What will the "ultimate form" of the stablecoin chain be like?

Written by: Terry Lee

Compiled by: Saoirse, Foresight News

In less than 12 years, stablecoins have evolved from niche cryptocurrency experiments to an asset class valued at over $280 billion. As of September 2025, their growth momentum continues to accelerate. Notably, the rise of stablecoins is driven not only by demand but also by a clearer regulatory environment — the U.S. recently passed the GENIUS Act, and the EU has also introduced the Markets in Crypto-Assets (MiCA) regulation. Today, major Western countries have officially recognized stablecoins as a legitimate cornerstone of the future financial system. Interestingly, stablecoin issuers are not only "stable" but also highly profitable. Driven by the high interest rate environment in the U.S., USDC issuer Circle announced that its revenue for the second quarter of 2025 reached $658 million, primarily from the interest generated by reserves. As early as 2023, Circle had already turned a profit, with a net income of $271 million.

Source: tokenterminal.com, current stablecoin circulating supply data

This profitability naturally triggers competition. From Ethena's launch of the algorithmic stablecoin USDe to Sky's issuance of USDS, numerous challengers have emerged, trying to break the dominance of Circle and Tether. As the focus of competition shifts, leading issuers such as Circle and Tether begin to adjust their strategies, working on building their own Layer 1 blockchains, aiming to control future financial channels. These financial channels can not only deepen their competitive advantages and generate more fees but also potentially reshape the circulation of programmable money on the internet.

A trillion-dollar question arises: Can industry giants like Circle and Tether withstand the impact of disruptors like Tempo (native entrants that are not stablecoins)?

Why choose Layer1 blockchain? Background analysis and differentiated features

Essentially, Layer 1 blockchains are the foundational protocols that support the entire ecosystem, responsible for processing transactions, completing settlements, reaching consensus, and ensuring security. For readers in the tech field, it can be understood as the "operating system" of the cryptocurrency space (for example, Ethereum, Solana), upon which all other applications are built.

For stablecoin issuers, the core logic of laying out Layer 1 blockchains is to achieve "vertical integration." They no longer rely on third-party blockchains like Ethereum, Solana, and Tron, nor do they depend on Layer 2 networks, but actively create their own channels to capture more value, strengthen control, and better align with regulatory requirements.

To understand this "struggle for control," we can take a look at the Layer 1 blockchains of Circle, Tether, and Stripe: they share common characteristics while also pursuing different development paths.

common characteristics

Using the stablecoin issued by itself as the native currency, there is no need to hold ETH or SOL to pay for Gas fees. For example, on Circle's Arc blockchain, transaction fees must be paid in USDC; while in certain scenarios (such as Tether's Plasma chain), transaction fees are completely waived.

High throughput and fast settlement: These Layer 1 blockchains all promise to achieve "sub-second finality" (irreversible in a very short period after the transaction is completed), with transactions per second (TPS) reaching thousands — ranging from over 1000 TPS for the Plasma chain to over 100,000 TPS for Tempo under Stripe.

Optional privacy protection and compliance environment: These blockchains create a "curated crypto ecosystem" with stronger privacy protection and higher compliance, but the cost of this advantage is a certain degree of centralization.

Compatible with the Ethereum Virtual Machine (EVM): Ensures that developers can build applications based on familiar development standards, lowering the technical barrier.

Core differences

Circle's Arc: Designed for both retail and institutional users. Its self-developed forex engine is highly attractive for capital market trading and payment scenarios, and is expected to become the "preferred channel of Wall Street" in the crypto space.

Tether's Stable Chain and Plasma Chain: Centered around "accessibility," it introduces a zero gas fee design, making the transaction process smoother and frictionless for retail users and peer-to-peer (P2P) users.

Stripe's Tempo: It has chosen a different path, maintaining "stablecoin neutrality." It does not tie itself to a specific stablecoin but supports multiple dollar stablecoins through an integrated automated market maker (AMM), which may be more attractive to developers seeking flexibility and users not limited to a single dollar token.

