A Commentary On Stablecoin Fragmentation

If you've been following the digital asset space this year, you've probably noticed something: everyone wants to launch a stablecoin. We're deep into what many are calling "stablecoin summer" — a period where traditional finance players, tech giants, and fintech companies are all rushing to mint their versions of digital dollars. The numbers tell the story. PayPal launched PYUSD, targeting its 400+ million users, while retail giants like Amazon and Walmart are reportedly exploring their own branded tokens. JP Morgan sent shockwaves through traditional finance with JPMD, their institutional deposit token that legitimises stablecoins for Wall Street's biggest players. And, President Trump didn't just sign a landmark stablecoin legislation — his family simultaneously backs World Liberty Financial's USD1 token. These instances do not cover up to a quarter of the stablecoin launches that have occurred. Over 200 stablecoins now circulate across various blockchains, with the total market hitting over $250 billion in market capitalisation.

But here's the biggest consideration for me in this whole situation: Are we building toward a more efficient financial system, or are we just creating an overly fragmented mess?

The Good

Thinking about it, proliferation isn't entirely bad news. Competition drives innovation — USDC gained market share by positioning itself as the "regulated alternative" to Tether, pushing industry-wide improvements in transparency and reserve quality. There's also legitimate value in having stablecoins that address local needs rather than forcing everyone into a USD-centric system. Transfero's BRZ serves Brazilian users, while BiLira's TRY caters to Turkish markets. Reuters recently reported that China's tech giants JD.com and Alibaba affiliate Ant Group are urging the central bank to authorise yuan-based stablecoins to counter the growing sway of U.S. dollar-linked cryptocurrencies. I agree that we mustn't all bow to the U.S dollar.

We can also consider some of the benefits from the trust factor perspective. When PayPal or a major bank issues a stablecoin, it brings brand credibility that purely crypto-native issuers might lack. That matters for mainstream adoption. And from a systemic risk perspective, having multiple providers means we're not putting all our eggs in one basket. If one stablecoin encounters regulatory issues or depegging problems, alternatives can fill the gap.

But, and this is a big but, all of these silver lining moments don't put up much of a fight against the negative costs that come with it.

The Bad

I recently read a Medium piece by Teju Adeyinka titled Everybody Gets a Stablecoin and I couldn't agree more with her points of reasoning. The boom we are experiencing right now is too loud. As Adeyinka highlighted, stablecoins offer new revenue streams not just from transaction fees, but from yield on reserves. PayPal’s PYUSD or JPM's JPMD aren't just experiments; they are profit machines backed by trusted brands. Issuers are building entire ecosystems around their tokens to drive loyalty, offer cashback, and create a competitive moat. As each one builds its silo, the burden on users and the broader economy grows.

From a practical standpoint, managing multiple stablecoins is like trying to juggle different currencies that should theoretically be the same value but aren't actually interchangeable. Unlike traditional money, where "a dollar is a dollar," users now have to think about USDT versus USDC versus PYUSD versus whatever new token launched this week. This creates what I call "UX overload." You might end up with six different stablecoin balances across six different platforms, each requiring separate KYC processes and wallet management. The interoperability gaps make this worse. Send USDC on Ethereum to a wallet expecting USDC on Solana, and you might lose those funds entirely.

Here's also where it gets technically interesting. Instead of one deep, liquid market for USD-pegged digital assets, we now have dozens of thin markets. When First Digital's FDUSD briefly broke its peg by 9% earlier this year, it highlighted how vulnerable smaller stablecoin markets can be during stress events. Market makers now have to support or consider supporting multiple trading pairs (USDC/USDT, USDT/PYUSD, and so on), which adds complexity and slippage costs. DeFi protocols respond by creating multi-stablecoin liquidity pools, but that's essentially a band-aid solution to a structural problem.

The trust factor I touched on above can also be flipped on its head when you consider the burden that comes with assessment. Not every stablecoin operates under the same reserve standards or regulatory oversight. Expecting average users — or even businesses — to evaluate the risk profile of every token they might receive is unrealistic. This creates an environment where confidence can be easily shaken, particularly for smaller or newer issuers.

Fragmentation From the Cross-Border Payment Product Builder's Perspective

In the cross-border payments space, stablecoins have become a valuable tool, but the way they're integrated varies widely across products. On one end, some products use stablecoins purely as backend infrastructure to accelerate settlements, while shielding users from the complexity. These interfaces present familiar options like dollars, euros, or naira, even though the actual transfer may involve converting fiat to a stablecoin, transmitting it across blockchains, and converting it back to local currency on the other side. On the other end are crypto-native products that expose users directly to token and network choices—USDC on Ethereum, USDC on Polygon, USDT on Tron, and so forth, requiring users to understand and manage chain-specific considerations.

