Stablecoins - A solution in search of a problem

By Richard Laiderman

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Satoshi Nakamoto didn’t contemplate stablecoins. Stablecoins ride on top of fiat currencies. Satoshi sought quite the opposite. He imagined replacing fiat currencies with digital currencies based on distributed ledgers which don’t depend on central authority. It is ironic that the form of crypto on which the most hopes are now riding is fiat backed stablecoin. Many contend that while not replacing fiat currency, stablecoin is disrupting and improving the payments infrastructure.[1] As I outline below, when considering capacity, cost, speed, and safety, I don’t see how it makes meaningful improvements.

Background

First, let’s see how we got here from the original vision. Blockchain was a clever solution to the double spending problem that previously seemed to rule out digital currencies. The solution used a distributed ledger and a proof of work validation system.

Right away people noticed a seemingly free lunch. If you start a cryptocurrency, people send you fiat money in exchange for a digital code - which costs virtually nothing to provide. You keep the money and don’t have to pay interest or ever return it. As a result tens of millions of crypto coins were launched. Almost all of them are now dead or worthless. A sad but unsurprising addition to the history of private money issuance.

A few coins, like Bitcoin and Ether, survived but for many reasons became unsuitable as currencies. Perhaps the most important reason is price volatility. Currencies are supposed to be of stable value and facilitate ordinary economic transactions. Even the most ardent evangelists had to give up on the idea of using these crypto coins as currencies. The pivot, made possible by Bitcoin’s appreciation, was that crypto was actually a new class of investments (not a currency). Digital gold!

But Satoshi’s vision of a digital currency lived on. It just required a less volatile coin. And so was born stablecoin. It was a collateralized crypto coin. The collateral could be fiat or algorithmic (which means using other crypto currencies as collateral). Using other cryptocurrencies as collateral preserved the vision of replacing the legacy fiat infrastructure. Terra(Luna) was an algorithmic stablecoin which collapsed spectacularly in 2022. The dramatic collapse wiped out $50B in value in four days. It revealed the insufficiency of the collateral but also a more subtle risk of blockchain transparency. It allowed more alert, usually larger, holders to see what was happening, get out early, and leave retail and late reactors to bear the losses. Transparency, rather than leveling the playing field, accelerated the run and enabled disparate impact. It also demonstrated that old fashioned bank runs are possible with stablecoins. After the Terra collapse the algorithmic approach fell out of favor.

Fiat backed stablecoins, however, don’t solve Satoshi’s original problem (replacing centralized fiat currencies). So stablecoin advocates had to figure out exactly what problem this new invention does solve. Proponents have not really reached a consensus. Among the list of things often cited are financial inclusion, international transactions, high inflation economies, and smart contracts. The last of these, smart contracts, is not really a payments problem. It is another solution - not to a payment problem, but to a legal problem, contract automation and enforcement.[2] The issue of dollarization in high inflation economies is not a payments infrastructure problem, but a last resort for deeply dysfunctional economies. In some cases dollarization can be useful whether by the standard route or possibility with stablecoins.

My central question is how does stable coin improve on the current payment ecosystem - ACH, Fedwire, Swift, Visa and Mastercard. Can it handle more transactions? Is it less expensive? Is it faster? Is it safer? In answering these questions I’ll focus mostly on USDC. Most of the Fintech excitement is about USDC which is US based and regulated.

Capacity

Can USDC compete with the current system on transaction volume? Short answer, no - it’s not even close. Without going into depth, here are a few comparisons. The total volume capacity on Ethereum main net is about15 transactions per second (TPS). Visa’s capacity is 65,000 TPS. Solana and other chains can handle much higher TPS but sacrifice decentralization and security (see safety and trust section below).

Total stablecoin value volume is about $400billion annually (According to McKinsey-Artemis[3]) compared to ACH at about $100 trillion. Could stablecoin capacity conceivably match the current infrastructure? Probably not, but if possible it would require massive investment.

Cost

Is USDC less expensive than the current system? No, but it’s closer here. ACH is incredibly efficient. It moves value at a cost of less than .004%. USDC moves value at a cost that is chain dependent but in aggregate is between .01% on Solana to .05% on Ethereum. Because of validation costs stablecoins do not generally provide a cost advantage over the currently available payment systems. This is particularly true for small transactions. That is the reason stablecoins are unlikely to provide a solution to the inclusion problem. Even if validation costs fall, it will be due to more centralized (i.e. higher risk) and less secure validation mechanisms. So even if explicit costs become lower, these risks will increase and present a hidden cost.

When people claim a cost advantage for stablecoins they usually point to international transactions which are the most expensive transaction type due to currency conversion. The current payment infrastructure does leave many opportunities for excessive rent extraction on currency conversion transactions. This is particularly true in retail where itis easy for consumers to make poor choices. However the current system is quite efficient if used properly even for consumers. A Visa card without foreign transaction fees or a Wise transfer are quite reasonable. When USDC is transferred internationally the recipient still needs to convert to local currency and faces similar or even higher costs from the receiving crypto exchange and or bank used for conversion.

