Stablecoin-Backed Credit Card: Semi-Technical Draft

Entities

The system is built around four main actors:

• User → Deposits crypto and spends through the card.
• Stablecoin Card Issuer → Connects blockchain liquidity with Visa/Mastercard, provides credit to cover user transactions, manages repayments and risks.
• Blockchain → The base layer where stablecoins and user assets exist and settle.
• Aave & Morpho → DeFi lending protocols where deposited assets are placed to generate yield and define collateralized borrowing limits.

User Flow and Credit Mechanics

1. Depositing into Earn

   The user begins by depositing assets (ETH, BTC, USDC, etc.) into yield-generating vaults. For example, ETH may yield ~10% APY, USDC ~9%, and USDT ~4%. These deposits both generate income and serve as collateral.

2. Card Application

   On the card application page, the user sees two clear options:

   • Debit Card → Simply spends directly from deposits, with no credit extension.
   • Credit Card → The issuer automatically calculates a credit limit based on the collateral deposited in Earn.

3. Credit Limit Example

   Suppose the user deposits $10,000 worth of ETH + $10,000 worth of BTC into Aave. With a loan-to-value threshold of 40%, the credit line available is $8,000.

4. Transaction and Settlement

   The user makes a purchase using the credit card. The transaction is routed through the Visa network, which authorizes and processes it. At this moment, the Stablecoin Card Issuer provides credit directly to Visa, effectively guaranteeing the payment on behalf of the user. The merchant is paid immediately, as in a traditional credit card system.

5. Repayment and Yield Dynamics

   At the end of the billing cycle, the user repays the issuer for the borrowed amount. If repayment is timely, no interest fee is charged. This is possible because:

   • The user’s deposited ETH and BTC continue to earn 2–3% annual yield in Aave/Morpho.

   • The value of the collateral is typically 3–4× larger than the credit extended.

   • The issuer also earns interchange fees from the Visa transaction.

     Taken together, this structure can offset operational costs and even allow the issuer to provide interest-free credit to the user.

UX Perspective

From the user’s perspective, the experience is simple and familiar:

1. Deposit assets into Earn.
2. Apply for a card → choose between Debit (no credit) or Credit (limit automatically assigned).