Stablecoin-linked Cards Show The Future of Credit Cards

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Stablecoin-linked Cards Show The Future of Credit Cards

This week I gave a talk to the board of a bank about stablecoins, and while they took a lot from the session, the showstopper was buying them a coffee with a stablecoin-linked card.

Everyone leaned in. What do you need a bank for if you can store balances as stablecoins, spend them anywhere, get credit, and earn yield? The vast majority of domestic bank customers won't adopt this tomorrow. 

The genie is out of the bottle. 

That £3.50 coffee just showed them a future where banks are optional.

To understand why that coffee mattered, you need to see how the card universe is exploding beyond banks.

The Card Universe is Expanding*

Three out of these four categories barely existed a decade. Now they’re major competitors. 

The affluent segment is squarely in target.

A “stablecoin-linked” card could be issued by a centralized exchange (e.g. Coinbase), or it can be “self-custodial.” So while there’s an issuer and program manager of the card behind the scenes, no bank or central actor is managing the underlying funds.

That fourth type of card is disruptive.

(If you want to get really fancy, there’s technically no reason why a Neobank or bank couldn’t let you spend from a stablecoin balance, too, but its helpful to keep these 4 categories of product in mind, for now at least.).

What is a Self-Custodial Stablecoin-Linked Card?

Stablecoin-linked cards allow you to spend your stablecoins, like USDC or USDT, at any merchant that accepts standard payment networks like Visa or Mastercard. Pay attention to step 4.

1. Assume the customer has a stablecoin-linked card and stablecoin balance. They can get this from being paid in stablecoins (to Metamask, Phantom or similar). 

2. They go to spend in the store as normal. They could use a physical or virtual debit or credit card.

3. The point of sale sees a regular card and sends an Auth request to the Payment Service Provider (PSP)

4. The card issuer (e.g., Gnosispay, EtherFi) instantly sells the stablecoins and converts to fiat, then authorizes the transaction. 

5. This is then routed by Visa to the acquirer (merchants bank) as an approved transaction

6. The acquirer sends this to the PSP 

7. The PSP receives the auth and tells the merchant to let the user to walk out of the store with their item (payment complete)

8. Settlement then happens via normal fiat rails days later.

To the consumer and merchant, it works like any other payment via credit or debit card rails. 

What makes stablecoin-linked cards most interesting is that they’re purely wallet-based. You, the customer, are managing those stablecoins with your own private key. Self-custodial cards create a new set of economics for cards broadly. With no middleman

How Self-custodial Stablecoin-linked Cards Work

Bringing the ultra-wealthy playbook to the mass market.

Imagine if you could link your Visa card directly to a personal safe you keep at home (that only you have the key to), and it still worked at every checkout. Your money never sits with a "bank" or a "Coinbase." It sits in your own smart contract wallet on the blockchain.

How it works:

• You load this high-tech "safe" (your wallet) with a stablecoin, like EURe (a Euro on the blockchain).

• When you tap your card to buy a coffee, Ether Fi instantly builds a bridge between your personal wallet and the Visa network.

• It pays the merchant in normal Euros (fiat) and subtracts the equivalent EURe from your safe.

There are plenty of examples like Etherfi, GnosisPay, Thorchain, Pyra, and countless others. They all have slightly different pricing, blockchain preferences and perks, but Etherfi works well as the explainer.

Ether.fi: The "Borrow vs. Spend" Mode

Ether Fi is wild. It links to your ether.fi crypto portfolio (imagine a card linked to your Robinhood account as a metaphor). You park your stablecoins and other crypto at an ether.fi vault, and in return, it gives you yield at around 10% and lets you borrow against that collateral for 4%. 

The card is the really clever bit. It offers two modes:

• Direct Pay Mode: You spend your stablecoin (USDC) balance directly. Simple.

