Fintech powerhouse Stripe is secretly building a high-performance blockchain called ‘Tempo’, and Circle just announced its own stablecoin-centric chain, ‘Arc’. Stablecoins promise to make cryptocurrencies mainstream by delivering faster, cheaper, more interconnected global payments.
Paradoxically, the same move could undercut what the technology set out to achieve. Worse, market concentration may rise if a few players use stablecoins to reach previously unimaginable scale. With the US’s Genius Act now law, the next 12–18 months will most likely determine the outcome.
We’ve seen this before with the internet. Even when a technology has a decentralising force, economies of scale in complementary resources, brand or distribution inevitably drive concentration. The underlying internet protocols remained open and neutral, but massive digital platforms at the application layer walled off participants by strategically breaking interoperability. From email to social media to payments, we spend most of our time and money within the confines of what the tech giants have designed for us.
Crypto as the antidote?
Crypto’s reason for existence was to break free from centralised intermediaries. After the 2008 financial crisis, Satoshi Nakamoto wanted to create a world where anyone could exchange value without having to trust a central bank or financial institution ever again. Inspired by bitcoin, entrepreneurs have applied the same principles to other digital platforms, including finance, marketplaces and social media. Progress towards decentralisation is mixed: while bitcoin allows anyone to be their own bank, most rely heavily on intermediaries for custody and use. Similarly, solutions that offer greater privacy and data controls have stayed niche.
In payments, the most critical battle is unfolding now. Legacy infrastructure is siloed and incumbents have tremendous power over what we can access – and on what terms. Markets can become so concentrated that the public sector has to step in – the most salient example is China’s introduction of a central bank digital currency to unravel the Ant Group and Tencent oligopoly.
Crypto is a market-driven solution to this. It provides neutral and decentralised cryptocurrencies like bitcoin and ether, as well as truly open financial rails. But as the technology has matured, two problems have emerged.
1. Stablecoins’ centralising force
The first problem is that cryptocurrencies are volatile and therefore expensive for payments and financial contracts. To address this, the market has focused on fiat-backed stablecoins. This inevitably leads to centralisation because issuance requires a regulated entity to be accountable. While distributed governance is possible, it is difficult to get right – Libra being the most prominent example. Even Circle’s Centre Consortium, with only two members, was dissolved and converted into a revenue-sharing agreement.
Distributed ownership of a stablecoin ecosystem makes sense and is similar to what made Visa scale in the 1970s. Banks have tried for years to come together in response to crypto. To date, no joint project has delivered anything tangible. The reason is obvious: until the situation is dire, competitors are unlikely to collaborate.
To date, the only working model for stablecoin governance is the centralised one. This is long-term problematic, and issuers have already started expanding their offerings to limit openness. Circle announced its own rails with Arc and payment network with the Circle Payments Network, placing it at the centre of how payments are executed – from defining rules and eligibility, to inserting itself into every transaction, to price and liquidity discovery, and collecting a fee. Put together, this setup is not that different from what allowed Visa and Mastercard to dominate for decades.
2. From open rails to closed loops?
The second problem crypto has run into is deeply tied to its roots: decentralisation is expensive. The economic consequence is that you can only afford it where it truly matters. To date, among networks at scale, that’s been true only for the base layers of bitcoin, ethereum and solana. At most, that yields a few thousand transactions per second combined – a far cry from what global payments would require, even before you add financial services.
As a result, most transactions no longer occur on the base layers (L1s) but on a sprawling ecosystem of high-throughput scaling solutions (L2s). While crypto purists might decry this trend, it aligns with economic theory: participants are willing to pay a premium for decentralisation and censorship resistance at the core settlement layer, yet they readily accept more centralisation to gain lower costs and faster speeds.
This trade-off is broader than a user’s decision to be their own bank. When building products, companies care deeply that the underlying network is decentralised. Essentially, they are willing to pay for neutrality to reduce the risk of expropriation – something that has repeatedly played out in digital platforms.
To fully grasp what fast, low-cost L2s will do to competition, look no further than what the internet did to news and media: as the cost of distributing content fell to zero, business models evolved drastically, and massive aggregators (Google, Facebook, Spotify) emerged. Because L2s remove friction, offer convenience and allow builders to deliver better experiences, they are the obvious layer where value will be created – and appropriated.
Furthermore, as money movement is commoditised, competition will shift to value-added services where new and legacy financial institutions have an advantage. Any regulated player can now use the technology to scale a truly global product. Once it reaches scale, it can also degrade interoperability and appropriate more of the value.
Whoever controls the last mile wins
So what’s the most likely scenario? Based on how strong and persistent network effects have been, it’s safe to assume that payments will gravitate towards a couple of permissionless blockchains. Yet most activity will take place not on their base layers, but on branded scaling layers.
Players that control distribution – whether on the consumer, merchant or institutional side – have an advantage as they own the interface between the blockchain and the real world across identity, compliance, creditworthiness and more. That’s where friction persists – and where economies of scale will decide winners and losers.
To counterbalance this, Circle is trying to both commoditise the rails – by issuing on multiple networks and placing itself in the middle with its cross-chain transfer protocol – and move activity to its network. Similarly, fintechs like Stripe are attempting to migrate volume to networks and assets they control. In doing so, they may use stablecoins as a loss leader and issue domestic stablecoins to expand their advantage to foreign exchange markets and local use cases. Real-world assets and applications that are exclusive to these branded networks may help them retain volume and develop reward and loyalty programmes to increase customer lock-in.
As convenience and economic reality win over dogmatism, crypto will look very different. The good news is that it will be far more useful. And while that may come with more centralisation, the fact that the underlying protocols are open source means that, no matter how large some players may become, they face more pressure than under the status quo.
It is also possible that, because crypto allows for new market design, the ultimate solution will be something the internet could not achieve because it lacked built-in monetisation mechanisms. Regardless, if centralisation materialises, developers will undo it and the cycle will repeat.
Christian Catalini is Co-founder of Lightspark and the Massachusetts Institute of Technology Cryptoeconomics Lab.
This is an edited version of an article first published by Forbes.
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