The Race to Unify the Stablecoin Frontier

The first part of this essay is largely a repost of something I published on LinkedIn in August 2025 when the tea leaves were starting to suggest that the next gold rush would be in wrangling stablecoin fragmentation. "The role of Suffolk Bank 2.0 is still up for grabs."

Sure enough, startups like Ubyx, Stable.com, and The Better Money Company have come out of stealth and/or announced big funding rounds with the intent to build stablecoin clearinghouses. So I felt inspired to write a follow up post exploring the logic of payment clearing and why this is such a seductive idea for the stablecoin industry.

Tokenized Deposits: Sparkling Shinplaster?

In the mid-19th century, alongside rapid westward expansion, every frontier bank issued its own notes. As a consumer, when you'd travel to the next state, merchants would discount your bank note because "who knows if Podunk First Bank is still solvent by the time I cash this." The value of notes fluctuated depending on the issuing bank's reputation and notes from more distant banks frequently traded at a discount.

Cut to 150 years later, we're now being sold the idea of tokenized deposits. Banks are gearing up to issue their own digital tokens. Same dynamic, same discounts, same "wait, is this bank good?" calculations. Will my Regional Bank's Deposit Token trade at a 40bps discount to JPM Coin, following their earnings miss this quarter?

"But the FDIC — " Yes, fine, modern tokenized deposits would still have pass-through FDIC insurance (assuming they're issued by FDIC-insured banks), whereas those historical bank notes had no such backstop. But nobody wants to wait 3 weeks for a payout while explaining to their landlord that their rent money is stuck in receivership limbo. That headache will still need to be priced in.

The National Banking Act of 1863 largely solved this "every bank prints its own money" problem by creating a singular national currency — the United States Dollar. This absolved Americans from having to constantly fret about counterparty risk. We then spent decades perfecting a system in which a dollar is a dollar, regardless of which bank holds it.

Why, now, are we regressing to 1840s style wildcat banking with extra steps?

The answer of course is technological determinism. Deposits are being tokenized because they can be. And we have to play the game on the field.

Suffolk Bank 2.0

There will be new winners rushing in to solve old problems. For instance, the role of Suffolk Bank 2.0 is still up for grabs. The Suffolk Bank in Boston was well known as having been the clearinghouse for virtually all the banknotes that circulated in New England between 1836 and 1858. Systems like Suffolk's helped ensure notes redeemed at close to par value by taking on the risk and orchestrating the transfer of notes across issuing banks.

Maybe it'll be FIS — maybe that's why they're convincing community banks that it's a good idea to launch their own tokenized deposits in the first place. Maybe it'll be Circle, with their stablecoin market making. Or maybe it'll be the State of Wyoming with their FRNT mainnet launch.

Brave new world!

Everyone in Crypto/Stablecoins Wants To Be a Clearinghouse. But Why?

Because being a tollbooth oligopolist is great business; because taxing payment flows is a phenomenal way to build an empire; because Bill Gurley launched a thousand ships in 2012 when he wrote that unifying a fragmented market is a great way to build a venture-scale business. But I'm skipping ahead. Let's start with how payment clearing and settlement actually works in a system most folks can relate to: Visa.

Visa's Delicate Dance

Visa's network (VisaNet) handles roughly 10,000 transactions per second, and 7x that at peak capacity. And this isn't just BS volume like we sometimes see on-chain with people moving coins between their own wallets to boost protocol activity metrics — these are real economic value exchanges. Issuing banks in the Visa network give payment cards to consumers and businesses to go out and spend. Acquiring banks in the Visa network enable merchants to accept card payments and receive money. At the end of the day, when Visa has worked out all the net positions of who owes money and who is owed money, it orchestrates a delicate dance to get funds from net debtors to creditors…from issuing banks to acquiring banks.

But of course, Visa is not a bank itself so it can't take possession of funds to then distribute them. Nor is Visa a settlement system: it just orchestrates payment authorization and clearing, while card transactions actually settle over FedWire (US).

So, what did Visa land on? They designate a settlement bank in the middle, which, for size and and stability reasons, happens to be JPMorgan Chase. Each bank with a net debt position makes a single transfer into JPM. From there, Visa facilitates the outgoing transfers to banks with a net credit position. This sidesteps any money transmission issues. This approach also trumps bilateral settlement, where every bank individually wires prescribed amounts to every other bank, for two reasons. The first is that Visa gains direct visibility into whether each participant has fulfilled their settlement obligations properly. The second is that it cuts down the total number of transfers dramatically, reducing the scope for error. Note: sometimes Visa will use Bank of America as an alternate settlement bank, as a contingency exercise or if JPM is down.

So, that's clearing and settlement, for which Visa has designed a fairly elegant system over several decades of iteration.

Solving Stablecoin Fragmentation

Which brings us to the current day and age. What the heck is a stablecoin clearinghouse for and why are they all the rage now? The basic problem to be solved is that the proliferation of individual stablecoins weakens the singleness of money. It's easy to issue a stablecoin now, so everyone's doing it, and the market is becoming more fragmented (yes, yes, the vast majority of stablecoins in circulation are still USDT and USDC but that's changing rapidly with Open Issuance, and you can't forget that banks are now issuing tokenized deposits as well, which further fragments the market for tokenized USD-denominated money).

To solve this fragmentation, you now need a clearinghouse to ensure that a recipient of a qualified stablecoin can always redeem that stablecoin at par. This increases the utility of participating stablecoins, especially for settling payment obligations — the recipient accepts them knowing they can redeem for actual US dollars on demand. Without that guarantee, a payee has to independently underwrite the credit risk of each stablecoin issuer, which nobody is going to bother doing.

Stablecoin Clearing By Way of Analogy

Returning to the Visa analogy: let's say Celtic Bank is an Issuing Bank and runs up a daily net debt position in Visanet. Let's say that Wells Fargo is predominantly an Acquiring Bank and runs up a daily net credit position. Thanks to Visa's clearing system and enforcement of settlement through JPM/FedWire, Wells can trust that the "credits" it racks up on Visa's ledger over the course of a day can be redeemed to create cold hard USD in its coffers. Wells does not need to individually underwrite Celtic Bank every single day.

If there was a stablecoin clearinghouse, then you could recreate a similar setup for stables. Circle is like an issuing bank — they're handing out USDC, just like Celtic is handing out USD through Visa cards. Wells Fargo may once again be a net creditor at the end of a day, racking up USDC in its name. And so long as Wells can trust the clearinghouse to always redeem USDC 1:1 with USD, they're more inclined to accept USDC as a valid form of payment. The clearinghouse essentially makes USDC go from having value only in Circle's ledger to having value on all other clearinghouse participants' ledgers. And this goes for each of the thousands of other stablecoins that are being minted right now as well.

A Long-Range Prediction

For a future post: clearinghouses can, and do, fail. This happens for all sorts of reasons, including credit concentration, a run on participating banks, operational failure, and governance capture (depending on system design). And it's only a matter of time before we see the first implosion of a crypto/stablecoin clearinghouse, and only a few weeks thereafter till Matt Levine writes a Money Stuff column about cryptobros once more speedrunning a lesson from TradFi. And I eagerly look forward to reading that, Matt!