Stablecoin Finality Risk

In a previous discussion, we identified several risks associated with stablecoin usage. We will now delve deeper into each, starting with finality risks.

Finality, in the context of blockchains and stablecoins, is the guarantee that a confirmed transaction cannot be reversed, altered, or removed. It marks the point at which a transaction becomes permanent and immutable in the ledger.

Due to the decentralized nature of blockchain networks, transactions require confirmations. For example, Bitcoin considers a transaction final after six confirmations. For high-value transactions, waiting for additional confirmations is advisable.

This affects payments because a buyer cannot simply transfer a stablecoin and walk away. The seller needs assurance that the payment is final. Consequently, some blockchains are not ideal for quick transactions. (Second-layer solutions, like Bitcoin's Lightning Network, address this.) The number of necessary confirmations depends on the transaction amount. Low amounts may require zero or one confirmation, while higher values necessitate more confirmations or full finality.

First-layer blockchains (L1s) generally do not support real-time payments (less than one second). While experimental blockchains might achieve this, they are not yet suitable for enterprise payments. However, most blockchains offer faster final settlement than ACH.

Let's examine finality on several stablecoin-supporting blockchains.

On Ethereum, finality is achieved after two epochs, roughly 13 minutes after a transaction is included in a block.

Solana's finality takes about 15 seconds, making it desirable for payments. However, Solana has experienced outages, the last being in February 2024.

Bitcoin's finality takes roughly 60 minutes.

While finality might seem insignificant for many users and use cases, it is crucial for enterprises and million-dollar transactions. Fortunately, even Bitcoin, the most mature and secure blockchain, can move value faster than ACH, wire, or check.

If your enterprise is considering using stablecoins for payments or treasury management, educate yourself about the finality of your chosen stablecoin and blockchain.