Why Stablecoins May Never Escape Traditional Banking Risks, According to Frgmnt CEO

The global narrative surrounding fiat-pegged digital assets is undergoing a decisive shift. While early adoption was driven by complex decentralized finance (DeFi) protocols and yield farming, the core value proposition for end users—particularly in emerging economies—has centered on baseline financial survival, currency protection, and bypassing slow, expensive legacy banking rails. According to Roussel, the future of the asset class relies on embedding blockchain infrastructure directly into mainstream commerce so that the underlying technology operates invisibly behind the scenes.

I think the biggest shift is that stablecoins are becoming less about crypto and more about access to dollars, explained Roussel. That user doesn’t necessarily care about DeFi yields. They care about reliability, liquidity, and cost. As this user base expands across payroll, corporate treasury operations, and merchant settlement, managing dormant balances becomes a core operational challenge. Once a user or business already holds digital dollars, a natural question follows: What happens to those dollars when they are not being used? This is where I think the distinction between transactional liquidity and productive liquidity becomes important, he said. The same dollar can remain liquid and available for payments while being deployed into a carefully managed strategy when it is idle.

Managing Banking Counterparty Risk Through Modular Design

The banking sector turmoil witnessed in 2023 exposed structural vulnerabilities at the intersection of onchain digital assets and centralized commercial banks. While stablecoin tokens function as decentralized, programmable assets on public ledgers, their collateral remains firmly anchored within traditional banking facilities. This dependency creates systemic risks that technology alone cannot erase, demanding a shift toward defensive institutional engineering.

I don’t think a fiat-backed stablecoin can ever be completely decoupled from the traditional financial system. The question is how that dependency is structured and how much resilience is built around it, he said. The lesson from previous banking failures is that stablecoin infrastructure needs to assume that individual banking counterparties can fail. To address this reality, Roussel advocates for a modular operational architecture designed to remove single points of failure. Key safeguards include multi-bank reserve diversification, segregated accounts, real-time attestations, and redundant redemption pipelines across multiple trading venues. As Roussel noted, Blockchain doesn’t eliminate traditional financial risk. What it can do is make parts of the financial architecture more transparent, programmable, and auditable. The objective should therefore not be to pretend that stablecoins are completely independent from traditional finance, but to make those dependencies visible, diversified, and manageable.

Network Effects, Market Segmentation, and Regulatory Friction

Tether’s USDT continues to maintain a dominant share of cross-border and emerging-market commercial activity due to deeply embedded liquidity and settlement habits. While emerging competitors frequently position regulatory licensing as their primary advantage, Roussel stressed that regulation by itself is not enough to displace incumbent tokens with vast trading volumes.

Network effects are extremely powerful in money, said Roussel. Once a stablecoin has deep liquidity, broad exchange support, merchant acceptance, and strong distribution in a particular market, replacing it becomes difficult. Despite these barriers, Roussel anticipates an increasingly segmented landscape rather than a monopoly. Institutional buyers are expected to choose assets based on custody protections, regulatory alignment, and backend integrations. For institutional users in particular, the decision is likely to depend increasingly on transparency, liquidity, regulatory access, custody, redemption, and integration with existing financial infrastructure, Roussel said. So I expect the stablecoin market to become more segmented rather than simply converging on one global winner. The important competitive advantage will increasingly be distribution and infrastructure, not simply the token itself.

This market segmentation must also navigate a fragmented regulatory environment, shaped by jurisdictional initiatives like the European Union’s Markets in Crypto-Assets (MiCA) regulation. Comparing the sector’s trajectory to the development of the internet, Roussel argues that cross-border utility can survive diverse regional regimes if standards are aligned. The internet itself operates across very different legal systems, Roussel said. What emerged was not one global regulatory framework, but common technical infrastructure combined with local rules at the points where that infrastructure interacts with regulated economies. I expect something similar with stablecoins. He added: The industry should aim for regulatory interoperability, even if full regulatory harmonization is unrealistic. Standards around reserve transparency, attestations, identity, compliance, and redemption could become increasingly interoperable across jurisdictions. In that model, the protocol layer remains global, while regulated access points are localized.

Coexistence With CBDCs and the Rise of Productive Capital

As sovereign central banks test central bank digital currencies (CBDCs), concerns have surfaced regarding whether state-backed digital currencies might render private stablecoin offerings obsolete. Roussel, however, envisions complementary roles between sovereign units of account and private sector commercial rails.

I see private stablecoins and CBDCs as more likely to coexist than simply compete, Roussel suggested. A CBDC can provide a sovereign form of digital money, but money is only one part of the financial stack. Users and businesses also need wallets, distribution, liquidity, cross-border connectivity, payments, credit, and treasury infrastructure. He highlighted the broader implications of state involvement: If CBDCs become widely used, they could actually reinforce the broader transition toward programmable digital money. Ultimately, I think the market will be less about CBDC versus stablecoin and more about how different forms of digital money interact with the financial infrastructure around them.

Simultaneously, the widespread migration of settlement traffic to Layer-2 rollups and high-throughput networks has slashed network fees to fractions of a cent, altering the underlying business model for the digital payments ecosystem. If the transaction itself becomes almost free, issuers and infrastructure providers cannot rely primarily on transaction fees, Roussel observed. They will increasingly compete through distribution, liquidity, financial services, treasury products, and the ability to build useful services around the stablecoin. This structural evolution informs the mission of Frgmnt, which targets moving digital currencies beyond static exchange instruments into automated, productive capital. A stablecoin shouldn’t just be a cheap way to move dollars. It can become a programmable financial asset that can move, settle, earn, and interact with financial infrastructure, Roussel said. And once the marginal cost of moving that dollar approaches zero, the economic value increasingly comes from what you can build around the dollar rather than from the transaction itself. That’s a very important transition for the industry: from cheaper payments to programmable and productive capital.

Why This Matters

The maturation of stablecoin infrastructure signifies a transition from retail crypto market trading toward foundational international banking and commerce. By addressing offchain custodial exposure through multi-entity diversification, issuers are formalizing operational frameworks to avoid the liquidity cliffs witnessed during prior banking crises. Furthermore, the convergence of near-zero transaction costs on Layer-2 blockchains with institutional-grade compliance forces market participants to build revenue on capital efficiency and treasury tools rather than transactional tollbooths, setting the stage for digital currency to act as fully integrated, productive capital inside global corporate balance sheets.

Frequently Asked Questions

Why are stablecoins gaining traction over traditional DeFi products in emerging markets?

End users and businesses in developing economies utilize stablecoins primarily as accessible, low-friction tools to preserve purchasing power against domestic currency devaluation and avoid high transaction fees in traditional banking, prioritizing liquidity and stability over complex DeFi yield mechanisms.

Can fiat-backed stablecoins decouple completely from the traditional banking system?

No. Fiat-collateralized stablecoins ultimately rely on commercial banks to hold cash and cash-equivalent reserves. According to Roussel, the realistic strategy is not total decoupling, but mitigating counterparty risk through modular frameworks, multi-bank reserve segregation, and transparent, real-time attestations.

How does the compression of Layer-2 blockchain fees affect stablecoin business models?

As Layer-2 execution and settlement costs drop to near zero, stablecoin issuers and infrastructure providers can no longer rely on transaction fees as a primary revenue stream. Instead, firms must differentiate through ancillary financial services, distribution networks, enterprise treasury capabilities, and productive yield-generating integrations.