Stablecoin sandwich structures are having a moment. As crypto-native fintechs and digital wallet providers continue to reimagine the rails for international money movement, stablecoins (particularly USDC and USDT) are being deployed in increasingly creative ways. Among the most prominent of these is the ‘stablecoin sandwich’ – a product architecture in which fiat currency is converted into a stablecoin in one jurisdiction, transferred over the blockchain, and then converted back into fiat in the destination country.

From a technology and user experience perspective, the model is elegant and efficient. It promises faster settlement, lower fees, and a high degree of transparency. But legal regimes, particularly in jurisdictions like India where crypto regulations remain patchy, are yet to catch up. In this piece, we explore the legal viability of stablecoin sandwich structures for India-facing fintechs and identify the operational and regulatory constraints such models must contend with.

WHAT IS A STABLECOIN SANDWICH, ANYWAY?

At its core, a stablecoin sandwich is a form of crypto-mediated cross-border value transfer. It works as follows:

1. Fiat-to-Stablecoin (Off-Ramp): A user or remittance sender in Country ‘A’ (say, the United States) converts their local currency into a stablecoin (e.g., USDC).
2. On-Chain Transfer: The stablecoin is transferred over a blockchain network to a counterparty in Country B (say, India).
3. Stablecoin-to-Fiat (On-Ramp): The recipient in Country ‘B’ receives the stablecoin, converts it into local currency (INR), and receives the funds through a local payout mechanism (often into a bank account or wallet, sometimes using UPI).

It’s called a sandwich because the stablecoin layer is “sandwiched” between two fiat conversions. The model is increasingly used by fintechs building cross-border payroll solutions, international freelancer payouts, diaspora remittances, and even SME import/export flows.

WHY THE HYPE?

Stablecoin rails offer several advantages over traditional correspondent banking and SWIFT-based money movement, including:

1. Faster Settlement: Transactions can clear within minutes, irrespective of banking hours or time zones.
2. Lower Fees: Avoids intermediary fees and spreads common in multi-hop international wires.
3. Transparency: On-chain settlement offers traceability and auditability.
4. Programmability: Supports integration with smart contracts for conditional payouts or real-time compliance checks.

But in many jurisdictions including India, the conversion of fiat to crypto (and vice-versa) and the use of crypto assets in payment flows remains regulatory grey zones.

CAN I OFFER A STABLECOIN SANDWICH IN INDIA?

Let’s examine the legal implications of offering such a product to Indian users—either as recipients (inward flows) or senders (outward flows).

1. Inward Flows: Crypto-Mediated Remittances to India

If a product proposes to route inbound remittances into India using stablecoins, the key legal questions arise under:

a. FEMA and RBI Regulations on Inward Remittance

India regulates foreign exchange inflows through the Foreign Exchange Management Act, 1999 (“FEMA”) and the Master Directions on Money Transfer Service Scheme (“MTSS”). While traditional bank-to-bank remittances are permitted under the MTSS, routing funds through a stablecoin channel runs the risk of resembling unlicensed money transfer activity.

If the Indian recipient receives INR (not crypto), but the backend uses a stablecoin, one may argue that it’s simply a faster rail for an otherwise compliant remittance. However, the RBI’s stance has traditionally emphasised that regulated entities must maintain visibility into the end-to-end transaction, including the identity of the remitter, the purpose of the remittance, and the channels used. Will any deviation, especially involving crypto rails, raise red flags?

b. Does the Arrangement Trigger MTSS Licensing?

If the overseas sender is using a foreign crypto platform, and the Indian recipient receives INR via a local payout partner, will the foreign platform fall within the definition of a ‘money transfer service provider’, requiring MTSS authorisation and a local banking partner in India?

c. PMLA and KYC Compliance

The Prevention of Money Laundering Act, 2002 (“PMLA”) and RBI KYC norms apply to any regulated entity involved in fund transfer or payout. If the Indian payout partner is a regulated entity (say, an RBI-licensed PPI issuer or bank), it must have complete KYC and transaction visibility. If the stablecoin flows obscure this visibility, especially in terms of origin or purpose, it could lead to AML/CFT violations.

2. Outward Flows: Sending Funds from India via Stablecoin

Outward legs of a stablecoin sandwich are significantly more problematic from a legal standpoint given that they are heavily regulated under FEMA.

Section 3(b) of FEMA prohibits any person from dealing in or transferring foreign exchange or foreign security outside the prescribed manner. This includes “making any payment to or for the credit of any person resident outside India in any manner”.

Using INR to buy stablecoins for cross-border transmission would almost certainly violate this unless routed through an authorised dealer (“AD”) bank and in accordance with Liberalised Remittance Scheme (“LRS”) norms.

To lawfully convert INR into stablecoins in India, the conversion must take place via a regulated channel. However, there is currently no licensing regime in India for crypto exchanges. Consequently, outbound stablecoin legs from India are not viable unless a compliant and regulated conversion path is carefully structured.

Therefore, fintechs seeking to offer stablecoin sandwich based payout products must carefully evaluate their contracts with banking partners, and be transparent about the nature of upstream transaction flows.

THE DILEMMA

The stablecoin sandwich promises commercial efficiency. For fintechs targeting Indian users, the trade-offs are sharp. If they intend to optimise for speed and cost then the Crypto rails are a tempting option. However, if they prioritise bank partnerships and long-term compliance then these elements must be carefully structured.

Some companies are experimenting with hybrid models: using stablecoins for treasury and internal liquidity, while keeping customer-facing flows fiat-only. Others are lobbying for sandbox participation or cross-border payment corridors under the oversight of the RBI or the Bank for International Settlements.

CONCLUSION: HOLD THE PICKLES

If you’re looking to serve a stablecoin sandwich in India, make sure your legal kitchen is well-staffed—and that your ingredients are fully traceable!