Stablecoins are struggling to escape their cryptocurrency niche
The perception that Stablecoins are breaking out of their original cryptocurrency niche and impacting both domestic and cross-border payments is overstated.
The cost, speed and accessibility advantages of Stablecoins have yet to disrupt existing domestic and cross-border payments services or money market practices.
The number of digital wallets capable of accepting Stablecoins is a better measure of the ultimate scalability of Stablecoins than the number of Stablecoin issuers.
Patchy regulation, limited interoperability and an absence of the singleness that money requires to scale remain formidable obstacles to the growth of Stablecoins.
Stablecoins are a threat to existing payment service providers such as card issuers and money transfer agents. Or at least that was the view of two out of five registrants for the 2026 Future of Finance Digital Money event (see Chart 1). Banks were seen as vulnerable by almost as many votes. The disruption, thought the audience, will affect the status quo in cross-border as well as domestic payments. Despite a great deal of speculation about the impact of Stablecoins on both collateral management and corporate liquidity management, only minorities thought these markets would be disrupted by Stablecoins. Importantly, only one in 20 registrants thought the Stablecoin revolution would be confined to its origins in the cryptocurrency markets. In other words, there is a perception that Stablecoins are now escaping their cryptocurrency niche, and affecting payments rather than money or capital markets.
Chart 1
Yet the data is not supportive of this conviction. Visa data suggests 80-85 per cent of Stablecoin transactional activity, in terms of both volume and value, is still driven by high frequency traders, hedge funds and market makers in the cryptocurrency markets. Decentralised Finance (DeFi) applications, which require tokenised fiat currency to fuel borrowing and lending services, are another major source of demand for Stablecoins. The utterly dominant position of USDT in the value of the Stablecoin markets reflects this. Cross-border payments account for perhaps 5 per cent of Stablecoin volumes, mainly out of jurisdictions with exchange and capital controls and volatile domestic currencies. The big growth opportunity for Stablecoins - settlement of tokenised funds and securities on-chain - accounts for maybe 3 per cent of volume. But Stablecoins currently process less than 1 percent even of daily global money transfers.
That said, Stablecoins have somehow maintained their value through the current cryptocurrency “winter.” The value of Bitcoin fell by 50 per cent peak to trough in 2025-26, while the market capitalisation of Stablecoins was steady to improved at around UDS$300 billion through the same period. This can be read as a sign that Stablecoins are decoupling from the cryptocurrency markets. That is true if DeFi is regarded as entirely separate from cryptocurrency. A more plausible explanation is that cryptocurrency traders have retreated to on-chain cash. Indeed, cryptocurrency traders have little choice but to stay on-chain in the form of Stablecoins since regulated banks treat any cryptocurrency-linked business as too high risk to take on. This can be framed as a genuine use case, in which Stablecoins solve a money transfer and deposit problem that traditional finance cannot address for compliance reasons, but it is not necessarily reassuring for the long-term future of Stablecoins – not least because holding steady at US$300 billion means the Stablecoin market is not growing in terms of issuance.
An even more discouraging sign is the limited acceptance of Stablecoins as a form of payment. Stablecoins are, after all, cheaper in terms of transaction costs, available 24/7/365, and much easier as well as cheaper when it comes to making cross-border payments. Nor do they require a (heavily regulated and hard-to-open) bank account. These benefits have not yet made Stablecoins competitive with the domestic instant payments services that have proliferated all over the world in the last 20 years or the account-to-account payment services that are developing now. This is despite the shortcomings of established services in terms of onerous financial crime compliance tests, grumbling legacy systems, patchy adoption of data standards and limited engagement of banks in transnational schemes to make cross-border payments cheaper (such as the Single European Payments Area (SEPA)).
The obstacles to adoption of Stablecoins are not trivial. The infrastructure to make Stablecoins accessible is only now being built by payment service providers and card companies. And on- and off-ramp costs mean Stablecoins are not as cheap as they look. Above all, until digital wallets become more widespread, network effects cannot kick in. This implies that the number of digital wallet-holders is a more important measure of scalability than the number of Stablecoin issuers. Visa, for example, currently has 4 billion cardholders but only 14,500 card issuers. Indeed, banks should not issue a Stablecoin simply because their competitors are doing so but because it solves a problem for clients, who will then adopt the solution.
Among those clients, the pioneers of Stablecoins as a mass market means of payment must be merchants rather than consumers. Although merchants complain vociferously about the ad valorem fees taken by card issuers and other payment service providers, few have chosen to support Stablecoins. This is because card networks deliver benefits they value that Stablecoins do not yet replicate: elimination of the risk of non-payment, fraud protection and chargeback services. It follows that one obvious lever to increase adoption of Stablecoins is to ensure that any savings in transaction costs – and card networks are currently charging fees of 2-3 per cent per transaction – are shared less with consumers and more with merchants.
