Stripe’s stablecoin bet is bigger than it seems

Big crypto acquisitions seem to be back, with an intriguing message.

Yesterday, it was confirmed that payments giant Stripe is buying stablecoin infrastructure provider Bridge, for $1.1 billion. There’s a lot to unpack here.

First, this is the largest crypto acquisition to date. For context, the largest crypto deal in 2023 was Ripple’s purchase of crypto custody provider Metaco for $250 million. So far this year, the largest that I’ve seen outside of Stripe’s move is Robinhood’s purchase of crypto exchange Bitstamp in June for around $200 million. These were big deals at the time, but are dwarfed by Stripe’s move.

This is also Stripe’s largest acquisition to date, in any field. It’s most advanced purchase (in terms of funding stages) was TaxJar in 2021, again for an undisclosed amount but probably in the low hundreds. Stripe itself was valued at around $70 billion earlier this year.

Second, it’s an unusually strong statement about the potential for stablecoins to become the settlement tokens of choice going forward.

It’s also an expensive one. According to Bridge’s co-founder Zach Abrams, the firm’s business grew 10x this year. But The Information estimates that the company’s annual revenue is roughly $12 million. For context, Circle is expected to IPO at around $5 billion, with estimated 2023 revenues of $1.5 billion. Does Bridge deserve a valuation 22% that of Circle’s, on a tiny fraction of the revenue? There are some big expectations embedded in that $1.1 billion Bridge price tag.

They may be well founded. Earlier this year, Stripe announced that it would?soon enable merchants to accept payments in stablecoins. This?went live a couple of weeks ago, and within the first 24 hours, users in 70 countries paid for purchases with USDC. I don’t know how much was transacted – but the geographical spread suggests significant interest. The acquisition of Bridge could not only broaden merchant services, but it could also propel Stripe into new client segments.

Bridge was founded in 2022 to facilitate the issuance and handling of stablecoins by allowing companies to use an API to mint their own fiat-backed tokens and/or to accept USD, EUR, USDC, USDT and other settlement instruments. It powers Coinbase Wallet’s stablecoin conversions, for example, it helps SpaceX manage its global treasury, and presumably the firm was behind the recent launch of Stripe’s stablecoin service. Going from startup to unicorn in just over two years is impressive. So is going from working with Stripe to having Stripe want to own you.

There’s also some strategic thinking in play. PayPal leads in terms of fintechs issuing stablecoins, yet while volumes of PYUSD have grown, the market cap is relatively low. Revolut is planning a stablecoin launch, so is Ripple, and probably several others but more quietly. Stripe now owns stablecoin infrastructure, which gives it an advantage in both cost and reach – it may even end up supporting stablecoins issued by competitors, while issuing its own in order to broaden client service while earning yield on reserves.

Meanwhile, other payment service providers will be scrambling to build or acquire their own stablecoin infrastructure.

And there’s the likely systemic impact on financial plumbing, inevitable and therefore worth early investment and participation. It’s not just about easier payments for Stripe clients; it’s also about treasury management. The relative ease with which businesses can issue fiat-backed tokens suggests that we could soon have hundreds of "stablecoins we don’t even know about. They will run behind the scenes, facilitating internal transfers of funds, essentially becoming a key part of a company’s operations rather than “just” a client-facing service.

There’s a geopolitical angle as well: stablecoins can help to solve the problem presented by the retreat of correspondent banking in areas deemed “high risk” for money laundering. The departure of foreign bank branches from a region makes it harder for local businesses to access dollars or euros with which to pay for imports, delivering an undeserved hit to legitimate businesses. Cross-border stablecoin transfers can bypass expensive bottlenecks while encouraging legitimate economic activity in areas already struggling with climate change and the cost of corruption.

A large missing piece is stablecoin regulation in the US. But the current impasse will be solved soon as it is becoming a bipartisan issue – we are likely to see a stablecoin bill passed early next year, whoever wins in November. An agreement could end up being accelerated by this acquisition, with Stripe leading the stablecoin adoption charge from in front. Put differently, Stripe’s acquisition shows that stablecoin adoption is happening, whether the regulators are on board or not. This should galvanize them into action in order to influence issuance and use while they still can.

The Stripe acquisition is meaningful and not just because of the impressive size. It is one of the loudest validations we’ve seen that stablecoins are going to transform how finance works. And the potential impact, given Bridge’s service and Stripe’s reach, could end up being the most significant change to banking seen from blockchain technology so far.

(This is an excerpt from my Crypto is Macro Now newsletter, a ~daily publication where I look at the impact of crypto on the macro landscape. If you’re not a subscriber and you’re interested in seeing beyond the stablecoin noise, I hope you’ll consider becoming one!)