FX has a $27 trillion problem that stablecoins can solve, Keyrock report claims

Stablecoins are coming for FX – that’s the message from a new report published by crypto derivatives trading firm Keyrock, which takes aim at the divided infrastructure that exists today and predicts that the $7.5tn-a-day market is the biggest opportunity for digital tokens.

This is because the current market structure of fragmented infrastructure blocks, lack of interoperability between national payments rails require prefunding and netted settlement, leaving $27 trillion of funds idling and emerging markets clients high and dry. These structural inefficiencies that evolved over decades can be solved by stablecoins and ultimately FX running on blockchain technology, according to the report.

“FX is stablecoins’ endgame: The $7.5T/day market still settles on T+2 rails, reliant on correspondent banks and prefunding. Onchain FX improves this stack with programmable swaps and atomic PvP, enabling instant settlement with minimal counterparty risk,” the authors stated.

“It’s stablecoins’ biggest opportunity yet, as tokenized assets, stablecoin rails, and banking infrastructure converge,” they added.

The main accusation leveled against the current set-up is that it is fragmented, relies on a patched together system that was never designed for speed, transparency or efficiency, resulting in slow and opaque processes and outcomes. The authors note that key building blocks, such as SWIFT and CLS, were added over time to solve specific problems but each time new issues arose as a result.

“The risks that CLS aimed to fix still persist in much of the world. Real-time payment systems emerged domestically, but stopped at the border. Without cross-border interoperability, banks were still forced to stitch local systems together using correspondent rails,” the report said.

“This is the system we’re left with. One international payment can pass through five or more intermediaries: banks, FX desks, compliance checks, local clearing, global messaging. Each layer was added to solve a problem, but none replaced the one before it,” it added.

This means that funds often go through five or six layers of intermediaries as they meander across FX trading desks, correspondent banks and central bank accounts, often taking days and costing multiples in markets where FX liquidity is thinner, most often in emerging market economies.

SWIFT, meanwhile, functions well as a messaging system but its use leads to an estimated $27 trillion of funds sitting in prefunded nostro and vostro accounts as dormant capital trapped across the different payment rails that don’t have interoperability.

This money can’t be lent out or invested and keeping balances sufficiently topped up often requires a fee in itself.

“At a 5% interest rate, parking $1 billion in nostro accounts costs $50 million a year in lost yield or financing. Industry estimates suggest the total cost of prefunding, including overhead, runs 3–5% annually. The drag goes beyond lost returns. Providers must constantly forecast liquidity for each corridor and rebalance accounts.

Stablecoins collapse all three functions (messaging, prefunding and settlement through transaction netting) into one programmable rail, eliminating the need to prefund accounts and bringing transparency into netting processes.

“SWIFT’s architecture, the capital sink of prefunding, and the slow, opaque cycles of netting have delivered stability, but at the cost of trapped liquidity, fragmented flows, and systemic exclusion. Especially in markets that need better access most,” Keyrock said.

The current system falls down most when looking at EM. In the US, Europe and countries with robust correspondent banking networks relying on SWIFT messaging, 90% of payments reach destination banks within an hour. This figure drops to 43% when broadened to the entire globe, with consumers in Africa and Southeast Asia facing 2-3 times longer processing times and as much as 8 times more in costs than those in the UK, for example.

“Despite its reputation, SWIFT can be efficient in developed markets with robust correspondent networks.  That performance doesn’t carry over to emerging markets. Limited correspondent ties force multi-hop routes and add latency,” the report noted.

These factors are driving central banks to explore projects around CBDCs, and collaborative efforts such as Project Mariana and Jasper.

Stablecoins are also set to reshape monetary policy. A previous report from Standard Chartered forecast that stablecoins can reach $2 trillion by 2030. Keyrock says this translates into close to 25% of the Treasury bill market being held as reserves for these tokens, a development that will have implications for Fed policy and front-end yields.

The report concludes with the prediction that stablecoins will be just a step towards the endgame, which is onchain FX replacing today’s market structure.

“The legacy system evolved in an era defined by delayed communication, manual reconciliation, and tightly gated access. Stablecoin rails are being built for a world where value moves like information. Instantly, transparently, and without borders,” the report stated.

“The next decade will decide which players adapt and thrive, and which are left operating on infrastructure that no longer defines the frontier. The trillion-dollar opportunity is here and it is transforming the architecture of global value exchange,” the authors concluded.