• Borrow Mode: This is the key. You use your entire portfolio (weETH, eBTC, etc.) as collateral. You borrow fiat against it (at a 4% APY) to spend. You never sell your underlying asset, don't trigger a tax event, and keep your staking/restaking rewards.

Vaults are a critical concept to understand. They’re a place to lock your collateral (like a bank vault), and they allow you to earn yield by lending your assets into protocols like Morpho, Aave or Centrifuge. So that 10% is coming from your funds being borrowed by others and paying back with interest.

Why these cards matter: Ether Fi is a wealth management tool disguised as a credit card. It's built for the DeFi native but why can’t everyone have this? Well, most people aren’t so risk-on that they’d be happy parking their net worth in a DeFi protocol to get 10% APY. But the idea is an interesting one. Wouldn’t collateralized credit cards with yield / borrow dynamics be a killer app if they were mainstream?

Possible downsides? 

• The "Be Your Own Bank" Problem: "Self-custody" is a double-edged sword. If you lose your password (your "private key"), there is no 1-800 number. There's no "Forgot Password" link. Your money is gone. Forever. That's a terrifying prospect for a normal user.

• Complexity & Fees: While it's getting simpler, using it still means interacting with a blockchain. This can involve "gas fees" (network transaction fees) that are unfamiliar and feel alien compared to a free debit card.

• Volatile collateral: What happens if your crypto portfolio drops massively? The protocol will automatically sell to pay back your loan. Ouch.

• Capital at risk: Not every customer is willing to take on the risk of having 10% or more of their net worth in crypto for this to be truly beneficial. 

• Yields might not last forever: Also that 10% APY on collateral is the value you get today in crypto, but if markets are down that could suffer too.

Bringing the ultra-wealthy lifestyle to the mass affluent.

It’s now generally accepted that stablecoins have product-market fit for the global south, where hyperinflation is rampant. But the vast majority of people I interact with are underestimating the probability of adoption by the domestic, mass affluent audience.

For the consumer in the global south a stablecoin-linked card is freedom. 

If you don’t have a regular credit or debit card this means no ChatGPT, AWS or Netflix. For consumers and growth businesses outside the G20, the stablecoin-linked card is a huge breakthrough. 

Bringing the high-net-worth lifestyle to mass affluent.

Wealthy people rarely sell assets. They borrow against them. This avoids having a taxation event, and often the asset growth more than offsets the cost of financing the debt. Stablecoin-linked cards bring this to the mass market.

For the crypto rich consumer, its a bank alternative.

For the crypto-rich, this is the self-sovereign Amex Black Card. It's a capital-efficient tool that says "I can access my wealth anywhere, on my terms, without asking a bank.

It's the ultimate "Have your cake and eat it too" product: get 8% DeFi yield on your assets and spend against it at the grocery store. It turns your self-custodial wallet into a high-yield checking account.

Should We Ditch Neobanking and Build Stablecoin-Linked Cards Instead?

Not so fast. I see a few systemic challenges these products will have to overcome.

The vast majority of a company or consumer’s life is off-chain today. The complexity and risk of going fully onchain is meaningful.

There’s a UX challenge. The bridge from "crypto-native" (managing gas, wallet permissions) to "consumer-simple" (just tap to pay) is still a rickety rope bridge. You have to really persist with any of these products (with the notable exception of Pyra) just to get it up and running. You need stablecoins, but moving a balance into those wallets on the correct chain is just frustrating.

The only up cards? These cards all thrive in a bull market, when the regulator in the US is pro-crypto. But remember Celsius? A product that offered incredible rewards, but when markets crashed it went bankrupt. Those rewards vanished and so did much of users' savings. In DeFi, there’s no bankruptcy court; when this happens, you just get liquidated. 

The Responsibility Gap: What happens if these products gain popularity and start going bankrupt or liquidating mainstream consumers? 

There’s a cold start problem for most self custodial cards today. You need to fund the underlying DeFi protocols and vaults. In addition you then need a new app, a new wallet, a new KYC process. 

