Stablecoins could boost the utility of customer loyalty programs

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There's a fine line in retail management between choice and overwhelm. Of course, this is less of an issue in the digital world and in finance — but it is a concept triggering some concern when it comes to stablecoins.

With white label stablecoin platforms in position to streamline and accelerate issuance, we could be heading into a world of hundreds if not thousands of stablecoins. This understandably sounds chaotic — how will users differentiate and switch between them? Could the mental friction get in the way of adoption?

Part of the fear of stablecoin overwhelm comes from a certain rigidity of mindset: We're still thinking of stablecoins as money. They are, of course, money-like in that they can be used as such in on-chain activity — but they're more than that.

The GENIUS Act may have bestowed on payment stablecoins a legal definition based on their use; but they are essentially programmable code, which gives them flexibility in function. They can do more than settle obligations.

What's more, unlike money, stablecoins have private issuers which can include well-known consumer-facing businesses. The idea of branded money with flexible utility for now stretches our mental boundaries — but, with time, this could come to seem normal.

We are, after all, already used to a similar idea in the form of loyalty points. You have air miles that you know you should use up. You've accrued nine stamps on your local ramen restaurant card.

Only, our mental maps have loyalty points and currencies in completely separate buckets. Of course, they are different in the monetary and legal sense — but both can be exchanged for goods and services, so they're closer than most realize.

As stablecoins get wrapped in known names for brand-related functionality, and as loyalty points swarm into the digital realm, they get closer still. What's more, as the concepts and the technologies meld, they can each boost the utility of the other.

Let's take a hypothetical example: Suppose Starbucks launched a stablecoin called, why not, BucksUSD. Customers could load up their Starbucks app digital wallet with as many BucksUSD as they wanted. They could earn rewards on their balance as well as on their activity, financed both by the yield Starbucks earns on the backing reserve assets and by deferred revenue, as with traditional loyalty points. What's more, while traditional incentive schemes are generally not transferrable — BucksUSD could be gifted to a friend for a latte and cake on their birthday, or to encourage a relative to check out a new location opening.

Starbucks has tested blockchain-based loyalty programs before — back in 2022, it launched Starbucks Odyssey, which invited customers to complete challenges in order to earn NFT "stamps" that unlocked access to premium events and other status-building perks. The program was shut down roughly 18 months later as its complexity and disconnect with the company's core business created user friction that dampened uptake. Stablecoins, on the other hand, are relatively simple — intuitively, we see them as dollars, but with programmability that could include some layer of gamification.

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True, branded stablecoins are not like dollars in that they're not fungible. Nor are loyalty points — that would defeat the point. You can't use your American Airlines miles on United, for example. But they can be used for more than just buying airline tickets or upgrades, such as to pay for car rentals, hotels and so on.

Let's pull on this thread for another hypothetical: Imagine that American Airlines issues a stablecoin called AmAirCoin that it ties to its successful loyalty program. Frequent fliers could choose between earning miles dropped into their AAdvantage account, or branded dollars — funded by American Airlines — added to their American Airlines credit card balance. Perhaps customers would want to buy and hold some AmAirCoin to reap their attractive rewards, also paid in AmAirCoin. They might want to invest in the token for a lever-up on status privileges, while simultaneously collateralizing additional credit on their card, bringing down the interest charged.

I'm sure finance, legal and marketing teams will be quick to offer a list of reasons why this scheme would be neither effective nor practical — for instance, company-funded stablecoins for customer engagement purposes ties up working capital and could trigger tension between finance and marketing departments. But, as a thought experiment, it highlights how stablecoins can help both monetize and deepen brand loyalty.

Sony, for instance, is in the process of launching a dollar-backed stablecoin in the U.S. This will initially be for internal treasury management, but in-app applications are expected to be added shortly after. If they also deliver perks such as unlocked tiers, earned avatars or discounts at checkout, they start to act like loyalty points. And, like loyalty points, presumably the Sony stablecoin will only be usable within Sony's ecosystem.

Last year, the Wall Street Journal reported that Walmart and Amazon were considering issuing stablecoins to alleviate the considerable cost of their massive treasury and card-related flows. The companies have not confirmed this, but were they to go ahead, we could expect some sort of incentive program to encourage use of their stablecoins over traditional payment methods. Would they be an internal currency, or the basis for a loyalty scheme? Both?

To see where this could go, it is helpful to regard branded stablecoins as a cross between money and loyalty schemes, each broadening the utility of the other.

I've written before about how the concept of "branded money" is changing our mental framework around currency. I've also written about how stablecoins' lack of fungibility can be a feature rather than a bug. As more businesses get involved, we will see these concepts come together to create a new type of payments landscape.

With the new functionalities, the debate shifts from what stablecoins are to what they can do, while moving us in the direction of creating new mental classification buckets. That's when things could get even more interesting as, throughout history, progress has often been held back by our own lack of imagination.