Stablecoins as FX Markets as Dividend Characteristic of Liquidity: Eco CEO
Stablecoins behave like a decentralized foreign exchange market, with liquidity spread across blockchains and pools, creating price volatility and bypassing fair access to the dollar exchange.
Moving stable coins seems easy on the surface. But under the hood, it's multi-level marketing that often goes over chains and pools.
Ryne Saxe, CEO of stable coin infrastructure company Eco, said: “This foreign exchange market onchain is a very special case, and this leads to bad user experience, unexpected slippage, transaction changes and unknown information when moving your dollars from point A to point B.
Stablecoins now have a market capitalization of over $320 billion, led by Tether's USDt (USDT) and Circle's USDC (USDC).
But when institutions and large traders enter the market, moving large amounts of stable coins becomes difficult to do cleanly.
Stablecoins are not as fungible as they seem
A stablecoin can be pegged to the dollar – or other fiat currencies – but not traded as a composite asset, with liquidity in issuers, blockchains and decentralized finance (DeFi) spaces, each with its own depth, pricing and access conditions.
“Stablecoins, in between, are not very fungible,” Saxe said. “The different profiles between those markets, pricing and moving stablecoins smoothly and efficiently is really a difficult problem that people take for granted.”
In practice, a dollar stablecoin on one chain may not be equivalent to the same asset elsewhere. Differences in collateral support, market access, and liquidity depth create widening price gaps in large or thin markets.
Those differences are negligible in liquid markets and small transactions. But as transactions increase, the gaps widen.
“The more mainstream DeFi markets are focused on statcoins, the more chains are focused on stablecoins, the more stablecoin assets there are, the more decentralized they are,” he said. “People think these are just dollars, but they really aren't.”
In a March report, payments startup Borderless pointed out that price differences in stablecoins largely depend on where liquidity is generated.
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The report covers hourly buying and selling prices in February in 66 stable coin-to-fiat corridors — or conversion channels such as USDC to Mexican pesos — covering 33 currencies and seven blockchains. The data shows that USDC and USDT traded almost identically in most cases.
Large differences exist at the carrier level, where pricing gaps within the same corridor can exceed hundreds of basis points, making performance quality dependent on liquidity access and ubiquity.
Stablecoins tend to be difficult to move in size
As stablecoins currently have, their market structure is similar to that of foreign exchange, with dollar proxies spread across disconnected markets, Sachs said. That will be more visible in large stablecoin movements between chains.
Stablecoins have become a hub for institutions entering digital assets, commerce, cross-border payments and onchain treasury management. Organizations rely on them to move capital between locations, settle trades and access product opportunities in DeFi markets.
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Unlike retail users, institutions often move tens of millions of dollars at a time, and execution must be fast, predictable and efficient.
“If liquidity expands, trying to sell $10 million of a stable coin and buy $10 million in one move will move the market,” he said. “Usually what needs to happen is to break that transaction into multiple branches, which can be routed separately and collected at the destination.”
Interruption in such cases will be a ban. Instead of drawing funds from a single dollar pool of funds, institutions must explore multiple chains, issuers and locations, each with different liquidity conditions. Moving the volume can change prices, require trading and introduce uncertainty into performance.
“Currently, they don't have the risk management, trust and infrastructure needed to move or hold multiple stablecoins in default,” Sack said.
Stablecoins need infrastructure, not additional supply
Companies are starting to build infrastructure to address these gaps, but based on different assumptions about what exactly the problem is.
Circle is taking stablecoins as the foundation of a new FX system where multiple currencies, liquidity providers and settlement layers are connected through a common infrastructure. Meanwhile, Eco concentrates on routing and execution by aggregating liquidity in fragmented markets.
Both approaches refer to the case of stable coins on multiple chains or issuers, but the fluid behind them is fragmented and uneven. Moving funds requires interaction with distributed liquidity, which introduces price differences, complexity and execution risk.
“Distribution creates more spread between prices, which means worse execution in many cases. To solve this, you need to read the markets, look at the whole liquidity picture, even if it's fragmented,” Sack said.
For institutions, that complexity directly limits how much capital can move through the chain. As Saxe explained, stable coin flows need to be more predictable before institutions have the risk management and trust needed to move or hold large amounts on-chain.
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