I think two things will happen

1. These cards, and their underlying protocols will come to Fintech

2. The “on/off ramp” will become invisible in the process

Not everyone is ready to go fully onchain. 

Fintech at the Front, Onchain at the Back.

The “convert to fiat” step from our diagram earlier of how stablecoin-backed cards work is just a point in time. Over the next deade more and more assets will go onchain.

You’ll see that several ways.

• Onchain yield and borrow will come to fintech apps and wallets through vaults

• Onchain native wallets will be tomorrow’s biggest fintech companies

• Stablecoins will on/off ramp invisibly in most apps 

• And instant settlement will become the killer app for stablecoins.

Vaults are how onchain lending can come to any fintech or banking app: 

Look at Morpho** Vaults as one example Morpho is an on-chain, decentralized lending protocol. It’s “vaults” products simplify onchain yield. As a user deposit your money (say, USDC) into the vault, and it automatically manages the lending for you to get the best, risk-adjusted yield.

Coinbase now offers Bitcoin-backed loans to its normal users. But when a user clicks "Borrow," Coinbase doesn't lend them its own money. nstead, in the background, Coinbase takes the user's Bitcoin, sends it to the on-chain Morpho protocol as collateral, and gets a USDC loan from the protocol on the user's behalf. The user never sees "Morpho," gas fees, or a crypto wallet. They just see a simple "Borrow" button in their trusted Coinbase app.

(Side note, I think these vaults are a much bigger deal than P2P lending because they’re so much more efficient, the initial yields are higher, and so much easier to distribute. They are in a way, the epitome of embedded finance).

If you were building a fintech company today, would you build onchain, or on fiat rails? 

Given the current regulatory environment its hard to see why you’d build offchain. My canonical example here is Sling Money. Founded by the former CPO of the Neobank Monzo, they could have used any technology. But to build the global venmo, you really want something better suited to cross-border. 

When Mike (the founder) told me why, he said 

1. Onchain payments are now generally fast enough to use day to day

2. They outsource 70% of the complexity of building ledgers and reconciliation 

If you’ve ever built a financial services product, then, yes. Reconciliation is at least half of the job. It’s hard. It’s full of edge cases. Onchain? It might not be perfect in some other ways, but its faster and cheaper to get to market.

As apps bake onchain finance in, the “ramps” between onchain and off-chain disappear. 

Today, getting from USD stablecoins to USD fiat comes with anywhere up to a 2% fee in consumer platforms. That’s wildly inefficient. For all the supposed “cost savings” of stablecoins, if you have to pay just to get in and out, that’s a big issue. That’s changing fast.

Revolut just announced direct 1:1 stablecoin-to-USD conversion with zero spread. They also announced zero-fee staking (with yields up to 22%). This is a Fintech app with 65m customers.

We’ll begin to see “instant settlement” become the killer app. Today’s hacky model of instantly swapping stablecoins to fiat to complete settlement will go away, as more merchants and banks begin to accept stablecoins directly. Stablecoins will convert for tokenized deposits, which can settle with central banks. 

When the card networks, acquiring banks, and card issuers start doing that more regularly, the time gap between “swiping the card” and the merchant getting paid compresses to 0. Today, companies fake this gap by charging merchants 1% or 2% to get paid early. That will go away. 

It’s already starting.

When Revolut makes stablecoins available to 65m customers for zero fee, then you should pay attention.

Cards like Ether Fi or Pyra are early signs of where things could go. 

When a vault comes to every Fintech App, the nonbanks can offer their customers

• Borrow from DeFi markets for 4 to 22% APY (depending on duration)

• Lend to DeFi markets and earn yield for between 7 and 12%

These Fintech companies monetize some of the spread and profit along the way. But in doing so, they’re not doing balance sheet lending.

This is private credit but distributed onchain, and it’s a new revenue model for everyone in finance. 

