Why have foreign exchange stablecoins never taken off?

Author: Nico; Compilation: Jiahua, ChainCatcher

Stablecoin digital banks are the next major frontier for retail adoption, with foreign exchange (FX) becoming a core component.

Tether and Circle spent more than a decade building liquidity, distribution channels, and network effects around USDT and USDC—work that is extremely difficult for new FX stablecoin issuers to replicate.

Rather than competing by issuing spot FX stablecoins, a better route is synthetic FX: users continue to hold USDT/USDC at the underlying layer, while their account balances are denominated in the local currency of their choice.

Stablecoin digital banks are moving beyond the native crypto community, disrupting how consumers and businesses worldwide transact. In the past year, roughly $6 billion in venture capital has flowed into this frontier.

However, when it comes to the current on-chain FX infrastructure, stablecoin digital banks are essentially just banks with USD accounts. This limitation creates a huge opportunity, because 95% to 99% of global accounts are not denominated in USD.

In less than a year, 24x growth

A smart friend from Tether once told me that diversifying the holder base is one of the company’s top three “North Star” metrics. A holder structure dominated by whales creates unnecessary volatility in USDT’s total locked value (TVL).

All stablecoin issuers want to win over retail and corporate users who will use stablecoins for daily transactions and banking, rather than attracting more traders and whales.

In short, 1 billion people holding 10 USDT each is far better than a single whale holding 10 billion.

Stablecoin digital banks provide an excellent opportunity to reach everyday retail users and enterprises with stablecoins. Beyond trading, the mass market will experience the convenience and advantages of stablecoins as payment, savings, and investment currencies—surpassing the trading use cases that currently dominate stablecoin scale.

A snapshot of how fast stablecoin digital banks are taking off: in 2025, crypto card spending surged 525%, jumping from $14.6 million to $91.3 million, with EtherFi leading at $55.4 million.

Yesterday, the daily spending on an @ether_fi card just surpassed $3.7 million. This corresponds to an annualized stablecoin spending amount of $1.35 billion—up 24 times compared with last year.

When something grows 24 times in less than a year, you have to pay attention. Meanwhile, @ether_fi rolled out their euro product last week, and I’ll elaborate on that in detail later.

Stablecoin digital banking is a new battleground, and there is still no clear leader. From 2018 to today, stablecoins with fiat on-ramps and broad acceptance on centralized exchanges have been considered the best stablecoins—and they captured the largest growth opportunities.

How do you win this new campaign? What kind of stablecoin is truly suitable for digital banking operations?

Why FX stablecoins matter

Historically, single-currency digital banks have failed to gain market acceptance without exception. Major fintech giants such as @Wise, @Revolut, and @airwallex all started out as FX companies. When PayPal went public in 2002, FX business accounted for more than 40% of its revenue.

International fund transfers are far more difficult than domestic ones, so these successful digital banks have the opportunity to shine in FX and establish market dominance in specific payment corridors or among particular consumer/enterprise groups.

Therefore, if a stablecoin digital bank only has USD accounts, it will face major obstacles in development and differentiation—and let alone compete with existing fiat digital banks. Globally, 95% to 99% of regions keep accounts denominated in non-USD currencies.

At present, stablecoin digital banks cannot serve any of those businesses or consumers.

600 million vs 4000 billion

Although many strong teams and public-chain ecosystems (especially @base and @CodexFX) have been watching FX opportunities, the harsh reality is that the total amount of all FX stablecoins combined accounts for only an extremely small fraction of the USD stablecoin market. About $600 million versus $4 trillion—an astonishing 700x gap.

If @tether’s success taught us anything, it’s that stablecoins are a business with extreme network effects. @Tether is the highest-quality stablecoin largely thanks to the vast network built around it.

Given the limited TVL of FX stablecoins, unfortunately, most FX stablecoins face the following dilemmas:

• Limited liquidity leads to fragile pegs (for example, the Paxos Gold de-pegging event on October 10 could happen to any FX stablecoin with limited liquidity and TVL; PAXG has $1.2 billion in TVL, nearly three times the size of the largest FX stablecoin, EURC)

• Not accepted by fintech platforms or centralized exchanges

• Even if accepted, liquidity in fiat on-ramps is very limited

• Limited liquidity for key trading pairs (including with USDT/USDC)

• Almost no yield opportunities

• Compliance and licensing issues across regions are extremely complex

• Most importantly, because the peg mechanisms have not been sufficiently tested, stablecoin digital banks and the broader fintech sector find it hard to adopt them rashly before they reach a certain level of scale. This is a chicken-and-egg problem that may take a long time and require a lot of resources to resolve.

What makes a high-quality stablecoin?

