Today’s blog will cover four topics: What are the differences between stablecoins? Why would consumers and businesses want to hold value in stablecoins? How will stablecoins be exchanged? Who is best placed to manage the exchange? The financial system is not converging on a single digital dollar but is instead accelerating toward a fragmented ecosystem of multiple, distinct stablecoins. Recent announcements from Fiserv, PayPal, Walmart, Amazon, J.P. Morgan, Bank of America, Wells Fargo, the ECB, and XRP for the Digital Euro Pilot (hey, that rhymes) confirm this trajectory. The near future seems likely to be chaotic, with all major players laying claim to the space. This will likely result in a proliferation of digital currencies, each with unique rules and underlying technologies. Today’s blog attempts to answer four core questions surrounding the exchange of value and trust (extending last week’s blog, Stablecoins as a Trust Platform ): How will these stablecoins differ at a technical and governance level? Why would consumers or businesses want to hold stablecoins? What are the precise mechanics of their exchange? Who is strategically positioned to manage this complexity? The Anatomy of a Stablecoin The substantive differences between stablecoins extend far beyond their simple peg to a fiat currency. These differences are engineered at the smart contract and network levels, defining their utility, governance, and economic models. Most stablecoins today are implemented as smart-contract tokens on public blockchains. On Ethereum, fungible token standards like ERC-20 define the basic stablecoin contract interface (transfer, balance, etc.), allowing any wallet or exchange to interoperate. Ethereum-based coins like USDC or Tether are essentially ERC-20 contracts with added controls (e.g., upgradeable logic or the ability to freeze illicit accounts). Solana’s blockchain has a similar token model through the Solana Program Library (SPL). Until recently, Solana’s SPL tokens offered bare-bones functionality akin to ERC-20. However, the new Token-2022 program introduces extensible features tailored for stablecoins and institutional use. Key Innovations in Solana’s Token-2022 Transfer Fees Token issuers can configure an automatic fee on every transfer at the protocol level. This means a stablecoin issued under Token-2022 could natively deduct a fee on each transfer as revenue or to cover costs—a capability not available in standard ERC-20 tokens. (Notably, PayPal’s PYUSD stablecoin on Solana has initialized the fee extension but currently sets fees to zero.) Permanent Delegate This feature designates a special authority address that has global control over all tokens of that mint. A permanent delegate can transfer or burn any token units from any user’s account, effectively acting as an all-powerful administrator. My summary is that it enables the issuer to exert control in a public blockchain (versus a closed ledger). This sounds alarming to crypto purists, but it is critical for compliance in regulated stablecoins, allowing the issuer to seize or freeze funds if required by law enforcement. Transfer Hooks and Confidential Transactions Token-2022 also supports programmable hooks (calling custom logic on each transfer) and optional privacy for transaction amounts. Transfer hooks could enable complex rules—such as automatic compliance checks or notifications on large transfers—directly in the token contract. Confidential transfers allow hiding the amounts moved between parties while still permitting an auditor to review them. Open Chains, Closed Chains, and Centralized Trust Despite running on public blockchains, regulated stablecoins fundamentally rely on centralized trust in their issuer. The issuer holds the reserve assets and promises redemption at par. It also sets the rules for how the token can be used and by whom. Token features like Solana’s permanent delegate simply reinforce this reality. A “stable” coin’s stability and legitimacy stem from off-chain agreements and legal frameworks, not just code. In fact, many bank-led stablecoin initiatives choose to operate on permissioned ledgers rather than fully open chains. For example, J.P. Morgan’s Kinexys platform (the successor to JPM’s Onyx) has built a permissioned blockchain for deposit tokens. Their recently announced JPM Dollar (JPMD) token is explicitly a permissioned digital USD that will run on a semi-public network (Base) but only be usable by whitelisted institutional clients. This hybrid approach attempts to combine the best of both worlds: the speed and interoperability of a blockchain with