Author: Nico Pei, Founder of Superno va
Compiled by: Felix, PANews
Editor’s Note: How can new stablecoin issuers stand out amid the dominance of Tether and Circle? The founder of Supernova, which specializes in on-chain interest rate swaps, argues that the most practical and efficient path is to build synthetic foreign exchange on top of USDT/USDC, providing global users with a local currency experience. Below are the key highlights.
Key points:
- Stablecoin-backed banks are the next major growth area for mass retail adoption of cryptocurrency, with foreign exchange becoming an integral part of their underlying infrastructure.
- Tether and Circle have spent over a decade building extensive liquidity, distribution channels, and network effects around USDT and USDC—something that is extremely difficult for new fiat-backed stablecoin issuers to replicate.
- Instead of competing by issuing spot foreign exchange stablecoins, adopt synthetic foreign exchange: users continue to hold the underlying USDT/USDC, while their account balances are denominated in their preferred local currency.
Stablecoin banks are moving beyond the realm of crypto-native banks, transforming how consumers and businesses transact globally. Over the past year, approximately $6 billion in venture capital has flowed into this space.
However, given the current on-chain foreign exchange infrastructure, stablecoin neobanks have effectively become "banks that can only open USD accounts." This limitation, paradoxically, creates tremendous opportunity, as 95% to 99% of regions worldwide use non-USD currencies for accounting.
Spending increased 24 times over the year, transitioning from a trading tool to a daily currency.
A friend from Tether once said that diversifying the holder base is one of the company’s three most important goals. If the holder base is dominated by whales, USDT’s TVL could experience uncontrollable volatility. All stablecoin issuers aim to win over retail and business users who use stablecoins for everyday transactions and banking, rather than more traders or whales.
It’s far better for 1 billion people to each hold $10 in USDT than for a single whale to control $10 billion.
The new bank for stablecoins presents the perfect opportunity to bring stablecoins to everyday retail users and businesses. Beyond cryptocurrency trading, the general public will experience the convenience and advantages of stablecoins as a medium of exchange, store of value, and investment asset—surpassing the current scale bottleneck dominated by trading.
This is a snapshot of the growing momentum behind stablecoin banking: In 2025, crypto card spending surged 525%, rising from $14.6 million to $91.3 million, with ether.fi leading at $55.4 million and achieving a single-day spending peak of $3.7 million on its card. This translates to an annualized stablecoin spending volume of $1.35 billion—a 24-fold increase from last year.
When something grows 24 times in less than a year, you must pay close attention. Meanwhile, ether.fi launched their Euro (EUR) product last week.
The stablecoin new banking arena is an entirely new battlefield, with no absolute winner yet emerged. Since 2018, the stablecoin with the best fiat on- and off-ramp liquidity and broad acceptance on CEXs has been regarded as the best and has captured the majority of growth红利. So, how can one win this new battle? What kind of stablecoin is suitable for new banking services?
Only dollar accounts; it's very hard for stablecoin-based new banks to compete.
Historically, new banks centered around a single currency have failed to gain market recognition. Major fintech giants like Wise, Revolut, and Airwallex have all started with foreign exchange trading. When PayPal went public in 2002, its foreign exchange business accounted for more than 40% of its revenue.
Cross-border fund transfers are significantly more challenging than domestic ones, which is why these successful new banks have the opportunity to excel in the foreign exchange sector and establish market leadership in specific payment channels or among particular consumer or business groups.
Therefore, new banks offering only USD-denominated stablecoins may face significant challenges in development and differentiation, let alone competing with existing fiat new banks. Globally, 95% to 99% of businesses account for transactions in non-USD currencies. Currently, stablecoin new banks cannot serve these businesses or consumers.
700x leverage disparity: Why are forex stablecoins struggling to gain traction?
Although many excellent teams and blockchain ecosystems—particularly Base and Codex—are eyeing opportunities in the foreign exchange market, the harsh reality is that the total value of all forex stablecoins is merely a fraction of the size of USD stablecoins: approximately $600 million compared to $40 billion, a difference of 700 times.
Tether's success demonstrates that stablecoins are a business with powerful network effects. Tether is the highest-quality stablecoin precisely because of the vast network built around it.
Given the very limited TVL of fiat-backed stablecoins, most fiat-backed stablecoins face the following dilemma:
- Insufficient liquidity leads to unstable pegging. (For example, the depegging event that occurred with Paxos Gold on 10/10 could happen to any foreign exchange stablecoin with limited liquidity and TVL. At the time, PAXG had a TVL of $1.2 billion, nearly three times that of EURC, the largest foreign exchange stablecoin.)
