From Letters of Credit to Ledger

How Stablecoins Are Reshaping Commodity Trade Finance

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Picture Edinburgh in the mid-1700s. The streets are lined with tailors, merchants, and distillers transacting not in government-issued money, but in notes issued by private banks — the Bank of Scotland, British Linen Bank, and others. There’s no central bank. No formal lender of last resort. Yet trade flourishes, money circulates reliably, and economic confidence is high. This was Scotland’s free banking era — a century of stable, competitive, privately issued money that supported a thriving economy.

Now contrast that with 19th-century America. There too, private banks issued notes. But unlike their Scottish counterparts, U.S. “wildcat banks” operated under poor regulatory oversight and loose standards. The result? High failure rates, bank runs, and public distrust.

This divergence offers an important lesson: the stability of money depends not on who issues it, but on how it is designed, backed, and governed.

It’s a lesson that should inform the modern debate around stablecoins — digital tokens pegged to fiat currencies — and their potential to rewire the plumbing of global finance. Especially in the world of commodity trade, where speed, liquidity, and transparency are paramount, stablecoins are not a speculative detour. They are a functional upgrade.

We are moving from letters to ledgers — and the transformation has already begun.

A System Designed for a Slower Age

Commodity finance has long relied on one dominant tool: the letter of credit (LC). It’s a mechanism of trust, helping exporters get paid and importers receive goods, all while managing counterparty risk. But LCs, like the institutions that administer them, were built for a pre-digital world.

In practice, LCs introduce significant inefficiencies:

• Fees often range between 0.5% and 3% of transaction value.

• Settlement can take days, even weeks, especially across borders.

• Documentation processes are heavily manual and error-prone.

• Funds are often trapped in limbo pending verification and release.

While platforms like Komgo and Contour have digitised document exchange, they haven’t touched the underlying settlement infrastructure. These systems still rely on the same legacy rails: correspondent banks, SWIFT messages, fragmented clearing systems.

The bottleneck isn’t the paperwork. It’s the money.

Stablecoins: Infrastructure, Not Innovation

Stablecoins are digital representations of fiat currencies — typically dollars — that can be transferred globally, instantly, and with programmable logic. Unlike bank payments, which rely on batch processing and reconciliation between multiple ledgers, stablecoins settle directly on-chain. This makes them uniquely well-suited to commodity trade finance, where timing and liquidity are critical.

Properly structured stablecoins are:

• Fully backed by liquid, short-term assets such as U.S. Treasuries or cash.

• Redeemable on demand, with transparent attestations of reserves.

• Available 24/7, across jurisdictions, without intermediary delays.

They aren’t speculative tokens. They are programmable, global cash.

Critically, stablecoins offer a foundational shift from static, institutional trust to dynamic, protocol-level certainty. Smart contracts can govern escrow, enforce conditions, and trigger payments — all without needing a bank officer to manually review documents or approve releases.

Commodity Finance on Stablecoin Rails

Let’s take a simple example: a copper shipment from Peru to South Korea.

Under the traditional system:

• The buyer opens a letter of credit through a local bank.

• The seller ships the goods and presents the required documents.

• The documents are verified, often via several intermediaries.

• Funds are released through a series of correspondent banks.

• The seller receives payment — typically 3–7 days later.

Now, consider the same transaction using stablecoins:

• The trade agreement is embedded in a smart contract.

• The buyer deposits USDC into a programmable escrow.

• Upon confirmation of a digital bill of lading, payment is released instantly.

The benefits are immediate: reduced settlement time, lower fees, better liquidity, and greater visibility. Risk is not increased — it is redistributed, automated, and auditable.

Debunking the Doubts

Despite growing interest, scepticism around stablecoins remains. But many criticisms fail to hold up under scrutiny.

“They’re not central bank money — so they’re less trustworthy.”That same criticism could be levelled at most commercial bank deposits or fintech wallets. What matters is not who issues the money, but how it is backed. Leading stablecoins are fully reserved and transparently attested — unlike fractional reserve deposits at traditional banks.

“They don’t have compliance built in.”No money does. Compliance resides in the systems that use money — not the medium itself. In fact, stablecoins allow for greater transparency and traceability, enabling real-time monitoring and automated enforcement of AML policies via smart contracts.

“They’re vulnerable to runs.”Only if reserves are mismanaged. Stablecoins like USDC are backed by short-duration U.S. Treasuries and cash equivalents, offering superior liquidity to most banks. By contrast, traditional banks engage in maturity transformation, relying on central bank support during crises. Which model is actually more fragile?

The misunderstanding here is not technological — it’s conceptual. The assumption that centralisation equals safety ignores both history and structure.

As with Scotland’s free banking, private monetary systems can be resilient, trusted, and efficient — if well-structured and transparently governed.

Beyond Digitisation: Toward Reinvention

Stablecoins don’t just speed up payments. They enable a fundamental rethinking of how trade finance is structured.

• Smart contracts can handle dynamic escrow arrangements, triggering payouts based on verifiable milestones.

• FX conversion can be embedded into the transaction itself, avoiding delays and slippage.

• Asset tokenisation — from bills of lading to invoices — can create new collateral models, unlocking working capital across the supply chain.

This isn’t digitisation. This is re-architecture.

We are no longer simply putting PDFs where paper once sat. We are building programmable, automated, and real-time trade infrastructure — with stablecoins as the settlement core.

The Ledger Is the New Letter

The transformation underway in trade finance is not cosmetic. It’s structural. The systems that moved oil, gas, grains, and metals for the past 70 years are being refactored for a world that no longer tolerates slowness, opacity, or unnecessary cost.

Stablecoins are not just a faster way to pay. They are an opportunity to redesign the trade lifecycle — from documentation to settlement — in ways that were not possible before.

As with free banking in the past, the strength of this system will lie in its architecture, not its ancestry.

This is the second article in a series exploring the redesign of global commodity finance through digital and decentralised tools.If you’d like to discuss these ideas, challenge them, or explore collaboration — feel free to connect.

— Ronan JulienCo-founder, DeCoFi