the control and compliance of traditional finance. In a closed or consortium blockchain (e.g., Hyperledger Fabric or a private Ethereum fork), every participant is a known, vetted entity. Smart contracts can enforce bespoke rules such as: Automatic reversals Spending limits Dispute arbitration A stablecoin on such a network essentially becomes an electronic ledger entry between trusted parties. This model is not so different from how bank balances settle today, except using blockchain for efficiency. For instance, a consortium of banks could issue a stablecoin that is only valid among members, with transaction rules mirroring existing payment networks. Delegation of authority in a public-chain token achieves a similar outcome: it makes a public token behave as if it were running in a walled garden. The trade-off is the introduction of a centralized point of control—and failure—on what is otherwise a decentralized platform. In practice, stablecoin issuers often sacrifice decentralization in favor of accountability, compliance, and legal recourse. Stablecoin Rules and Designs (Note: ChatGPT helped me in this section.) With potentially dozens of new stablecoins on the horizon, no two may be exactly alike. Reserve Backing and Legal Status Some stablecoins are backed 1:1 by cash or Treasury bills held by an issuer (e.g., USDC, USDT), whereas others could be tokenized bank deposits (essentially liabilities on a bank’s balance sheet, like JPMD). Upcoming U.S. legislation—the GENIUS Act in the Senate and the STABLE Act in the House—will require payment stablecoins to maintain 1:1 reserves in safe assets and be issued by regulated entities. The rationale is to prevent stablecoins from functioning like money market funds or bank accounts without regulation. Deposit-token models, by contrast, could pay interest because they are essentially tokenized bank accounts. Thus, one stablecoin might represent a claim on a trust account at a custodian, while another represents a claim on a bank’s general ledger. Blockchain and Smart Contract Features The rules encoded in each stablecoin can vary widely. One USD-pegged token might be freely transferable between any addresses, while another might only move between KYC-verified wallets or require compliance checks on every transfer. Enterprise stablecoins will likely implement: Whitelist restrictions Velocity limits Blacklisting capabilities Metadata controls Contract-enforced terms Stablecoin A’s operational code could be materially different from Stablecoin B’s, even if both are “1 USD” tokens on the surface. Governance and Delegated Authority Who can change the coin’s parameters or intervene in transactions? Some stablecoins have upgradeable proxy contracts controlled by the issuer. Others may be immutable once deployed. Stablecoins may also delegate certain powers to trusted third parties. For example: Government agencies Consortium governance bodies Compliance authorities Each coin’s governance model will be a major differentiator. Use of Banking Infrastructure Some banks have signaled plans to offer real-time sweep mechanisms for stablecoins. This means that if a customer receives a stablecoin, the bank could automatically sweep those funds into an insured deposit account (and vice versa) in real time. This creates a compelling combination: Instant blockchain payments FDIC-insured balances Interest earnings when idle Conversion and Redemption Rules Stablecoins also differ in how they can be redeemed. Key considerations include: Who can redeem Minimum redemption sizes Fees Speed of redemption Fiat conversion options If Stablecoin X is difficult to redeem while Stablecoin Y can be redeemed immediately through a bank, users will naturally trust and prefer Y. Purpose and Domain Stablecoins may also differ by intended use case. Examples include: General-purpose payment stablecoins Retail ecosystem stablecoins Supply-chain settlement coins Interbank settlement tokens Crypto-native finance coins Emerging-market savings vehicles In light of these differences, we won’t have 1,000 indistinguishable stablecoins. Instead, we will have many variants, each with its own rulebook and functionality. Exchanging Stablecoin A for Stablecoin B If a business holds Stablecoin A but needs to pay a counterparty who accepts Stablecoin B, how does that exchange happen? 1. Through a Market or Exchange The most straightforward path is through a centralized or decentralized exchange. Because both stablecoins target a $1 value, exchange rates should remain close to 1:1, subject to fees and market friction. 