The key to the success of non-dollar stablecoins: unrelated to liquidity, only in capital accumulation

Original link: 《Non-USD Stablecoins Won't Scale on FX Volume》

Compiled by: Ken, Chaincatcher

Introduction: The Stay of Funds

A few weeks ago, I proposed the view that, in the short term, non-USD stablecoins will remain small in scale compared to USD stablecoins. The logic is simple: the market value of stablecoins reflects the demand for permissionless money. Currently, this demand is primarily concentrated on the USD, driven by cryptocurrency trading (which remains the largest application scenario for stablecoins) and by people in countries like Argentina, Nigeria, and Turkey seeking to hedge against severe fluctuations in their local currencies.

The feedback received covered multiple dimensions: cross-border trade, tokenized local currency investments, regulatory incentives, and programmability. However, the core of the issue lies in the extent to which these factors can translate into sustained fund balances, rather than just fund flows. Due to the lack of a consensus model in the discussion, I will borrow a model that is already familiar to stablecoin issuers:

If fund flows cannot create scenarios for fund accumulation, they cannot be converted into stock balances.

Balances only exist at a few levels—coordination, savings, and investment—and each level has different requirements. Once this is clarified, the debate simplifies to questions of time cycles and probabilities.

Definitions and Scope

The term "non-USD stablecoin" is a mixed concept. The scope of this discussion includes: (1) payment stablecoins (quasi-currency tools for payment/settlement); (2) interest-bearing on-chain cash products (backed by high-quality liquid assets).

This distinction is important because payment stablecoins are typically regulated like electronic money (1:1 redeemable, zero or limited issuer-paid returns), while interest-bearing "stable" products are often viewed as securities or collective investments, with stricter distribution and holding thresholds.

I have excluded tokenized deposits: while they may bring a significant amount of non-USD on-chain funds, they are classified as licensed bank liabilities rather than stablecoins.

First Layer: Coordination (Turnover) Balances (Funds Awaiting Action)

The first level of balance is the coordination (turnover) layer. It consists of temporary holding nodes, where funds stay between "receiving" and "spending," waiting for the next action. For retail users, it is a checking account or wallet; for businesses, it is operational cash that must be ready for payroll, vendor payments, and taxes; for institutions, it is operational liquidity linked to capital markets: prepaid balances and inventories. Temporary holding nodes do not necessarily have to be bank accounts (the float in Kenya's mobile payments indicates that even with zero returns, wallets can hold substantial balances).

The reason these balances persist is mundane but crucial: obligations plus friction. Deadlines, settlement delays, reconciliations, and "debit" mechanisms mean that when payments are due, if funds are not in the right place, risks arise. Therefore, financial officers will keep enough funds in the holding area to meet near-term needs and act as a buffer, with only surplus funds being moved to higher-yielding instruments. The optimization goal of the coordination layer is reliability and control, rather than return rates.

This has direct implications for non-USD stablecoins. If they are merely a transmission channel with fiat currency as the start and end point, they may only generate fund flows without establishing lasting balances. This is where the argument that "the forex market is huge" is overstated. The BIS 2025 survey shows that the global OTC forex trading volume is about $9.6 trillion daily, with spot trading accounting for about 31% ($3 trillion), and 89% of trades involve one party being USD. However, trading volume does not equate to cash that must remain somewhere for settlement. Once multilateral net settlement is applied, the required capital occupation will significantly reduce: the major PvP settlement system CLS reports that net settlement can reduce total payment amounts by about 96% and capital requirements by about 99%. Most of this activity is institutional, and the balance sheets are still denominated in fiat currency. Therefore, moving the settlement process on-chain requires two mutually reinforcing shifts: more participants willing to hold non-USD balances on-chain; and sufficient on-chain forex liquidity to make this operation lower-cost and secure. In the early stages, this "chicken or egg" game limited how much capital could "accumulate" on-chain.

