Stripe’s now all in on stablecoins, but it paid a steep price

On Monday, Stripe made huge news by announcing that it was acquiring stablecoin-enablement platform Bridge for a reported $1.1 billion. This isn’t Stripe’s first foray into the crypto space: the payments processor previously accepted bitcoin payments until 2018, but it discontinued them as prices collapsed during the 2018 crypto winter, with Stripe saying, “Bitcoin has evolved to become better-suited to being an asset than being a means of exchange.”

However, on October 9, 2024, Stripe reentered the crypto space, authorizing merchants in the US to receive Circle-issued stablecoin USDC through their online checkout pages, and it noted that individuals in more than 70 countries used it for transactions in the first 24 hours.

The USDC authorization combined with the Bridge acquisition shows that Stripe isn’t just experimenting with stablecoins: it’s willing to invest heavily. But does this investment make sense? On one hand, this acquisition does give Stripe a chance to stay in front of a growing, nascent payments market.

Bridge helps companies convert dollars and euros to stablecoins, allowing them to pay workers and suppliers overseas. Proponents of stablecoins have pointed out that because they’re pegged to the US dollar, they are much less volatile than other cryptocurrencies. Stablecoins also allow entities to move money across borders without bank accounts, creating a quicker and cheaper method to move cash than what is currently available through Swift, the highest-volume cross-border payments system, which facilitates the movement of cash from bank to bank across countries.

Stablecoins are having their moment, with Spain’s BBVA bank launching a stablecoin with Visa in 2025 and Swift experimenting with central-bank digital currencies, and Bridge has also been doing well in 2024, with CEO and founder Zach Abrams noting that their business has grown by “>10x” in 2024. Given the company’s USDC authorization two weeks ago, Stripe appears to think that stablecoins will play an important role in the future of payments, so it makes sense to position itself accordingly by acquiring one of the fastest-growing players in this space.

Still, this acquisition price is expensive, and the reserve system underpinning the stablecoin market carries risk.

In August 2024, Bridge hit approximately $5 billion in annual transaction volume, and The Information reported that the company charges between 0.1% and 0.25% fees based on transaction volume, giving it ~$12 million in revenue. Assuming the reported $1.1 billion price is correct and doesn’t change, Stripe is paying a 90x revenue multiple. That’s pricey.

For context, in June 2016, Forbes estimated that Stripe made $450 million in revenue on $20 billion of payment volume, as the company charged 2.9% and $0.30 per transaction, with large customers getting discounts. Stripe was valued at $5 billion in July 2015 and $9 billion in November 2016, so it was worth somewhere between 11x and 20x revenue.

Paying 90x revenue for a company with a lower take rate in a nascent market is a lot. There’s also a risk concerning how stablecoin management actually works.

Companies give Bridge dollars, Bridge then uses those dollars to buy stablecoins from issuers Circle and Tether, and those stablecoin issuers manage the reserves. Bridge then partners with local crypto providers in different countries to send those stablecoins to employees, suppliers, and other intended parties.

Tether, the largest provider of stablecoins by assets under management, has $118 billion in assets, but it has never had its reserves audited. So far, the company’s USDT stablecoin has remained pegged to the US dollar and the company reports a $5.3 billion surplus in assets over liabilities (largely thanks to interest income on its reserves), but it still hasn’t faced a mass withdrawal event (read: bank run) that could stress-test its ability to handle withdrawals.

While the tech world loves to opine about the future of money, stablecoins are ultimately another form of cash management, and the viability of the stablecoin market is currently dependent on Tether and, to a lesser extent, Circle effectively managing the reserves backing its stablecoins.

If you recall the Silicon Valley Bank collapse, the bank went insolvent because it had overinvested its reserves in low-yield Treasuries when interest rates were below 2%, and when rates increased, the value of those bonds fell. When depositors rushed to withdraw their cash, SVB had to sell its bonds at a loss, which led to more depositor fear, which led to more losses on bonds, which caused the bank to collapse.

The tech story is nice, but at the end of the day, this is as much a $1.1 billion bet on the viability of the companies managing stablecoin reserves as it is on stablecoins themselves.