- Not accepted by fintech companies or CEXs
- Even if accepted, its fiat deposit and withdrawal liquidity is very limited.
- Insufficient liquidity with key trading pairs, including USDT/USDC
- Almost no profit opportunities
- Compliance and licensing procedures vary significantly by region.
- Most importantly, because the pegging mechanism has not been tested, stablecoins are unlikely to be adopted by new stablecoin banks and the broader fintech industry unless they reach a certain scale. This is a "chicken-and-egg" problem that may take a long time and significant resources to resolve.
High-quality stablecoin
An excellent bank-issued stablecoin must excel in all of the following areas:
- Deposit / Withdrawal Channel Liquidity
- Strong peg stability independent of overall market liquidity
- Yield opportunities
- Main trading pair liquidity
- Widespread centralized finance / traditional finance / payment acceptance
- Strong presence on low-gas chains
- Brand / Code Recognition
Lessons from Traditional Finance Forex: Rely on Derivatives, Not Spot
According to data from the Bank for International Settlements (BIS), only about 31% of global foreign exchange trading volume comes from spot transactions, while approximately 69% originates from the derivatives market. This indicates that the modern foreign exchange market is primarily driven by synthetic exposures, hedging, and financing activities, rather than physical currency exchange.
Therefore, the average daily notional trading volume in foreign exchange swaps reaches $4 trillion.
One of the most important non-spot foreign exchange instruments is the Non-Deliverable Forward (NDF): a cash-settled foreign exchange forward in which no physical exchange of currencies occurs. The counterparties do not deliver the underlying currencies but instead settle only the profit or loss differential in U.S. dollars.
NDFs are particularly common in situations where currency exchange is restricted, offshore channels are fragmented, or offshore liquidity is insufficient for effective physical settlement, as synthetic USD-denominated exposure is operationally more convenient than acquiring and settling the local currency.
For example:
- A company wishes to maintain a Swiss franc exposure over the next three months.
- The company does not need to acquire or settle physical Swiss francs; instead, it enters into a Swiss franc NDF contract, effectively denominated in Swiss francs while holding U.S. dollars.
- At expiration, only the USD-denominated profit or loss difference (compared to the agreed exchange rate) needs to be settled.
Many modern NDF structures also employ a mark-to-market (MtM) mechanism, which periodically collateralizes or settles unrealized gains and losses during the contract’s life, thereby reducing counterparty risk and improving capital efficiency. MtM NDFs enable accounts to maintain USD funding while economically hedging balances and P&L denominated in another currency.
The shortest path to on-chain foreign exchange: NDF forex, not spot trading
For currencies lacking depth or efficient spot liquidity, MtM NDFs are an effective solution. This instrument is already widely used in TradFi to handle currency pairs such as USD/CHF, USD/KRW, USD/INR, USD/BRL, and USD/TWD. Corporations, banks, and offshore investors frequently use them to gain synthetic foreign exchange exposure without physically settling the local currency.
Cryptocurrencies also face similar structural issues:
- Not all currency pairs have deep spot liquidity;
- Maintaining fully collateralized local currency stablecoins presents operational challenges;
Therefore, the MtM NDF structure is well-suited for crypto-native foreign exchange systems.
Users can:
- Keep sufficient USDT/USDC funds in your account.
- Simultaneously go long on foreign currency while holding a short position in USD through the MtM NDF structure;
- Efficiently account for account value and P&L in your target currency without leaving the USD settlement track.
Advantages include:
- Oracle-based strong peg: Tracks reliable foreign exchange reference rates rather than relying on fragmented local spot liquidity.
- Maintain the USD stablecoin track and yields: Users continue to hold USDT/USDC, gaining access to the deepest on-chain liquidity and yield opportunities.
- Superior liquidity and convenient trading channels: USDT and USDC offer the strongest global trading channels, exchange integrations, and trading liquidity across crypto markets.
- Cross-currency scalability: Any currency with a reliable USD oracle can be synthetically backed. There is no need to integrate with local banking infrastructure, local custody solutions, or purchase sovereign bonds, as traditional fiat-backed stablecoin issuers must do.
- High capital efficiency: Only settle or collateralize the net foreign exchange gain or loss, without requiring full nominal spot conversion.
This aligns closely with how today’s off-chain institutional foreign exchange markets operate: overlaying synthetic exposure and cash-settled risk transfer on top of the dominant dollar-funded and collateralized system.
Who uses NDF forex trading on-chain?
The simple narrative that "foreign exchange is the next frontier" won't work. Details determine success or failure—achieving a TVL in the billions for a foreign exchange stablecoin is not easy. Teams pursuing this direction cannot assume that simply launching a product will magically attract holders. Three things must be crystal clear:
- Who is your holder?
