What happens if you use a hybrid USDC-USDT cross-border payment routing model vs a single-coin solution? At
What happens if you use a hybrid USDC-USDT cross-border payment routing model vs a single-coin solution? At Almond FinTech, we put it to the test. The result: you win - by a considerable margin.
Testing: We executed equally sized concurrent settlements via multiple bridge currencies several times an hour, 24hrs a day, for 21 straight days, in multiple corridors from the US to APAC and LATAM.
Results: Fiat-to-fiat FX rate performance relative to mid-market for USDC and USDT, used together, outperformed what either coin could achieve alone by an average 0.67% in one corridor, and up to an impressive 6.22% in another. The proportionality of instances in which each coin was preferred differed by corridor, with evident temporal patterns affecting each (times of day, weekend vs weekdays).
Implication: Applying routing optimization leveraging multiple stablecoins maximizes value through greater cost efficiency, while concurrently reducing risks by virtue of the added optionality, redundancy, and collectivity liquidity.
Feasibility: The value-add of stablecoins in cross-border payments is evident. Speed and reliability are common advantages (we averaged ~5min to complete settlements for both coins). However, as with any currency pair, FX rates vary when off-ramping into a destination country fiat currency. The relative strength of one stablecoin over another likewise changes by the minute as market conditions evolve, liquidity changes, and forward FX premiums appear and disappear. Example: With similar conditions and controls, for US>Mexico, USDT sustained predominantly superior rates until 20:00 GMT after which USDC prevailed on average, while at a granular level each coin still achieved an optimal FX rate in multiple instances during both periods.
Future Work: Additional tests beyond the original scope confirmed rates continue to improve as more bridge currencies are made available for routing. For example, in the attached results from one of the corridors, USDC-USDT optimization resulted in a <1bp improvement over USDT alone. When adding ETH to the engine’s routing optionality, we achieved another 7.7bps improvement. This was not intuitive given a relatively small number of instances in which ETH beat the USDC or USDT FX rate, and the fact that ETH in isolation did not fare well on average. However, this was due to larger fluctuations in ETH above and below market. Selecting ETH when resting with predictive accuracy at a favorable rate meant capturing much larger forward FX premiums, adding significant value as it hauled the collective average.
About the Author
Adam Swartzbaugh is the Chief Executive Officer of Almond FinTech. Adam aims to accelerate equitable access to financial services globally through technological innovation. Adam holds advanced degrees in economics, policy, and technological innovation from MIT, Harvard, and Brown. Before co-founding Almond, Adam held strategy and operations management positions in corporate, governmental, and nongovernmental organizations across Asia, Europe, and the Americas. Adam is a frequent speaker at fintech events globally.
For more information visit almondfintech.com
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