Why Stablecoins Can't Serve as Credit Despite Being Transferable and Store of Value?

The lack of credit infrastructure is the biggest shortcoming of digital financial inclusion.

Written by: Prathik Desai, Ana Ojeda

Compiled by: Saoirse, Foresight News

A currency with insufficient liquidity is no different from a souvenir. Electricity stored in the grid has no value if it cannot be transmitted and circulated.

Whenever I study various new forms of currency created by humanity, the first question I often ponder is: Does it have sufficient liquidity to fulfill the basic functions of money? Money must have the ability to store value, generate returns, and be freely transferable for value exchange.

Whether it’s the US dollar or stablecoins, simply lying in a bank account does not benefit the masses. If liquidity is disconnected from actual application scenarios, it inherently carries an exclusionary attribute, contradicting the fundamental purpose of money.

Liquidity is a core element for a currency to achieve widespread adoption, and credit is an excellent tool for promoting currency circulation. Credit to currency is like transmission lines to electricity. The reason the US dollar can become what it is today is that it is backed by a complete credit system—banks, underwriting institutions, and various guarantee mechanisms that allocate idle liquidity to market entities capable of creating value.

Stablecoins have solved the problem of fund transfer, but they are still not a complete form of currency.

We have achieved faster settlements, lower-cost cross-border payments, dollar-denominated accounts, crypto cards, and increasingly improved fiat deposit and withdrawal channels. These achievements are significant, especially in emerging markets, where access to stable currency can transform the financial lives of ordinary people.

However, we have mostly only addressed the issue of how funds circulate, without solving who can access capital.

A worker can now receive part of their salary in USDC; merchants can accept payments in stablecoins; small businesses can convert reserves into dollars to avoid the erosion of their local currency. But next, merchants need funds to procure inventory, workers need money to deal with emergencies, and businesses need operational funds for a thirty-day cycle.

At this point, the so-called new financial system often provides only one answer: to put up collateral worth more than the loan amount.

While over-collateralized liquidity is efficient, it does not equate to financial inclusion.

I come from Venezuela, so I never view stablecoins as abstract crypto products. To me, they are tools to resist currency devaluation, channels to access dollars, and means for individuals and businesses to operate when traditional financial services are lacking.

But risk aversion and value preservation are only part of finance. People need not only a place to store funds but also to receive payments, transfer money, and earn returns; sometimes they need to borrow against future income rather than just relying on existing wealth.

My core argument is: For stablecoins to unleash their full potential in emerging markets, they must connect to a reliable credit layer. This system integrates productive accounts, local risk control credit, compliant lending, business operation data, guarantee mechanisms, and institutional capital.

Over-Collateralized Lending Solves Issues Within the Crypto Industry

Over-collateralized lending is a reasonable product of the environment in which DeFi was born.

Open protocols cannot automatically know the identity, income, employment, or repayment history of borrowers, nor can they ensure legal recourse. Requiring liquidity collateral allows lending activities to operate outside traditional credit relationships.

This model is very friendly to traders, market makers, and fund managers, characterized by transparency, automation, and high efficiency.

But a person with only $0 who urgently needs to borrow $100 cannot put up $150 as collateral. Small merchants needing operational funds cannot lock in more liquidity than what they need to procure inventory. It is precisely those who need credit the most who cannot provide excess collateral.

True credit is far more complex than an automatic liquidation engine. It requires careful judgment of the borrower’s repayment ability and willingness.

Judgment criteria can include salary flows, merchant sales, continuous cash flow, employment records, transaction behavior, past repayment records, invoices, and business relationships. It also requires post-loan management, debt collection, consumer protection, and entities capable of bearing the losses from judgment errors.

Blockchain can make credit infrastructure more transparent and efficient, but it cannot eliminate credit risk.

This is the core shortcoming of the current stablecoin economy: we have created global liquidity but have not established a sufficiently mature system to allocate liquidity to individuals and businesses that truly need funds.

The good news is that various components of this system are gradually emerging.

Cashea: Credit Based on Local Behavior

Cashea in Venezuela is a highly valuable reference case.

Cashea is not a crypto lending protocol and does not provide unlimited cash loans. It offers consumer credit limits, allowing users to spend within a network of partner merchants, paying part upfront and the remainder in installments.

The value of this model lies not in the “buy now, pay later” format but in the data information generated from commercial relationships.

Cashea can track user consumption scenarios, repayment compliance, and behavioral changes. Timely compliance can enhance the consumption limit; the merchant network ensures that every lending decision corresponds to real economic purposes.

For local credit assessments, such information is often more meaningful than “the wallet temporarily holds tokens worth 150% of the loan.”

Cashea proves that even without a complete credit bureau and banking services, credit can be built on real commercial behavior. The merchant network is not just a customer acquisition channel; it is part of the credit system itself.