- Why do they hold?
- How to assign them
1. New banks, custodians, and wallets require multi-currency accounts
Total deposits are one of the most critical metrics for new crypto banks and stablecoin chains. Without native foreign exchange infrastructure, international businesses cannot easily hold funds on-chain and are forced to revert to local banking systems. As a result, many stablecoin-focused new banks and stablecoin chains risk becoming mere transit points for deposits and withdrawals, rather than true financial operating systems.
The MtM NDF infrastructure has changed this landscape.
Stablecoin issuers, custodians, wallets, and payment platforms can integrate APIs to offer synthetic foreign exchange-denominated services directly on the USD stablecoin rail. For end users, the experience becomes a simple toggle:
- Switch the account's currency display from USD to EUR, CHF, SGD, HKD, and more.
- Or hold balances in multiple currencies within a single account.
- The underlying settlement, collateral, and liquidity infrastructure remain as USDT/USDC.
Stablecoin banks, custodians, and wallets have highly aligned interests with MtM NDF:
- Expand international users
- Increase deposits and maintain balance
- Reduce user transfers to traditional banking systems
- Support multi-currency accounts to create differentiated competition and public relations highlights.
Therefore, international business/personal users can:
- Keep all funds entirely on-chain
- Continue to enjoy the deep liquidity and yield of USD stablecoins.
- Simultaneously gain efficient foreign exchange exposure through synthetic foreign exchange markets.
This product benefits from favorable macroeconomic factors; over the past year, the U.S. dollar has depreciated by approximately 10-12% against the euro, increasing demand for non-U.S. dollar currencies, while users continue to hold U.S. dollar stablecoins.
2. Foreign exchange arbitrage returns will far exceed those of Ethena
Foreign exchange derivatives are also widely used in arbitrage trades, one of the largest macro strategies globally. A classic example is the yen carry trade:
- Finance with low-yield Japanese yen.
- Go long on high-yield currencies (such as the Brazilian Real, BRL).
- Earn the interest rate differential, known as the "carry."
Brazilian real interest rates often exceed 10%, making it one of the most popular carry currencies for hedge funds and macro investors. These trades are typically executed through NDFs, forwards, and foreign exchange swaps, rather than physical spot exchange.
Compared to cryptocurrency basis trading products like Ethena:
- Foreign exchange arbitrage is tied to sovereign interest rate differentials, not cryptocurrency funding rates.
- Larger market size, higher level of institutionalization
- Due to the size of the global foreign exchange derivatives market, its trading capacity is also greater.
- Returns are typically lower than the peaks of crypto arbitrage trades, but historically, they have been more stable and scalable.
This creates significant opportunities for on-chain foreign exchange arbitrage vaults: users hold USDT/USDC as collateral, synthetically gain exposure to foreign currencies via MtM NDFs, and earn sovereign FX arbitrage on-chain without leaving the dollar-stablecoin ecosystem.
3. Global Business Payments
Over the past year, Bridge has enabled business customers to accept fiat payments in euros (EUR), Mexican pesos (MXN), Brazilian reais (BRL), Colombian pesos (COP), and British pounds (GBP), with funds automatically converted to USDC.
However, at present, fiat currencies can only be received and cannot be held on-chain. For businesses that conduct financial or accounting operations in currencies such as the Swiss Franc (CHF) or Singapore Dollar (SGD), this means they still need to integrate with local banking systems. This is particularly important when serving global enterprises, and Tempo is actively driving global enterprise adoption and expansion of such services.
Stripe supports NDF-like foreign exchange hedging in its fiat global payments. If a merchant wishes to settle in currency A while the customer pays in currency B, the merchant can hedge foreign exchange risk over a specific period and offer the customer a stable, locked-in local currency price.
Stripe's NDF FX API is used for fiat payments.
Stablecoin payments can apply a similar on-chain model: users continue holding USD-stablecoins and making transactions, while merchants or wallets can synthetically hedge their preferred local currency without relying on spot foreign exchange liquidity or local stablecoin issuance.
It is worth noting that Stripe's foreign exchange product has a very high profit margin, with an annualized hedging cost of approximately 73%.
Although this product primarily serves business and retail payment processes, which are typically low-risk and highly predictable, it still charges a fee of approximately 20 basis points per transaction. Annualized, this translates to a hedging cost of about 73%, an unusually high fee rate for foreign exchange risk transfer. This highlights both the profitability of the business and the fact that users are not price-sensitive when it comes to seamless global payments and currency certainty.
Related reading: Building the New Infrastructure for Stablecoin Foreign Exchange: Exploring the Three Innovative Approaches of Numo, Mento, and ViFi