2. Through a Cross-Chain Bridge or Swap Protocol Users can move value between chains using: Bridges Wrapped assets Atomic swaps Custodial intermediaries Atomic swaps ensure either both transfers occur or neither occurs, eliminating settlement risk. 3. Through Institutional Interoperability Banks may eventually coordinate direct burn-and-mint exchanges between networks. In this model: Stablecoin X is burned. Proof is transmitted. Stablecoin Y is issued. Settlement occurs atomically. This effectively becomes a blockchain version of a two-phase commit. Why Hold a Stablecoin? If banks and exchanges make conversion seamless, why hold a stablecoin at all? I see two primary scenarios. A Closed-Loop Economy An ecosystem such as Amazon or Walmart could create a stablecoin that circulates among: Customers Suppliers Vendors Service providers The objective is to reduce banking costs and improve cash management. The carrot is: Instant funds availability Dollar stability Countries with Weak Local Currencies In economies suffering from inflation or currency instability, a USD-denominated stablecoin can become a superior store of value. In these environments, users care most about: Access Stability Easy conversion back to fiat In both scenarios, only a few stablecoins are likely to achieve meaningful network effects. Who Will Manage a Multi-Stablecoin World? The emerging consensus is that banks and major financial institutions are best positioned to manage stablecoin exchange and interoperability. Banks are already payment hubs connected to virtually every financial network. That expertise naturally extends to stablecoins. We already see evidence: JPMorgan, Bank of America, Citi, Wells Fargo are evaluating jointly issued stablecoins. In Europe, the ECB is encouraging banks to explore euro-denominated stable tokens. Large regulated exchanges will also play an important role. Examples include: Coinbase NASDAQ ICE Major fintech processors However, I believe banks have the strongest strategic position. Stablecoin exchanges increasingly resemble clearinghouses, and banks have historically owned the clearing function. In my view, your bank’s mobile app will eventually manage stablecoin conversion seamlessly behind the scenes. Consumers may never notice. Why Banks and Not Purely Decentralized Solutions? Because when things go wrong—fraud, lost keys, technical failures, or bugs—businesses, regulators, and consumers will want a THROAT TO CHOKE . Banks have accumulated plenty of red marks on their necks over the years (mostly from the CFPB), but they have also earned their role as the regulated adults in the room. What Are the Core Factors of Success for a Stablecoin Issuer? Bank On/Off Ramps Easy integration with banks and fiat systems. Regulatory Approval Regulatory clarity builds trust and institutional adoption. Stablecoin Construction Strong smart contract design, compliance controls, and scalability. Legal and Commercial Contracts Clear holder rights, governance, reserve management, and redemption policies. Merchant and Network Acceptance Network effects remain the strongest driver of adoption. End-User Wallet Support and UX Consumers will choose the easiest stablecoin to use. Cost to Convert or Use Low transaction costs and low conversion fees will matter significantly. Wrap-Up In conclusion, stablecoin exchanges between different tokens will be feasible and technically straightforward thanks to smart contracts and collaborative frameworks. The heavy lifting will be done behind the scenes by banks, exchanges, and potentially new clearing utilities. While many stablecoins may emerge, the market will likely gravitate toward a handful of trusted, regulated coins that offer the best combination of: Stability Utility Trust Low friction Those dominant stablecoins will become nearly interchangeable at par value, effectively creating a unified digital-dollar network even if multiple tokens and blockchains operate underneath. As we stand at the early stages of this evolution, the focus for technologists and policymakers is on building the infrastructure of trust: robust smart contract standards, such as Solana’s Token-2022, and clear regulatory guardrails, such as those envisioned in the GENIUS Act. Stablecoins will succeed when they stop being exotic and become explicitly understood by users—when and where they should be used, how they are stored, and how they are converted. Only then will they become another transparent piece of plumbing in the global financial system. IMHO, this level of ubiquity is still a very long way away—except in areas that are not well served by existing payment networks and banks.