Cryptocurrencies

All the limits hidden in stablecoins

They are not a practical method of payment in industry and are unlikely to become a popular investment since they do not earn interest

by Daniel Gros

13 December 2025

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4' min read

Translated by AI

Versione italiana

4' min read

Translated by AI

Versione italiana

US President Donald Trump's decision to focus forcefully on so-called stablecoins as a means of projecting America's financial power to the outside world and preserving the global supremacy of the dollar has prompted many to call for a 'strategic response' from the European Union. If Europe does not carve out its own position in this techno-financial revolution, is the argument, it risks seeing its monetary sovereignty and financial stability eroded. But these alarms are as sinister as they are unjustified.

Unleashing the old continent's anxieties on the subject was the Genius Act promoted by the Trump administration, where Genius is an acronym that stands for 'guiding and consolidating national innovation for American stablecoins', a piece of legislation that aims to promote the creation of dollar-backed stablecoins through the introduction of a comprehensive regulatory framework. But the concrete measures of the law closely resemble those contained in the regulation on cryptocurrency markets, better known as the MiCA regulation, adopted in 2023 by the European Union as a precautionary measure, when stablecoins still had limited financial relevance. In short, from a regulatory point of view, the US is not ahead of Europe. But even if they were, the bottom line is that stablecoins are not particularly well-suited to drive the transformation that their proponents anticipate and their detractors fear.

Stablecoins essentially act as money funds: the issuer takes one unit of a fiat currency from a depositor and places the equivalent in the digital wallet of that depositor. The main difference is that stablecoins are based on the same blockchain technology - a type of distributed ledger - on which cryptocurrencies are based.

This is where the problems arise. As the name suggests, blockchain transactions, or blockchain, are not processed individually but grouped into simultaneously approved 'blocks' at separate intervals. In the case of Bitcoin, a block can contain up to 4,000 transactions and approvals occur every 11 minutes or so, which makes cryptocurrencies unsuitable for most retail transactions.

Stablecoins operating on newer blockchains (e.g. the Tether (USDT), issued on the TRON network), are optimised for speed and volume. But the transaction processing capacity of blockchain technologies will always be subject to limitations, which increases the risk of bottlenecks and delays. Consequently, these technologies cannot compete with existing retail payment systems, which process transactions individually (and instantaneously).

The 'distributed ledger' is a further complicating factor. The basic idea is that the list of transactions, the ledger, is maintained by thousands of so-called 'miners' around the world. It is a grossly inefficient system (the TRON network ledger, to give an example, comprises more than two gigabytes of data), especially in comparison to a traditional payment system where each transaction is stored only once, on a single centralised account or ledger.

Moreover, considering that these nodes are distributed worldwide, data validation can be slowed down by latency times and participant availability. This further reduces the chances that stablecoins can be used in everyday transactions, especially in advanced economies where efficient retail payment systems already exist.

Stabilecoins can be useful for transnational retail transactions, particularly migrants' remittances. But remittances, while important to many economies, are limited in scope: each is about $700 billion a year, less than the GDP of an average European country and a tiny fraction of US GDP. In any case, a family in a developing country that receives a sum in stablecoin from a relative working in Europe or the US will still have to bear the cost of converting it into local currency (or cash dollars) in order to use the money.

One might think stablecoins would be better suited for wholesale payments, where the number of transactions is much lower, the sums involved are larger, and the 'instantaneousness' of settlement is irrelevant. But problems also arise here. Transactions with blockchain technology are not anonymous but 'pseudonymous': all transactions are fully visible, but the owners of the wallets are only identified by addresses that include a long series of letters and numbers. The problem is that if a provider wants to get paid, he has to share his wallet address with the customer, who can then monitor all future transactions related to that wallet, potentially even sensitive business information. The customer could even share the address with the supplier's competitors.

Criminals, such as those who carry out ransomware attacks, circumvent the problem by immediately forwarding payments to another wallet, or even to a series of new wallets. But if a legitimate company were to muddy the trail of its accounts in this way, it would cause alarm among potential partners and customers, and risk money laundering proceedings. Less suspicious ways to limit the problem exist, but they make money management more complicated. Stablecoins are simply not a practical method of payment in industry or between banks, and it is also unlikely that they will ever become a popular investment, as they do not earn any interest.

The bottom line is that the obstacles to widespread use of stablecoins are structural, and they are insurmountable obstacles unless we transform the way this instrument works at the root. When this becomes apparent to businesses, consumers and financial investors, the hysteria we are currently witnessing will probably deflate. Europe's 'strategic response' to the Genius Act must be to remain calm.

(translation by Fabio Galimberti)

Director of the Institute for European Policymaking at Bocconi University

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