An excellent digital-banking stablecoin must perform exceptionally well in all of the following areas:

• Liquidity in fiat on-ramps

• Strong peg stability independent of overall market liquidity

• Yield opportunities

• Liquidity in major trading pairs

• Broad acceptance across CeFi, TradFi, and payments

• Strong influence on low-Gas chains

• Brand and token name recognition

Traditional finance’s answer

According to data from the Bank for International Settlements (BIS), only about 31% of global FX trading volume comes from spot transactions, while about 69% comes from the derivatives market. This shows that the modern FX market is primarily driven by synthetic exposure, hedging, and financing activities—not by physical currency conversions.

Therefore, the nominal amount settled daily for FX swaps alone can be as high as $4 trillion.

One of the most important non-spot FX instruments is Non-Deliverable Forward (NDF) trading: a cash-settled FX forward contract that does not involve physical delivery of currencies. The two sides do not deliver the underlying currencies—instead, they settle only the profit-and-loss difference, typically in USD.

NDFs are especially common in situations where currency convertibility is limited, offshore access channels are fragmented, or offshore liquidity is insufficient to support efficient physical settlement—making USD-denominated synthetic exposure easier to execute than directly acquiring and settling the local currency.

Example:

• A company wants exposure to Swiss francs (CHF) over the next 3 months.

• Instead of acquiring and settling physical francs, it enters into a CHF NDF—effectively holding USD while denominating its account in francs.

• At maturity, it swaps only the USD-denominated profit-and-loss difference versus the agreed exchange rate.

Many modern NDF structures are also mark-to-market (Mark-to-Market, MtM): unrealized gains and losses are periodically collateralized or settled throughout the contract’s lifecycle, reducing counterparty risk and improving capital efficiency.

Mark-to-market NDFs can effectively keep accounts funded in USD at the underlying level, while valuing balances and profit/loss in another currency at the economic level.

The optimal solution for on-chain FX: take the NDF route, not spot

For currencies with shallow or inefficient spot liquidity, mark-to-market NDFs are a strong solution that is already widely used in traditional finance for pairs such as USD/CHF, USD/KRW, USD/INR, USD/BRL, and USD/TWD.

Companies, banks, and offshore investors typically use them to obtain synthetic FX exposure without physically delivering local currency.

The crypto space faces similar structural issues:

• Not all currency pairs have deep spot liquidity

• Maintaining fully collateralized local fiat stablecoins is extremely difficult operationally

Therefore, a mark-to-market NDF structure is highly suitable for native crypto FX systems.

Users can:

• Fully keep their funds as USDT/USDC

• At the same time, synthesize a short position in USD and a long position in foreign currencies through a mark-to-market NDF structure

• Efficiently convert account value and profit/loss into the target currency denomination without leaving the USD settlement network

The advantages include:

• Strong oracle-based pegging: exposure tracks reliable FX reference exchange rates without relying on fragmented local spot liquidity.

• Preserve the USD stablecoin network and yield: users continue to hold USDT/USDC, enabling access to the deepest on-chain liquidity and yield opportunities.

• Superior liquidity and channels: USDT/USDC have the strongest global fiat on-ramps, exchange integrations, and trading liquidity across the entire crypto market.

• Cross-currency scalability: any currency with a reliable USD oracle can receive synthetic support, without building local banking infrastructure, local custody, or sovereign bond reserves like traditional fiat stablecoin issuers.

• Capital efficiency: only periodic settlement or collateralization of the FX profit-and-loss differences is needed, without converting the full amount in the spot market.

This perfectly mirrors how today’s institutional FX market operates off-chain: overlaying synthetic exposure and cash-settled risk transfer on top of dominant USD financing and collateral systems.

On-chain NDF FX: who will use it?

A mere narrative, or the belief that “FX is obviously the next step,” won’t work. Details determine success, and building an FX stablecoin with a TVL reaching into the hundreds of millions to trillions of dollars is by no means easy.

Teams committed to this direction cannot expect holders to flock in automatically right after the product launches. At @SupernovaLabs_, we are crystal clear about three simple questions:

• Who are your holders

• Why would they hold

• How will you distribute to them

1. Digital banks, custodians, wallets: multi-currency accounts are a must-have

Total deposits are one of the most important metrics for digital banks and the public chains where stablecoins live. Without native FX infrastructure, multinational companies cannot confidently hold operating funds on-chain; they are forced to move funds back into local banking systems.

As a result, many stablecoin digital banks and public chains face the risk of becoming nothing more than a funds transfer pipeline, rather than becoming a true financial operating system.

The mark-to-market NDF infrastructure changes this situation.