This model cannot be directly replicated in all countries, as credit business is highly localized. But its underlying logic is worth noting: credit assessments in emerging markets should rely more on real economic behavior rather than solely on crypto asset collateral.

The next challenge is to connect this local data with compliant lending institutions to leverage larger-scale capital.

Portola: Distributing Credit Without Turning Every Wallet into a Bank

This is also why Portola’s product attracts me the most.

I recently spoke with the founder of Portola, who is addressing the most challenging question in embedded finance: If a wallet or fintech platform wants to provide credit services, must it transform into a bank?

Portola connects various platforms with licensed lending institutions while preserving the original user experience of the platform. Licensed lending institutions are responsible for credit review, funding, and bearing credit risk; Portola manages the entire loan application, product display, compliance, settlement, and post-loan infrastructure.

Separation of rights and responsibilities is crucial.

Users with credit needs do not need the wallet to obtain a lending license; fintech companies also do not need to build a complete system for loan initiation, collection, and post-loan management from scratch. Meanwhile, simply embedding a lending button does not erase compliance responsibilities and bad debt risks.

Portola’s current structure cannot fully adapt to small loans in emerging markets. Local markets may require alternative data sources, domestic lending entities, local consumer credit licenses, and entirely different collection processes.

But it provides an enlightening idea: maintaining an embedded user experience while clearly delineating the responsibilities of credit, compliance, capital, and bad debt losses.

The next step is to connect this structure with rich local characteristic data. Salary records, merchant revenues, regular payment flows, and transaction behaviors can help licensed institutions assess borrowers without traditional credit files.

Cashea demonstrates how local credit data is generated; Portola shows how this data connects with compliant lending capabilities.

Flex: Credit Embedded in the Entire Business Process

In the corporate context, the same logic manifests in different forms.

Businesses do not view payment, fund management, accounting, and credit as separate issues; they are a coherent set of operational problems.

Currently, revenue arrives, and salaries must be paid the next day; payments to overseas suppliers are needed; inventory must be prepared before the next sales round; invoices will be paid thirty days later, but businesses need liquidity now.

This is why Flex is worth paying attention to. Flex integrates corporate banking services, stablecoins, payments, corporate cards, and private credit products into the same financial environment. Financing products include operational funds, revenue-sharing financing, corporate credit limits, accounts payable, and accounts receivable financing.

Revenue, supplier payments, receivables, and expenditures are all consolidated on the same platform, allowing financing services to be tied to the real operational status of the business.

The platform no longer requires businesses to submit static material reports but understands the timing and flow of cash flow. For businesses whose operational situations do not fit traditional loan application templates, this information is extremely valuable.

Flex is not a small loan platform aimed at emerging markets; its product offerings are limited by region and access conditions. However, it outlines the future product form: financing functions embedded in business financial operations rather than as an isolated loan product.

Stablecoins make this model more practical for multinational businesses. Companies receive payments in location A, pay suppliers in location B, and disburse salaries in location C. Stablecoin settlements reduce friction in fund transfers, and embedded credit fills the funding gaps between various stages.

Portola demonstrates how platforms connect with lending institutions; Flex shows how credit deeply integrates into real business operations.

Cap: Separating Borrowers from Risk Capital Providers

When borrowers cannot provide sufficient personal collateral, who should bear the bad debt risk? Cap’s design offers a solution.

The Cap system divides into depositors, borrowers, and external underwriters. It no longer requires borrowers to provide full collateral; third-party entities can provide risk protection and earn risk premiums.

For example, Flow Traders obtains stablecoin credit through Cap, while holders of Lombard BTC provide risk protection.

This belongs to institutional credit, not small financial inclusion in emerging markets. But the structural idea is very enlightening: borrowers and risk capital providers do not have to be the same party.

In the context of emerging markets, similar guarantee layers can be provided by local financial institutions, insurance agencies, development finance organizations, employers, merchant alliances, and specialized first-loss funds.

Merchant alliances can guarantee certain credit portfolios, as financing can drive overall sales; employers can support salary advance products; institutional investors can fund first-loss pools, relying on transparent trading data to obtain risk-adjusted returns.

This does not eliminate collateral; there must always be a party to assume credit risk. The goal is to transfer the obligation of providing risk protection from ordinary borrowers to professional institutions that have the capacity for risk assessment and absorption. Cap's architecture demonstrates how this separation model can be implemented.

Blend: Enabling Productive Underlying Accounts

In this emerging financial system, Blend plays a key infrastructural role, focusing on productive accounts and capital access capabilities.

For fintech platforms, payroll service tools, crypto wallets, and digital banks, a complete savings and credit service cannot be realized without underlying foundational capabilities: user fund isolation, permission management, audit traceability, and integration channels for accounts and various financial strategies.