For both approaches, fragmentation across chains, tokens, liquidity venues, and regulatory frameworks can slow development timelines, complicate the user experience, and force more complex go-to-market decisions. A product targeting remittances in West Africa, for instance, might find that liquidity for USDC is strong on Ethereum but weak on Polygon, or that one local partner only accepts USDT on Tron due to existing infrastructure. Each of these variables can force difficult trade-offs in product scope, cost, and technical stack. Builders are then left to answer strategic questions: Do we support every chain and token permutation our users might encounter, or do we make an opinionated bet and risk alienating some markets? Do we build in-house liquidity routing and bridge logic, or rely on third-party aggregators with their risk profiles? And when regulatory clarity varies by jurisdiction and chain, how do we ensure compliance without paralysing innovation?

The Vision

You see, the vision is unity, but the path there remains murky at best. We're seeing various projects and products emerge that tackle fragmentation from different angles. One of such is M0, a project that enables developers to build application-specific stablecoins and seamlessly embed them into any use case. Here's how that can be a game-changer for the fragmentation problem: As long as a stablecoin is built within the M0 ecosystem, it remains fully interchangeable and interoperable with every other stablecoin in that same ecosystem, regardless of name or specific function. M0's solution unifies the underlying infrastructure while preserving each project's independence and unique identity. Reserves are unified as well for all participants in the ecosystem. Still, the solution requires developers to buy into yet another framework, which could just create a new form of siloing.

And then we have Ubyx, which tackles a practical reality: I might hold $10,000 in FDUSD or BiLira's TRY, but most traditional banks and merchants won't accept it, or even know what it is. Banks aren't going to integrate with dozens of different stablecoin protocols individually — the technical overhead and compliance complexity make it economically prohibitive. This means only the biggest players like USDT and USDC achieve real-world utility, while smaller issuers remain stuck in crypto-native use cases.

Rather than picking winners, Ubyx accepts that stablecoin diversity is inevitable and builds infrastructure to make it functional. The concept is straightforward: create a shared clearing layer where banks integrate once and can accept any network-approved stablecoin at par value. When users deposit tokens, Ubyx handles the redemption — tokens go to the issuer's settlement wallet, and fiat moves to the user's bank account. The system also employs a "trust mark" that works like a Visa logo, signalling universal acceptance of a stablecoin across member institutions. The project's recent $10 million raise from Galaxy Ventures, Coinbase Ventures, and others, plus participation from major issuers like Paxos, Ripple, and First Digital, suggests the industry recognises this fragmentation problem is real. It is still in its early stages, but it's worth watching.

Wallet-layer solutions that abstract away stablecoin differences are another approach to managing fragmentation. Eco is an interesting product taking that path. Instead of trying to make all stablecoins functionally identical through clearing networks, Eco makes the differences invisible to users. The platform aggregates the user's existing wallets — whether they are holding USDC on Ethereum or USDT on Tron — and presents them as a single "digital dollar" balance. When the user needs to make a payment, Eco's backend orchestrates the optimal routing and handles all the cross-chain complexity behind the scenes. The solution sits entirely at the user interface layer while preserving the competitive dynamics that drive innovation among issuers. No need to worry about bridging through different networks. However, the catch here is that the user is still limited to networks that are a part of Eco's connected networks.

I believe that the most disruptive solution to fragmentation remains Central Bank Digital Currencies (CBDCs). CBDCs represent the ultimate "reset button". Think about the competitive advantages: instant settlement through central bank infrastructure, universal acceptance backed by sovereign guarantee, and regulatory clarity that no private issuer can match. Why would anyone need USDC, USDT, or dozens of competing dollar tokens when they could hold actual digital dollars issued by the Federal Reserve? But alas! The CBDC space has gone remarkably quiet. Governments appear to have quietly conceded the race to private stablecoins, perhaps recognising that monetary innovation moves faster in competitive markets than through bureaucratic institutions. Still, the reset button remains on the table. A single regulatory shift can instantly restructure the entire digital payments landscape. All our sophisticated discussions about universal clearing systems and interoperability solutions could become academic overnight if central banks decide to reclaim their monopoly on money issuance.

The End?

Not quite. The truth is, we're still in the middle of this story, and predicting the ending feels like trying to call the winner of a race that's only halfway through. Hybrid approaches combining different solutions, CBDCs rising again, there's so much that could happen. Also, markets have a strong historical tendency toward consolidation. Look at credit cards — despite hundreds of issuing banks, the market consolidated around Visa and Mastercard. Mobile operating systems settled into an iOS and Android duopoly. Even social media, despite endless "Twitter killers," keeps gravitating toward a few dominant platforms. USDT and USDC already control roughly 80% of the stablecoin market by volume. Maybe what we're witnessing isn't permanent fragmentation but simply the messy early stage before natural market forces pick winners.

I have no solutions of my own to proffer, at least not at this time. Either way, what I do know is this: the infrastructure being built right now, the partnerships being formed, the regulatory frameworks taking shape, these decisions will shape the next decade of how we move money around the world. This has my full attention now, and I believe that whether you're a builder, an investor, or just someone trying to make sense of what everyone is talking about, now's not the time to look away. Stay tuned and stay glued. The future of money is at hand.