To achieve growth in the coordination layer, non-USD stablecoins must become the temporary holding place before fund actions: receiving, paying, and liquidity management occurring around the clock. This requires them to be more convenient holding nodes than traditional banks and wallets, overcoming user inertia and network effects, and meeting compliance, accounting, and operational risk standards. If these thresholds are not met, stablecoins can only serve as transmission pipes, while balances will remain off-chain.

Second Layer: Savings (Funds Held for Value Appreciation)

The second layer is the savings layer: funds held to maintain purchasing power over the long term. In many emerging markets, this layer has already seen a separation in currency. People can earn and spend in their local currency while saving in a stronger currency like the USD. The "spending" channel and "savings" channel do not have to be the same.

For non-USD stablecoins to scale at this level, they must become genuinely attractive savings tools denominated in that currency. While yield is important, the time to liquidity is equally critical. Traditional savings products may be slow in transactions (e.g., with deadlines, T+1 settlements, lock-up periods, etc.). The competitive advantage of on-chain cash products lies in making savings liquid: easily transferable, redeemable, and rotatable around the clock. Overseas demand is also crucial: the ability to conveniently access foreign currency market rates can attract non-resident funds.

Yield is clearly an important factor, but the product form is also significant. As mentioned earlier, interest-bearing products may have securities characteristics, thus requiring scaling through regulated platforms or account-level incentive programs.

Third Layer: Investment and Backup Funds (Funds Awaiting Allocation to Risk Assets)

The third layer is the investment layer: funds parked in brokers, exchanges, and investment apps, waiting for allocation. This pool of funds has structural permanence because investment behavior is typically non-continuous, settlements cannot be completed instantly everywhere, and users value choice. Even if cash only accounts for single or low double-digit percentages of client assets, its total amount remains substantial at scale. For example, Charles Schwab reports that client cash accounted for 9% of total client assets at the end of the quarter. Brokers and cryptocurrency platforms often hold cash-like balances in single to low double-digit percentages, which also tend to represent a low proportion of client assets.

For institutions, this layer also includes collateral and margin for positions held. With the growth of tokenized funds and securities, on-chain cash is increasingly becoming collateral and settlement assets. This is one of the largest pools of cash-like balances currently existing that could migrate on-chain, requiring relatively minor changes in end-user behavior since platforms and custodians can change default settings. The extent of its migration depends on how much the on-chain cash layer reduces end-to-end friction in specific markets relative to implementation and coordination costs.

Enabling Factors and "Pathway Projection"

The common logic running through these three layers is that balances will not simply migrate on-chain because people suddenly want "stablecoins." Funds will only migrate when the on-chain cash layer can release higher capital efficiency with lower friction. This is the story of BaaS 2.0: if fintech companies can build compliant financial workflows on-chain cheaper and faster than on traditional core systems, users may never notice the existence of stablecoins, but they will start leaving balances there.

Distribution is the second key enabling factor. Platforms that already hold client assets (brokers, exchanges, wallets, custodians) can adjust default settings and migrate balances with minimal changes in user behavior. Infrastructure is the third key: reliable deposit and withdrawal channels, 24/7 liquidity, and compliance and accounting tools. Without these, even if the technology itself is feasible, funds will not "stay" on-chain.

A reasonable sequence of evolution is: first, savings-type on-chain cash (yield + liquidity timeliness), typically distributed through regulated platforms or account-level packaged products; next, as tokenized assets and on-chain markets mature, the same on-chain cash is reused as investment funds and collateral; finally, once on-chain workflows are reliable enough to handle recurring obligations at scale, coordination layer balances will follow.

Conclusion: Fund Accumulation Pool + Timing

Non-USD stablecoins do not lack demand for better transmission channels; what they lack is a lasting fund accumulation pool. Unless non-USD on-chain cash becomes the default temporary holding asset for daily operations, a reliable savings tool, or the funding end of investment platforms, it will always remain just an underlying transmission pipe. The development path is clear: utility density attracts balances, platforms switch default settings, and infrastructure eliminates friction. After that, the question is no longer "Can it be achieved?" but rather "Where to start first, and how fast?"