Over the long term, this won’t kill balance sheet lending-based credit cards entirely, but it does create a compelling platform for private credit-based lenders (think BNPL and Fintech) or any bank that wants to drive revenue without taking on additional balance sheet exposure.

Vaults, as a concept, apply to much more than cards. 

They could work for any kind of lending, but once you see one of these cards in action, it’s hard to unsee it.

And if your job is to find new ways to drive revenue and serve customers. You should absolutely pay attention to how these cards evolve and how you could serve your customers with them.

That coffee I bought the bank board? I think they saw their future. And they knew it.

ST.

* Georges Lemaître’s Big Bang theory comes to cards too

** Competitors like Centrifuge, Veda and Aave are building similar products.

4 Fintech Companies 💸

1. Pierre - The AI that moves your money

AI will build plans around your spending habits to move money to places where it has the maximum impact for your finances. For example, paying off a student loan. Its auto routing feature helps analyze where saving vs paying off debt vs investing will make the maximum difference in your long-term plan.

🧠Is this a glow-up for PFM, or finally self-driving money? We’ll have to see when it launches. Maybe I’m just battle-scarred by seeing so many of these. But I sense that until AI agents have good memory and secure access to your data, they’re going to be very limited.

2. Temple - Privacy Preserving Capital Markets on Canton

Temple is a digital asset exchange designed for institutional grade trading. It features a support for non-custodial wallets, instant transactions (swaps), and flexible permissioning for KYC/AML. 

🧠You may not have heard of Canton, but I guarantee your bank has. Canton is the network incubated by Digital Asset. While it was born in TradFi, it has focussed heavily on privacy, it has a native token, and now, it has a non-custodial exchange. It’s very different to the EVM ecosystem, but it excels at the institutional GTM. If Temple can do the same, you could be looking at the next NASDAQ.

3. Crown - The Brazilian Real Stablecoin

BRLV is backed by Brazilian central bank bonds to maintain 1:1 stability to the BRL fiat currency. They’re aiming at institutions who want treasury management and FX and tokenized settlement. It claims to be “structured in alignment with coming central banking regulations” and tax compliant domestically. 

🧠Brazilian government debt has higher yields, but the currency has higher volatility. That can be a bug or a feature depending how you look at it. But by bringing that onchain, traders and fintech companies can access it directly. There isn’t yet an at-scale BRL stablecoin, despite it being a major market for stablecoins generally. By swapping from say, USDC to BRLV, you’d be able to manage FX onchain, and redeem those stablecoins with an increasing array of banks and fintech companies. 24/7, instant, cross border is becoming a reality.

4. Hyperlayer - Modular building blocks for Bank Modernization

Hyperlayer helps banks launch new products faster by placing an orchestration layer and modular building blocks above the existing banking core. They have pre-built “solutions” for conversational banking, embedded finance, SME FX, wealth management and merchant brands.

🧠Hyperlayer has a bank client, can they get more? These companies live or die by their ability to get a first client. Some can be lost in the wind for a decade or more trying to achieve that, only signing smaller, foreign banks. Hyperlayer seems past that already. Every bank has tried to build this themselves internally, by externalizing the development, banks get the benefit of time to market. This product has in market competitors like Backbase and FinOS

Things to know 👀

1. Fed Governor Waller Discusses “Skinny Master Account” for non banks

Governor Waller of the Federal Reserve directs its staff to explore a “payment account” AKA “a skinny master account.” For the US this is a major shift. Access to "Master Accounts" has been tightly guarded and is only available to chartered banks. The Federal Reserve has a three-tiered system for evaluating master account access, with the level of scrutiny increasing with each tier. 

• Tier 1 includes federally insured institutions, which receive the most streamlined review. 

• Tier 2 includes non-federally insured but prudentially supervised institutions, subject to an intermediate review. 

• Tier 3 includes non-federally insured institutions that are not otherwise subject to federal prudential supervision and receive the strictest level of review. 

The result of this tiered system was that nonbanks were at the back of the line and unable to access payment systems directly. 