Blend provides non-custodial independent user accounts, allowing various platforms to offer controllable stablecoin yield services and institutional-grade financial products under their own brand.

The platform does not aim to replace local lending entities. Loan approval authority in regions like Brazil, Mexico, and Venezuela remains with licensed institutions familiar with the local market. Blend's core value lies in creating a productive, manageable, and cross-system interactive underlying account base.

Industry practices show that yield capability is merely the most basic productive function of digital financial accounts, far from being the endpoint of development.

Stablecoin balances should not remain idle while waiting for consumption. Accounts should generate reasonable returns while ensuring that funds are available for payment at any time, thereby extending a complete financial service chain.

This chain can cover payroll disbursement, merchant payments, and fund management; once credit and lending infrastructure mature, it can further enhance credit capabilities.

Blend does not need to replicate the businesses of Cashea, Portola, Flex, or Cap. The greater industry opportunity lies in enabling interoperability between different specialized modules.

The next generation of financial systems will not be dominated by a single company handling all aspects of accounts, payments, credit, guarantees, collections, and capital allocation. A more feasible model is to integrate high-quality infrastructures from various fields to deliver a unified user experience and smooth processes in financial products.

How Modules Collaborate

By piecing together the above components, the contours of future products become clear.

Users receive salaries or business revenues through stablecoin accounts; the same account completes payments to merchants, suppliers, employees, and contractors. Funds that are temporarily unused earn reasonable returns instead of remaining idle.

Over time, the account accumulates a financial history composed of income, transactions, business interactions, and repayment behaviors. Local credit systems read this information and connect with licensed lending institutions. The guarantor or first-loss pool covers the portion of risk that borrowers cannot collateralize, and repayment arrangements align with future cash flows.

On the enterprise side, the same account receives customer payments, disburses salaries, processes supplier invoices, manages cash reserves, and obtains operating capital based on actual business performance.

Users do not need to understand which institution provides the account, which entity lends, who provides guarantees, or who executes settlements.

Users only need to experience a coherent and complete financial service.

• Cashea: Represents local behavioral data sources
• Portola: Represents the channel for connecting compliant lending institutions
• Flex: Represents the experience of business operations and working capital
• Cap: Represents guarantees and professional risk capital
• Blend: Represents the productive accounts and access infrastructure underlying user balances

These companies do not compete to solve the same problem; rather, they are complementary components within the same architecture.

Capital can be globalized, but credit remains highly localized.

All of the above assumptions cannot escape regulation.

Compared to stablecoin settlements, the localization attributes of credit business are much stronger. Consumer information disclosure, repayment capacity assessment, interest rate limits, data privacy, licensing, collections, and credit reports vary significantly across jurisdictions.

Stablecoins can reduce settlement costs but will not eliminate these compliance obligations. In embedded credit scenarios, clear delineation of rights and responsibilities is particularly important.

Account service providers do not need to become lending institutions; lending institutions do not need to build their own stablecoin infrastructure; traffic platforms cannot implicitly bear credit risks; guarantors do not need to manage user relationships.

However, each party must clarify its own boundaries of responsibility.

Therefore, I do not believe there will be a globally universal smart contract that issues identical unsecured loans worldwide. Capital can go global, but credit, regulation, and legal enforcement must be rooted in local realities.

Lending institutions in Colombia can understand merchant cash flows that global agreements cannot assess; payroll service providers in Mexico have a far better understanding of income stability than overseas credit bureaus; merchant networks in Venezuela can observe repayment behaviors that traditional banking systems cannot see.

The opportunity lies in connecting the global liquidity of stablecoins with institutions that deeply understand local realities.

The Killer Application of Stablecoins

In emerging markets, the killer application of stablecoins is not just the more convenient purchase of USDC. It is a set of financial operation accounts: users can receive payments, preserve value, consume, earn reasonable returns, and gradually obtain credit limits based on real economic behaviors.

Providing ordinary people with digital dollars to safeguard purchasing power; accompanying cards to enable dollar consumption; generating returns to give savings value; responsible credit to help individuals achieve development. Merchants can stock up before demand arises; freelancers can acquire better equipment; families facing changes do not have to sell productive assets; businesses can convert future cash flows into current operating capital.

Thus, I no longer believe the core issue is whether stablecoins can replace bank transfers. The real question is: can stablecoin infrastructure support a complete financial service relationship?

My answer is yes, but on the condition that we do not continue to sever payments, yields, credit, guarantees, and credit distribution into unrelated industries.

The next generation of financial systems will be assembled from multiple complementary modules: local behavioral data, licensed lending institutions, embedded corporate finance, institutional risk capital, productive accounts, and compliant settlement infrastructure.

Payments facilitate the flow of funds; yields create value for funds; credit is what brings funds to generate complete economic activities.