Stablecoins bots are a feature, not a bug

A Bloomberg headline recently claimed that “more than 90% of stablecoin transactions aren’t from real users,” sparking concern about the authenticity of transactions within the blockchain ecosystem.

This isn’t the first time that the digital assets industry has faced scrutiny about an apparent lack of authenticity in transactions. Last year, the SEC accused Binance.US of inflating trading volumes. Way back in 2019, a study by Bitwise found that 95% of spot bitcoin trading volume by unregulated exchanges was faked. Both findings have their detractors.

This isn’t the first moral panic around crypto’s legitimacy, and it won’t be the last.

However, a deeper dive into this “more than 90%” figure reveals a more nuanced narrative. A narrative, in fact, that oversells the fraudulent nature of crypto and severely undersells the transformative nature of blockchain technology.

The cited source for this headline, a collaboration between Allium and VISA, introduces a dashboard that attempts to differentiate between “organic” stablecoin transactions initiated by end consumers and businesses versus transactions orchestrated by computer programs.

This differentiation, while well-intentioned, fails to grasp the unique execution model of blockchain technology.

Blockchain technology operates on a fundamentally different paradigm compared to traditional payment rails. At its core, blockchains are decentralized, immutable ledgers maintained by a network of nodes. Transactions on blockchains are executed through smart contracts, which are self-executing agreements with contract terms directly written into code.

Unlike centralized payment systems where transactions are initiated and validated by trusted intermediaries, blockchain transactions are triggered by external actions interacting with smart contracts. These actions can be programmatically executed by automated processes — commonly referred to as bots — without the need to extend any trust to the bots.

Read more from our opinion section: You’re still rolling your own crypto. You need to stop.

Bots play a crucial role in facilitating efficient and secure transactions on blockchains. They serve various functions, from optimizing transaction fees to executing complex financial operations on behalf of users. They are not the equivalent of social media “bots” like those that now plague Elon Musk’s X.

With that in mind, let’s explore some practical examples of bot-initiated stablecoin transactions:

1. Gas payment services: With blockchain networks like Ethereum, users must pay gas fees to execute transactions. Paymasters are services that cover these gas fees on behalf of users, ensuring seamless transaction execution without requiring the user to own the underlying transactional token.

2. Recurring payments: Smart contracts can be programmed to execute recurring payments based on predefined conditions set by users. While authorized by users, the execution of these payments is automated through smart contract logic initiated by bots.

3. Coupon payments for tokenized bonds: In DeFi, tokenized bonds can automate coupon payments to bondholders through smart contracts, ensuring timely and transparent distribution of interest payments. Smart contracts are unable to initiate future coupon payments, so bots must be the initiators of the payments. Importantly, the bots are trustless in the sense that they never have custody of the funds being paid.

4. Intent-based trading: Users can express their trading intentions, e.g., swapping a token for a stablecoin, by providing a digital signature to a bot through user interfaces. Bots then leverage DEXs to identify the best trade routes and execute transactions on behalf of users, optimizing for efficiency and cost-effectiveness. The blockchain ensures that the bots are unable to do anything other than what was expressed by the user.

5. Rollups and layer-2 solutions: Scaling solutions like rollups enable off-chain transaction aggregation while settling final balances on the main blockchain. Bots can initiate transactions on these layer-2 solutions, streamlining transaction throughput and reducing costs.

No cause for alarm

The dominance of bot-initiated transactions in stablecoin flows is not a cause for alarm, but a testament to the disruptive capabilities of blockchains. It is a feature, not a bug.

Automation empowers developers to create sophisticated financial applications. For instance, imagine a future where flash loans are used for daily mortgage refinancing, facilitated entirely through automated smart contract execution initiated by bots. This level of automation reduces operational overhead and introduces unprecedented accessibility to financial services.

The dominance of bot-initiated stablecoin transactions is a sign of the maturation of blockchains into a robust infrastructure for automated financial interactions. Rather than viewing bots as a detractor of “real” transactions, we should celebrate their role in enhancing user experience and unlocking new use cases. Embracing automation on blockchains enhances efficiency and fosters innovation across diverse industries.

As we navigate the evolving landscape of blockchain-based payments, it’s essential to revisit our understanding of what constitutes a “real” transaction.

In traditional finance, payments are often equated with direct human interaction. However, blockchain’s execution model introduces a paradigm shift where transactions are initiated and executed through autonomous code.

That isn’t to say that fraudulent transactions don’t exist, or that trading volumes aren’t ever inflated — but a casual read-across from traditional finance to DeFi is rarely so easy.

Gísli Kristjánsson is co-founder and CTO of Monerium, the first company to issue fiat onchain. He fell in love with programming at the age of 13. After working as a bonds broker, Gísli saw the inefficiencies of securities settlements firsthand and recognized the potential of Bitcoin. Prior to co-founding Monerium in 2015, Gísli founded and sold a platform to give users access to geo-blocked content. Fun fact: Gísli’s Ethereum address is among the 1% of the oldest addresses.

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