The trend of application landing for Layer1 blockchains

According to my analysis, there are currently three main trends:

Trend 1: Traditional Financial Access - Trust Building and Compliance Adaptation

For stablecoin issuers, the key goal of building their own Layer 1 blockchain is to "gain trust." By controlling channels or ecosystems, rather than solely relying on third-party networks like Ethereum and Solana, Circle and Tether can more easily provide "compliance-ready" infrastructure, ensuring they meet regulatory framework requirements such as the U.S. "GENIUS Act" and the EU's MiCA.

Circle has positioned USDC as a "compliant product": institutions responsible for the redemption of USDC for USD must adhere to KYC and anti-money laundering (AML) compliance frameworks. Its newly launched Layer 1 blockchain, Arc, takes it a step further by combining "auditable transparency" with "privacy protection features", making it a potentially reliable choice for institutional users. Tether has also adopted a similar strategy through the Stable chain and Plasma chain, aiming to become the "infrastructure pillar" for banks, brokers, and asset management companies.

Under this trend, the "ideal application scenario" may be foreign exchange trading. With Circle's Arc blockchain — sub-second finality and over 1000 TPS throughput, combined with foreign exchange processing capabilities — market makers and banks can achieve instant settlement of foreign exchange transactions. This creates opportunities for them to enter the foreign exchange market, which has a daily average volume exceeding $7 trillion, thereby forming strong network effects. Stablecoins like USDC and EURC are expected to become "native settlement assets," firmly locking developers within their ecosystem. At the same time, this may also open doors for DeFi applications: supporting institutional-level "pricing systems," reducing counterparty risk through smart contracts, and achieving rapid settlement.

(Note: This scenario is an example, assuming that data is obtained using Chainlink oracles)

(Illustration: The process of traders completing transactions through the Circle Layer1 blockchain)

Take a specific example: a foreign exchange trader in Paris can complete a 10 million dollar exchange from USD to EUR through the USDC/EURC trading pair on the Arc blockchain, using the Malachite foreign exchange engine. Assuming the real-time exchange rate is obtained through the Chainlink oracle (for example, 1 USD = 0.85 EUR), the entire transaction can be completed within 1 second - reducing the traditional foreign exchange trading "T+2" (settlement period of 2 days after the transaction) to "T+0" (real-time settlement). This is the transformation brought about by technology.

Source: "Growth and Market Dynamics of Stablecoins" by Vedang Ratan Vatsa

Research data also supports this direction. Vedang Ratan Vatsa's study indicates that the supply of stablecoins is significantly positively correlated with transaction volume: the larger the supply, the deeper the liquidity, and the higher the degree of application implementation. As the two major issuers, Tether and Circle undoubtedly have the advantage of capturing this institutional capital flow.

However, the integration of traditional finance and blockchain channels still faces significant challenges: coordinating regulatory agencies, central banks, and regional laws, which requires navigating a complex environment (for example, achieving alignment with multiple central banks may take years); issuing stablecoins for emerging market currencies is even more challenging—if the product does not match market demand, it may lead to slow adoption or even a lack of interest; even if these obstacles are overcome, banks and market makers may take a cautious approach to migrating "critical infrastructure" to new channels—migration may not only increase costs (not all currencies have been fully digitized on the blockchain, and institutions need to maintain both traditional and crypto systems), but also involve uncertainty. Furthermore, with Circle, Tether, Stripe, and even banks launching their own blockchains, the risk of "liquidity fragmentation" is exacerbated: if no single channel can achieve sufficient scale and liquidity, it may struggle to dominate in the daily $70 trillion foreign exchange market.

Trend 2: Can stablecoin chains pose a threat to traditional payment channels' established institutions?

As Layer 1 blockchains attract traditional financial institutions with their "programmability," their rise may pose a challenge to traditional payment giants like Mastercard, Visa, and PayPal. This is because Layer 1 blockchains can provide "instant, low-cost" settlement services through various decentralized applications. Unlike the "closed single platform" of traditional payment giants, these blockchain channels are "open and programmable": they offer developers and fintech companies a flexible foundation, similar to "renting AWS cloud services" rather than "building their own payment infrastructure." This shift enables developers to quickly launch applications such as cross-border remittances, AI-driven payments, and tokenized assets, while achieving "near-zero fees" and "sub-second settlements."