Uncertain regulatory status is fading as a problem for Stablecoins. Unlike 2022, when the algorithmic Stablecoin Terra Luna collapsed, and Stablecoins were outside regulatory perimeters everywhere, Stablecoins are increasingly regulated. The Bank for International Settlements (BIS) survey of Central Bank Digital Currencies (CBDCs) found two thirds of the 93 jurisdictions surveyed either had a Stablecoin regulation in place or were developing one. The European Union (EU) has had a regulatory regime in place since the Markets in Crypto-asset Regulation (MiCAR) became effective in December 2024. Clear Stablecoin regimes are in place in Hong Kong, Singapore and the UAE and the United Kingdom will have one in place from October 2027. In the United States, the GENIUS Act was passed in July 2025.
Clearer regulatory definitions of a compliant Stablecoin – backed in all cases by fiat currency deposits or High-Quality Liquid Assets (HQLAs) – are driving weaker Stablecoin structures out of the category. In this sense, the respectable Stablecoin issuers (namely banks) no longer need to compete for customers with the unregulated and (as banks) can worry less about the risks that Stablecoins will strip them of their deposit funding.
This does not mean regulatory challenges have disappeared. While the GENIUS Act regulates the issuance of Stablecoins (only banks can issue a Stablecoin, the reserves must be bank deposits and Treasury bills, monthly reserve disclosures are mandatory and issuers are not allowed to pay interest) the as yet unpassed CLARITY Act is needed to place Stablecoins in an agreed digital asset taxonomy that will enable Stablecoins to act as the cash leg of funds and securities markets transactions. Likewise, in the EU, Stablecoin issuers must wrestle with the interaction between MiCAR and electronic money issuance under the Payment Services Directive. A Crypto-Asset Service Provider (CASP) licensed under MiCAR cannot move Stablecoins on behalf of third parties without a separate payment service licence under PSD.
Lack of interoperability between Stablecoins remains a further, and formidable, obstacle to success. Stablecoins issued on to different blockchains are siloed. Although leading Stablecoins are now being issued on to multiple blockchains (USDT is on ten, and USDC is issued on to more than 30) Stablecoins on one chain cannot easily transfer to another without using complex, vulnerable cross-chain bridges. The data standards needed to facilitate interoperability are struggling to be born too, partly because both established and innovative payments market infrastructures are not yet offering the right combinations of data and settlement services to banks.
Lastly, Stablecoin adoption is constrained by structural weaknesses relative to conventional fiat currency. Unlike bank deposits, the main form of commercial money today, the Stablecoin offer to redeem at par is not backed by assets which always trade at par. Nor can Stablecoins, unlike bank deposits, claim to settle at par in central bank money (though the Bank of England has considered this). As a result, a holder of one Stablecoin cannot assume it will behave identically to another, even if they are denominated in the same currency. In other words, Stablecoins threaten the “singleness of money,” by which all monetary instruments denominated in the same currency settle seamlessly and interchangeably at par. Instead, Stablecoins from different issuers differ in value, because their worth depends directly on the quality and liquidity of the underlying reserves. If an issuer gets into difficulty, there is no guarantee that a central bank will supply liquidity, or no equivalent of deposit insurance for holders.
Potential users of Stablecoins also worry about compliance risks, and especially the risk of inadvertently doing business with a financial criminal. Until these structural differences with fiat currency are resolved, Stablecoins will struggle to scale. Although technical controls do now exist at the blockchain level to freeze or claw back funds that reach sanctioned wallets, and transaction-tracing tools can track flows through multiple transactions and even across blockchains, identifying owners of digital wallets remains challenging. Besides, a criminal can abandon one digital wallet and create another at will.
It is easy to find evidence that Stablecoins are maturing. Transaction volumes are impressive. Regulations are increasingly in place. Card networks and payments vendors are making Stablecoins more accessible. Banks are engaging, directly or via consortiums. Those banks investing in digital asset services see Stablecoins as a permanent feature of the evolving marketplace. Yet it is also easy to find evidence that Stablecoins are not maturing. The market capitalisation of Stablecoins is not growing because new issuers have not emerged. Most activity still originates in the cryptocurrency markets. Regulations have gaps and loopholes. Banks are almost certain to prefer tokenised deposits (see "Whatever happened to tokensied deposits?"). It will take the passage of time and events to determine if the pessimists or the optimists are right.
