In-Depth Research Report: Expansion and Fragmentation of Stablecoins — Structural Risks and Strategic Scenarios

As the global digital finance ecosystem evolves, stablecoins are emerging not only as a promising digital asset class but also as a potential medium for international transactions. However, their rapid proliferation raises structural concerns: fragmentation of liquidity, inefficiency in cross-border exchange, and decreasing trust in the overall system. This report aims to analyze the implications of stablecoin fragmentation and present a set of scenarios and strategic solutions that address the associated systemic risks.

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1. Proliferation and Fragmentation of Stablecoins: Structural Challenges

Dozens of stablecoins are now in circulation, linked to assets such as the US dollar, euro, or baskets of currencies. While their purpose is to maintain price stability, the increasing number of stablecoins is creating a new form of digital currency fragmentation:

• Lack of Interoperability: Most stablecoins are confined within isolated blockchain ecosystems, limiting their convertibility and efficiency.
• Liquidity Fragmentation: Capital and liquidity are dispersed across multiple tokens, weakening depth and increasing volatility.
• Trust and Transparency Concerns: Variations in collateralization models (fiat-backed, crypto-backed, algorithmic) make auditability and trust difficult to assess.

If this trend continues unchecked, the overall efficiency and credibility of digital assets in financial transactions could be undermined.

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2. Case Study: Inefficiencies in Cross-Stablecoin Exchange

The coexistence of many stablecoins leads to practical issues in their interchangeability. For instance, converting USDT to USDC on a decentralized exchange often involves multiple steps, slippage, and high fees due to fragmented liquidity pools. Additionally, when moving assets between chains—e.g., from Ethereum to Polygon—users face the risk of bridge delays and fees. These inefficiencies are compounded by the lack of a unified exchange protocol across chains.

In international remittance use cases, the sender might hold a USD-backed stablecoin, while the receiver requires a Euro-backed one. Without deep liquidity or trusted intermediaries, the conversion often goes through multiple hops and incurs excessive cost. Such a fragmented environment closely mirrors, and may even exceed, the inefficiencies of the current foreign exchange system.

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3. Trust Gap in Fragmented Markets

The collapse of TerraUSD (UST), an algorithmic stablecoin, exemplifies the systemic risks arising from trust gaps. Inconsistent reserve backing and lack of regulatory oversight can rapidly erode user confidence. According to various policy researchers and central banks, stablecoins without consistent and transparent governance mechanisms are unlikely to gain the scalability and user trust necessary for widespread adoption.

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4. Technology-Driven Solutions: Ripple ODL, Chainlink CCIP, Cross-Chain AMMs

Several technical solutions have been proposed to address the inefficiencies of a fragmented stablecoin landscape:

• Ripple’s ODL (On-Demand Liquidity): Uses XRP as a bridge asset to facilitate real-time currency exchange and remittance, recently expanded with the introduction of RLUSD, Ripple’s own fiat-backed stablecoin. RLUSD is expected to reduce volatility and increase liquidity within Ripple’s network.
• Chainlink CCIP (Cross-Chain Interoperability Protocol): Enables secure cross-chain token and data transfers. When integrated with Circle’s CCTP, it allows seamless USDC transfers across Ethereum, Solana, Avalanche, and other blockchains.
• Cross-Chain AMMs (Automated Market Makers): Protocols like Thorchain, Symbiosis, and EYWA offer decentralized liquidity pools that connect stablecoins across chains, enabling fast and secure swaps.

While promising, these solutions also face challenges in adoption, liquidity depth, smart contract security, and network standardization.

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5. CBDC vs. Stablecoin: Structural Competition and Coexistence

Feature	CBDCs (Central Bank Digital Currencies)	Stablecoins
Issuer	Central banks	Private entities / DAOs
Monetary Alignment	Fully aligned with national monetary policy	Independent
Legal Certainty	High (sovereign guarantee)	Varies by issuer and jurisdiction
Interoperability	Low (domestic systems)	High (cross-chain design)
Innovation	Conservative (policy-driven)	High (market-driven and DeFi-integrated)
Privacy	Limited	Varies (can offer pseudonymity and control)

Rather than being outright competitors, CBDCs and stablecoins may evolve into complementary tools in a multi-layered digital financial system. Stablecoins may offer flexibility and programmable features on top of state-backed infrastructures.

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6. Scenario Analysis: Strategic Directions for the Future

Scenario	Policy/Regulatory Environment	Technological Landscape	Strategic Opportunities	Potential Risks
Continued Proliferation	Fragmented global regulation	Ecosystem-specific designs, no shared standards	Market diversity, arbitrage opportunities	Liquidity fragmentation, trust erosion
Interoperability and Standardization	Regulatory harmonization (e.g., MiCA expansion)	CCIP, CCTP, unified cross-chain standards	Efficient global payments, institutional access	Concentration risk, protocol dependency
CBDC Dominance	Strict stablecoin regulation, national focus	Public infrastructure with private gateways	National trust and control, financial inclusion	Innovation slowdown, fragmented international use

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7. Policy and Investment Implications

Short-term: Strengthen stablecoin reserve transparency and reporting. Support technical pilots involving cross-chain liquidity protocols.

Medium-term: Develop collaborative regulatory standards between jurisdictions. Encourage experimentation through sandbox initiatives.

Long-term: Build a hybrid financial architecture that integrates CBDCs for domestic stability and trusted, regulated stablecoins for cross-border efficiency. Foster ecosystem-neutral technologies that prioritize security, transparency, and interoperability.

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