For example, developers can build an "Instant Settlement Payment DApp" on the stablecoin chain: merchants and consumers can enjoy fast, low-cost transactions, while Layer 1 issuers like Circle, Tether, and Tempo serve as the "core infrastructure" to capture value. The biggest difference is that this model eliminates intermediaries like Visa and Mastercard, allowing developers and users to directly obtain more benefits.

However, risks also exist: as more issuers and payment companies launch their own Layer 1 blockchains, the ecosystem could fall into "fragmentation"—merchants may have to deal with "dollar tokens" from different chains, and these tokens may have interoperability issues. Circle's "Cross-Chain Transfer Protocol (CCTP)" attempts to address this problem, aiming to keep USDC as a "single liquid version" across multiple chains, but this protocol is only applicable to Circle's tokens, limiting its coverage. In this "oligopolistic competition" market, "cross-chain interoperability" could become a key bottleneck.

Recently, Stripe announced the launch of Tempo (a stablecoin-neutral Layer1 blockchain incubated by Paradigm), further changing the market landscape. Unlike Circle and Tether, Stripe has not yet launched its own stablecoin, but instead supports multiple stablecoins for payments and gas fees through a built-in AMM. This "neutrality" may be highly attractive to developers and merchants - without being bound to a single stablecoin, there is greater flexibility, which also gives Stripe the potential to break into the field dominated by "crypto-native companies."

Trend Three: Dual Oligopoly Pattern - Competition Between Circle and Tether

While Layer 1 blockchains challenge traditional players, they are also reshaping the landscape of the stablecoin market. As of September 2025, Circle and Tether dominate the stablecoin market, collectively controlling nearly 89% of the issuance — with Tether accounting for 62.8% and Circle for 25.8%. By launching Layer 1 blockchains like Arc and Stable / Plasma, both further consolidate their advantages and set high barriers to entry (for example, the token sale cap for Tether Plasma chain's "gold reserves" reaches $1 billion, significantly increasing the difficulty for new players to enter). Measured using the "Herfindahl-Hirschman Index (HHI)" (a market concentration metric), the current stablecoin market HHI is 4600 (62.8²+25.8²≈4466), far exceeding the traditional market "antitrust review threshold" (2500).

However, a potential threat is emerging - "neutral stablecoin Layer 1 blockchain." Stripe's Tempo has lowered the access threshold for merchants and alleviated regulators' concerns about "market concentration." If the "neutral model" becomes the industry standard, Circle and Tether's "closed competitive advantages" will turn into disadvantages: they may lose network effects and market attention. At that time, the current "dual oligopoly pattern" may shift to a "multipolar oligopoly pattern," with different channels occupying their respective niche markets.

Conclusion

In summary, stablecoins have become an important sector with a scale exceeding $280 billion, and the issuers are highly profitable; at the same time, Layer 1 blockchains based on stablecoins are emerging, showing three key trends: (1) promoting the access of traditional finance to crypto-native channels, tapping into the continuously growing foreign exchange market; (2) reshaping the payment field by removing intermediaries like Mastercard and Visa; (3) driving the market structure from a "dual oligopoly" (HHI 4600) to an "oligopoly". These transformations collectively point to a grander direction: issuers of stablecoins like Circle and Tether, as well as new entrants like Stripe's Tempo, are no longer just "bridges between cryptocurrencies and fiat currencies", but are gradually positioning themselves as the "core of future financial infrastructure".

Ultimately, this raises a question for readers: how do these blockchain channels achieve "product-market fit"? Whether it is Circle's Arc, Tether's Stable/Plasma, or challengers like Stripe's Tempo among stablecoins, who can lead in "transaction volume" or "institutional application implementation"? Despite the numerous opportunities, challenges such as liquidity fragmentation cannot be ignored.

Reference Material

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[5] Stablecoin Growth and Market Dynamics by Vedang Ratan Vatsa[5]

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