🧠 This "payment account" is a new approach for the Fed but common elsewhere. Europe and Latin America have payments licences (EMI or PI license.) While the Fed would not create such a license, it would disrupt the banking space by potentially allowing fintechs to have direct access. (The UK was the first to give nonbanks access in 2017).

🧠 The biggest beneficiary will likely be Fintech companies and those in the stablecoin space. Direct access eliminates intermediary fees from other banks, which can lead to substantial operational cost savings. They’re also potentially faster settlement (not reliant on bank cut off times), 

🧠 For stablecoin companies with a charter (e.g. if Circle and Paxos get charters), they’d also be insulated from “debanking.” When SVB and Silvergate failed the entire Fintech and stablecoin ecosystem had to scramble to find new bank partners to ensure they could continue to make payments and stay in business. Direct access limits this single point of failure risk.

🧠 These accounts would NOT pay interest. Unlike full master account access, the payment account would not be remunerated. This has several implications.

1. For the Fed it means attracting funding without having to pay out.

2. It might get some nonbanks to consider the full federally insured bank charter route instead of the lower tiers given the cost and complexity involved. 

3. However nonbanks like Wise have made this work elsewhere (like the UK, Singapore and Australia) and at their scale its still worth it.

2. Trump Pardon’s Binance Founder CZ.

From CNBC: Zhao, who is widely known as CZ, had pleaded guilty in 2023 to enabling money laundering while CEO of the huge cryptocurrency exchange. Zhao’s plea was part of a $4.3 billion settlement Binance reached with the DOJ in 2023. Sen. Elizabeth Warren, a Massachusetts Democrat, blasted the pardon, calling it an example of “corruption.”

🧠Binance is still, by far, the worlds largest crypto exchange. It’s better that they have a path to the light, than to push them underground. As big as Coinbase is, Binance is a global juggernaut. If you believe its reported volumes its nearly 10x larger for crypto trades. It’s used in far more markets. Bringing it under the full regulatory scrutiny of the US is good.

🧠This happened as we’re in the thick of a crypto market structure bill. The politics aside, we need clear regulation. Elizabeth Warren appears to be capitalizing on the pardon as a reason not to do the CLARITY Act. But the act brings consumer protections, AML rules for exchanges and opens the way for bank custody.

🧠Two things can be true. Pardon’s following investment is bad. But so are SuperPACs, and the lack of jail sentences post-financial crisis. And frustratingly, this is all distracts us from the real issue. The lack of adequate regulation in crypto which we sorely need.

If you are following politics, this thread is exceptional.

Good Reads 📚

1. Claude Skills are awesome - Maybe a bigger deal than MCP

Claude's skills are folders on your device, filled with prompts that help Claude become better at specific tasks. Crucially, they’re only called when needed, so the “Excel” skill isn’t using up your context window, or clouding your output if not needed. Previously, Claude had to read everything in your project or tool, but by being able to read a “skill description,” the skill becomes MUCH more token-efficient. Critical for developers with high API fees. The catch? It needs local file system access.

🧠Skill files remind me of cookies on the internet. A tiny text file that is left on the device, useful for when you next want to do something with the LLM.

🧠Imagine skills relevant to your context: “How to research fintech data” or “how to understand payments infrastructure.” With those skills the responses from an LLM suddenly get way better.

🧠Immediately folks are trying to build marketplaces. That’s a logical first-order step, but with MCP, it never really found a single center. But I suspect ,like the prompt sharing creators that popped up, we’ll get skills sharers (e.g,. ‘if you reply with “Skills” I’ll send you my playbook’ style grift)

🧠 Does this mean future of LLMs is an app paradigm? If you’re on device as an app you can have access to the trusted execution environment (TEE), and manage local files. 

Tweets of the week 🕊

That's all, folks. 👋

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(1) All content and views expressed here are the authors' personal opinions and do not reflect the views of any of their employers or employees.

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