As an example, stablecoin remittances are often cited as better than high cost traditional alternatives. But there are low cost traditional alternatives, like Wise or Remitly, which are similar in cost to the best stablecoin remittances. Stablecoin remittances require the recipient to have a wallet and use an exchange. The cash-out costs can vary widely just as they do in the non-crypto payment infrastructure. An interesting side note is that stable coin cash-out conversion costs are in effect subsidized by the foregone interest of customers who leave their funds in wallets at the receiving end.[4]

Speed

How about speed? Is USDC faster? Not really. Speed is chain dependent but no faster than FedNow, Venmo or PayPal. While USDC is fast, it is also final (so is Venmo). Final means the payment is irrevocable. It cannot generally be reversed even in the case of fraud, money laundering or sanction evasion. That’s one of the reasons crypto is an attractive rail for illicit actors. TRM pegs illicit crypto activity at $158B in 2025, a sharp increase from 2024. (The other reason is weak KYC. Binance paid $4B for willful neglect of KYC.) In today’s instant gratification culture there is a demand for speed and finality. But in reality, for most use cases, finality is not essential. I would rather have the ability to reverse a fraudulent or criminal transaction.

Safety & Trust

Safety and trust cover several different kinds of risk but the answer is clearly no, stablecoin isn’t safer in any of the areas of risk. The first area is the collateral. How do we know the collateral is really there and of sufficient value. Other stable coins have been opaque about collateral. After the Terra fiasco there is good reason to require better assurances. The use of attestations rather than audits undermines trust. Audits provide reasonable assurance and include review of controls. Attestations give limited assurances and are narrower in scope. The GENIUS act requires audits for large stablecoins like USDC but not for smaller ones. Tether, the largest, still uses attestations.

Another aspect of safety is from theft. Crypto is the dominant channel for investment scams and ransomware. Within the crypto-fraud universe, stablecoins account for between 70-85% (but this includes sanctions evasions which are not a theft risk).

Another risk is the 51% attack or governance malfeasance. These are mitigated in Nakamoto’s original paper by decentralized governance and validation. But the governance and validation of stablecoins has been highly centralized in order to reduce cost. Many mitigants to these risks have been put in place, but the risks can’t be ignored.[5]

Finally, and perhaps most importantly, there is the acceptance and convertibility risk. As with any private currency there is no guarantee that a merchant or counterparty will accept USDC. There is also no guarantee that you will be able to sell it for fiat currency (other than Circle’s promise). Failure to honor private promises to “redeem for specie” has plagued past US experiments in private currency.[6]

Conclusion

Not only have stable coins lost their mission, but they have also lost their true cleverness along the way. Satoshi Nakamoto’s real insight was a way to solve the double spending problem. He proposed widespread decentralization to prevent collusion and proof of work to require validators to invest real resources. Both have been lost as stablecoins have rushed forward. It is doubly ironic that not only has Nakamoto’s vision of replacing fiat currencies been lost, but so has his seminal technical innovation to address double spending.

Stablecoins are not without some remaining ingenuity, but cleverness is not the same as practical utility. They fail to meaningfully improve the payment infrastructure that has been quietly working and improving for decades along the metrics that matter to users and institutions - capacity, cost, speed and safety. Stablecoins may find effective niches but not the transformative payments revolution that advocates have promised. For most ordinary users who have bank accounts, credit cards, and payment apps, stablecoins offer no compelling advantage and present real risks.

[1] Despite all the talk about disrupting and improving the payments infrastructure, the primary motivation for stablecoins is arguably the profit motive. Consider Tether, the leading stablecoin globally. They reported over $10B in profit in 2025including mark to market on securities and gold. This exceeds BlackRock’s $5.6B profit for the same period.

[2] It is interesting to note that the idea of smart contracts precedes Nakamoto’s white paper by over a decade, and that implementation using stablecoin generally requires off block inputs (provided by oracles).

[3] Most of this volume is not traditional end user payments but rather trading, shuffling and automated blockchain activity.

[4] USDC is no longer protected by the GENIUS act once it is offshore.

[5] The GENIUS act doesn’t address these risks but because it carves stablecoins out from SEC and CFTC jurisdiction, it may reduce legal remedies in case these risks occur.

[6] National Bank Notes avoided redemption failures by full or over collateralization held centrally by the Treasury. In addition they were backed by the full faith and credit of the United States. The GENIUS act allows decentralized holding of collateral by banks, the Fed, or custodians and is not backed by deposit insurance or by the full faith and credit of the United States.

About the Author

Richard Laiderman is a co-founder and the board chair at StandardC. He has held senior executive roles at Bank of America, Providian, Ameriprise, and Visa. He was part of Visa’s IPO team and served as Visa’s Head of Global Treasury for 7 years. Richard has a track record of successful risk management during periods of crisis. He helped Providian survive its stock collapse, created Ameriprise’s variable annuity living benefits hedging program just prior the 2008 market crash (which allowed them to decline TARP funding), and managed $19B of Visa IPO proceeds just days after Bear Sterns’ collapse.

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