Stablecoin digital banks, custodial institutions, wallets, and payment platforms can integrate @SupernovaLabs_’s API to directly provide synthetic FX-denominated services on top of the USD stablecoin network. For end users, the experience becomes a simple switching operation:

• Switch the account’s denomination currency from USD to EUR, CHF, SGD, HKD, etc.

• Or hold balances denominated in multiple currencies within a single account

• Meanwhile, the underlying settlement, collateral, and liquidity infrastructure still remains USDT/USDC

Stablecoin digital banks, custodians, and wallets have a high alignment of incentives with mark-to-market NDF:

• Unlock international user acquisition channels

• Increase deposit balances and retention

• Reduce the flow of funds back to traditional banking systems

• Support multi-currency accounts to enable differentiated competition

Therefore, multinational companies or individual users can:

• Keep funds entirely on-chain

• Maintain access to deep USD stablecoin liquidity and yield

• At the same time hold foreign currency exposure economically through synthetic FX markets

This product benefits from macro tailwinds: over the past year, the USD depreciated by about 10-12% against the euro, increasing demand for assets denominated in non-USD currencies, while users can still keep their funds within USD stablecoin channels.

2. FX carry income: both scale and stability will far surpass Ethena

FX derivatives are also widely used for carry trades (Carry Trade), which is one of the largest macro strategies globally. The most classic example is the yen carry trade:

• Borrow in low-yield yen

• Go long high-yield currencies such as the Brazilian real (BRL)

• Earn the interest-rate differential—i.e., the “carry”

Brazilian real interest rates are often in the 10%+ range, making it one of the carry-trade currencies most favored by hedge funds and macro investors. These trades are typically executed using NDFs, forwards, and FX swaps rather than spot conversion.

Compared with crypto basis trading products such as @ethena:

• FX carry trades are linked to sovereign interest-rate differentials, not crypto market funding rates

• This market is significantly larger and more institutionalized

• Due to the massive size of the global FX derivatives market, capacity is much deeper

• Returns are usually lower than the peak of crypto basis trades, but historically they are more stable and more scalable

This creates an excellent opportunity for on-chain FX carry vaults:

• Users hold USDT/USDC as collateral

• Obtain synthetic foreign currency exposure via mark-to-market NDF

• Earn sovereign FX carry income on-chain without leaving the USD stablecoin channel

3. Global enterprise payments: Stripe has already validated this path

Over the past year, @Stablecoin has enabled enterprise customers to receive fiat currencies such as EUR, Mexican peso, Brazilian real, Colombian peso, and British pound, and automatically convert the funds into USDC.

However, currently FX can only be received on-chain—it cannot be held on-chain. For enterprises that manage funds or keep accounting records in currencies such as the Swiss franc or Singapore dollar, this means they still need to withdraw funds into local banking networks.

This limitation is especially pronounced when serving global enterprises, and this is precisely the area where @tempo is actively pushing for adoption and expansion.

Stripe provides FX hedging support in an NDF-like style for its fiat global payments. If a merchant wants to settle in currency A while customers pay in currency B, the merchant can hedge FX exposure within a specified period and provide customers with a stable, locked-in price denominated in local currency.

Stripe’s NDF-style FX API for fiat payments

Stablecoin payments can apply a similar model on-chain: users continue to hold and transact with USD stablecoins, while merchants or wallets can synthetically hedge into their preferred local currency without relying on spot FX liquidity or local stablecoin issuance.

I want to highlight how astonishing the profit margins are for Stripe’s FX products. Although the product mainly serves non-speculative, highly predictable enterprise and retail payments, it still charges about 20 basis points in fees for each transaction.

On an annualized basis, that corresponds to roughly 73% of hedging costs—an extremely high take rate for FX risk transfer.

This not only shows the profitability of the business, but also indicates that users are extremely insensitive to price when facing seamless global payments and exchange-rate certainty.

Without interest-rate stability, on-chain economies can’t take off

At @SupernovaLabs_, we are committed to bringing interest-rate stability on-chain and pushing DeFi into its next institutional phase. By building financial infrastructure at the operating-system layer, we aim to serve not only crypto natives, traders, and whales, but also everyday enterprises and retail users.

We started with interest rate swaps and have already settled more than $5 billion in notional transaction volume, serving top-tier prime brokers and institutional borrowers.

We are particularly excited about NDF FX, because we firmly believe it will unlock the next phase of on-chain financial trading volume and global stablecoin adoption.

Just as centralized exchanges shaped today’s stablecoin landscape, digital banks will bring new waves and drive adoption to the trillion-dollar level.

Five years from now, compared with the tens of trillions of dollars that stablecoin digital banks and global on-chain financial accounts could bring, today’s stablecoin market of about $350 billion may seem insignificant.

FX will be a core part of this expansion, and our goal is to build the infrastructure layer that can comprehensively capture this growth.