Blockchain adoption in retail operations: Stablecoins and traceability

Retailers are embracing cryptocurrency payments to gain a competitive edge. However, the fierce volatility of traditional cryptocurrencies like Bitcoin deters risk-averse consumers from using them regularly. This issue is particularly pronounced in retail markets with high product return rates, as consumers may bear the volatility risk by directly holding cryptocurrencies after claiming a refund. In real-world operations, collateralized stablecoins are proposed as a solution for transaction settlements, yet they still exhibit short-term volatility, as shown by empirical evidence. In this context, retailers can reduce the likelihood of returns by leveraging blockchain traceability to disclose information. This study analytically investigates how the retailer effectively utilizes the two blockchain functions to enhance firm profitability and increase consumer surplus. Our analysis shows that the retailer may offer a stingy or generous refund policy with blockchain adoption, depending on the degrees of information disclosure and price volatility. Next, we find that blockchain adoption always benefits consumers, though it may decrease social welfare. Interestingly, the benefit brought by blockchain to consumers declines if information is oversupplied. Further, we discover that blockchain adoption is likely to increase retailer profit when the information disclosure level is polarized (i.e., very high or low). Finally, the analysis reveals that higher stability of stablecoins benefits the retailer but hurts consumers. The reason for this seemingly counterintuitive result is that having stablecoins with high stability allows the retailer to charge a high price.