cross-border payments due to their stability and fast settlement times. For example, a merchant in one country can receive U.S. dollar payments that are instantly converted into local fiat currency via a digital off-ramp, eliminating currency conversion fees and delays. The regulatory landscape for stablecoins is still developing. Governments are concerned about the potential risks of unregulated stablecoins to financial stability, leading to discussions around how they should be issued and governed.
Central Bank Digital Currencies (CBDCs): State-Sponsored Digital Money
Governments worldwide are exploring Central Bank Digital Currencies (CBDCs) as a way to modernize their financial systems. Countries such as China, with its Digital Yuan, and the EU, with ongoing research on a Digital Euro, are leading the way. On the upside, CBDCs can streamline cross-border payments by reducing the reliance on intermediaries, enabling direct transactions between central banks, and enhancing transparency.
However, CBDCs need to address concerns around privacy, security, and the potential displacement of commercial FIs. Governments must also collaborate internationally to ensure CBDCs are interoperable across borders.
Algorand
Algorand (ALGO) is a blockchain platform designed to solve the trilemma of decentralization, scalability and security. Its proof-of-stake consensus mechanism allows for high throughput and fast finality, making it ideal for use cases like digital payments and DeFi.
Key use cases include:
Central Bank Digital Currencies (CBDCs): Algorand has positioned itself as a platform for issuing and managing CBDCs. Several central banks are exploring or using Algorand for their digital currency experiments.
Stablecoins and Payment Gateways: Algorand’s infrastructure is also being used for issuing stablecoins and creating payment gateways that bridge crypto with traditional finance.
Algorand’s technological strengths in scalability and security, coupled with its focus on institutional use cases, particularly in the area of CBDCs, make it a leader in the future of digital financial infrastructure. Its ability to bridge DeFi with traditional finance through stablecoins and CBDCs will be key to its growth.
Global Payments: Trends & Predictions
DeFi and Traditional Finance (CeFi) Convergence: The convergence of DeFi and CeFi will create a more integrated global payments system. DeFi platforms will provide the infrastructure for faster, cheaper payments, while traditional finance will lend stability and regulatory oversight.
Regulation as a Catalyst: As governments and regulators develop clearer frameworks for cryptocurrencies, stablecoins and CBDCs, the payments ecosystem could become more standardized, increasing trust among businesses and consumers with regard to newer forms of payments.
Tokenization of Real-World Assets: Beyond stablecoins, tokenization of real-world assets such as stocks, bonds, and commodities will revolutionize payments and settlements. Blockchain can enable instant settlements of tokenized assets, helping to rescue risk while enhancing liquidity across markets.
Financial Inclusion: Platforms such as Stellar and XDC, which focus on underbanked populations and global trade, could play a pivotal role in extending financial services to regions that historically have been excluded from traditional banking systems.
Next Steps
The transition to a new financial infrastructure — one that displaces legacy banking systems — is being driven by a combination of decentralized platforms such as Ripple, XDC, and Stellar, which offer faster, more secure, and cost-efficient alternatives to traditional systems. These players, along with emerging technologies like CBDCs and stablecoins, are poised to reshape the future of payments by integrating blockchain technology into the existing financial ecosystem.
With their focus on real-world use cases, enterprise adoption, and regulatory compliance, platforms such as XDC, Ripple and Algorand may be positioned to lead the shift toward a decentralized and interoperable financial system. However, the need for regulatory clarity and technological scalability are both crucial to help ensure long-term success.
Read the first part of my overview of how modern payment methods are poised to overtake traditional cross-border payments here.
About the Author
Ash Aly is the Chief Technical Officer for Avestix Group. His background includes extensive experience as a quantum data scientist, applied machine-learning practitioner, fintech innovator, technologist, and exponential entrepreneur. He earned his degree at the University of Ottawa.
