Stablecoins operate less like a single dollar-denominated asset and more like a fragmented foreign-exchange market: liquidity is scattered across different blockchains, issuers and pools, producing price dispersion and uneven access to dollar liquidity.
Moving stablecoins can look simple at first glance, but transfers often require multiple steps and routing across chains and pools. Ryne Saxe, CEO of stablecoin infrastructure firm Eco, describes onchain stablecoin trading as “a very special case of a foreign exchange market,” where fragmentation causes poor user experience — unexpected slippage, failed transactions and confusing information when shifting dollar exposure from one place to another.
The sector has grown to more than $320 billion in market capitalization, led by Tether’s USDT and Circle’s USDC. Yet as institutions and larger traders enter the space, executing sizable transfers cleanly becomes more difficult.
Stablecoins aren’t as fungible as they appear
Although many stablecoins are pegged to the dollar, they do not behave as a single, fungible instrument. Liquidity is divided by issuer, blockchain and trading venue, each with its own depth, fee structure and access rules. That means identical-looking tokens can have different market characteristics depending on where and how you transact.
A dollar token on one chain may price and settle differently from the same token on another chain. Differences in collateral, market participants and liquidity depth can create price gaps that become meaningful for large trades or in thinner markets. Small retail trades in deep pools may ignore these frictions, but the gaps widen with scale.
“The more major DeFi markets focus on stablecoins, and the more chains and issuers there are, the more fragmented the market becomes,” Saxe said. “People assume these are just dollars, but they’re not.”
A March study by payments startup Borderless sampled hourly buy and sell rates across 66 stablecoin-to-fiat corridors spanning 33 currencies and seven blockchains. It found USDC and USDT traded similarly in many corridors, but pricing diverged at the provider level. For the same corridor, price gaps could sometimes reach hundreds of basis points, making execution quality highly dependent on which liquidity sources and routing options are available.
Stablecoins get harder to move at size
This FX-like structure becomes especially apparent when moving large amounts across venues and chains. Stablecoins are now central to institutional activity in crypto — for trading, cross-border payments and onchain treasury operations — and firms often shift tens of millions of dollars in single moves.
When liquidity is fragmented, selling $10 million of one stablecoin and buying $10 million of another in a single step will move markets. Large transfers often need to be split into multiple legs routed along different paths and reassembled at the destination, which raises execution risk and increases costs.
Fragmentation forces traders to navigate many chains, issuers and venues with uneven liquidity. That can move prices during execution, require trade-splitting strategies and introduce uncertainty about whether a planned sequence of transactions will succeed. “Right now, institutions don’t always have the risk management, trust and infrastructure to move or hold large onchain stablecoin positions by default,” Saxe added.
Infrastructure, not just supply, is the solution
Firms are building infrastructure to address these gaps, but they take different approaches. Circle is positioning its stablecoins as the foundation for a new onchain FX system that connects multiple currencies, liquidity providers and settlement layers. Eco focuses on routing and execution, aggregating liquidity across fragmented markets to create better, predictable pathways.
Both approaches accept the same core reality: stablecoins live across many chains and issuers, and liquidity is unevenly distributed. That fragmentation widens spreads and worsens execution for large participants. Solving it requires systems that can read across markets, map the full liquidity picture and route transactions to minimize cost and risk.
For institutions, that operational complexity limits how much capital they’re willing to move onchain. Until stablecoin flows become more predictable, trustworthy and supported by robust tooling, many large players will remain cautious about holding or transacting substantial onchain balances.
Disclaimer: This piece is a rewritten summary of reporting and commentary on stablecoin market structure. It is not financial, legal or investment advice. Readers should conduct their own research and consult qualified professionals as appropriate. The original reporting was produced and edited under Cointelegraph’s editorial standards; Cointelegraph maintains editorial independence in commissioning and publishing features and analysis.