The Last Look…

Legendary American macro whizz Stan Druckenmiller is no fan of bitcoin, and yet, while maintaining that as a store of value crypto is a solution looking for a problem, he told Iliana Bouzali, Morgan Stanley’s global head of derivatives distribution and structuring, that he believes the entire global payment system will be running on blockchain within the next decade and a half.

This is a huge change. The global payments industry is the most valuable part of financial services, generating $2.5 trillion in revenue from $2.0 quadrillion in value flows from 3.6 trillion transactions worldwide, according to Mackinsey’s latest report on the industry. Today, the share of “real” payments conducted in stablecoins stands around $390 billion, roughly 0.02% of the global total, Mckinsey and Artemis Analytics have calculated. Revenues are equally minuscule (relatively speaking): based on publicly available data, the total revenues of the global stablecoin market, which is dominated by Tether’s USDT and Circle’s USDC, stand below $15 billion.

And while the Genius Act in the US has lent significant momentum to the institutional acceptance of stablecoins, there is clearly a long way to go if Druckenmiller is right and the road is not yet smooth.

“Blockchains, stablecoins are incredibly useful in terms of productivity. I assume our whole payment system will be stablecoins in 10 or 15 years, they’re more efficient, quicker, cheaper,” he said.

And here comes the “but”. What if stablecoins make the global payments system cheaper, faster and more efficient, but also put an end to the unified monetary system we know today? A recent working paper from the Bank for International Settlements, dubbed Tokenomics and blockchain fragmentation by Hyun Song Shin, is arguing that the very rails that make these new efficiencies possible are undercutting one of the most fundamental features of money: its network effect.

The author argues that at its core, “money is a coordination device” that benefits from a network effect meaning that the more merchants accept a form of money, the more customers want to adopt it too. “This virtuous circle is the hallmark of a well-functioning monetary system,” the paper asserts.

Decentralisation effectively neuters the concept of money because in the classical sense, money is valuable due to its breadth of acceptance and the network effect this creates

Anchoring this whole system are central banks that have fed this loop by issuing a uniform currency and standing behind its value, allowing others like banks to look after the medium of exchange (hmm, like FX).

With blockchain technology, this anchor falls away. Today, there are some $300 billion worth of stablecoins in circulation, but they’re by no means equal. Tether’s USDT can be issued on several rails, or layer 1s, and the same is true of Circle’s USDC and others. All of these rails have different systems and mechanisms for maintaining “the truth,” a feature that undercuts money’s network effect as we know it today.

With stablecoins, “the feedback loop runs in the wrong direction: instead of greater acceptance leading to greater use (the virtuous circle of money), congestion on one chain leads to exit to another chain.”

This also leads to a fragmentation of the monetary landscape, with serious implications for the future of the current system, because validators, who play a crucial role in maintaining the “truth” on various blockchains need to be rewarded, unlike central banks. As a result, because these rewards must ultimately be borne by users through congestion rents, capacity constraints become a feature of blockchain-based transactions and they incentivise the lowering of standards for reaching consensus.

In simple terms, volume pushes up overall fees, which incentivises users to migrate to another chain to normalise costs. New chains pop up to accommodate these users, splintering the user base across several platforms, and favouring rails that can offer cheaper and perhaps, less reliable solutions. “Rather than the virtuous circle of greater acceptance and greater use, there is a fragmentation of the monetary landscape,” the paper argues.

Decentralised systems will have to work with central banks as the ultimate “validators” for the benefits of programmable money, automated settlement and transparent ledgers to crystalise

Bitcoin’s proof of work consensus mechanism was overtaken by proof of stake in popularity because it’s a faster and cheaper method of validating transactions. But the fragmentation feature also means that token economics, or tokenomics, due to its very feature of decentralised consensus, creates more and more specialisation.

The paper notes that: “Solana attracted users with low fees and high throughput. Tron became the workhorse for cross-border stablecoin transfers in emerging markets. BNB Chain, Avalanche, and dozens more carved out their own niches. By 2025, Solana, Tron, and Ethereum were each generating fee revenue of broadly comparable magnitude, creating a landscape in which no single chain dominates all use cases.”

This is a small problem today, but if we have trillions of dollars-worth of transactions taking place using stablecoins every day, the issue becomes enormous. The BIS argues that regulation can address some of these issues, but ultimately, “the fragmentation problem lies in the rails, not in the regulation. A well-regulated stablecoin on a fragmented infrastructure is still a fragmented instrument.”

Decentralisation effectively neuters the concept of money because in the classical sense, money is valuable due to its breadth of acceptance and the network effect this creates. For blockchain technology, the breadth of acceptance falls away due to consensus mechanisms systematically undermining it by fragmenting the user base across competing platforms.

So what’s the solution? As usual, the answer probably lies somewhere halfway between extremes. For Druckenmiller’s opinion to become a reality, decentralised systems will have to work with central banks as the ultimate “validators” for the benefits of programmable money, automated settlement and transparent ledgers to crystalise.

Instead of various L-1s maintaining ledgers that need to be validated, ledgers could be anchored by central banks, which benefit from the institutional trust of the traditional monetary system.

“Ultimately, the analysis in this paper points to the enduring importance of institutional trust in the monetary system. A purely decentralised monetary system, without the anchor of a trusted central authority, is structurally predisposed to fragmentation,” the paper states. “The question for policymakers is whether the genuine innovations of blockchain technology can be harnessed while preserving the institutional foundations that make a unified monetary system possible.”

So maybe the future is decentralised, but with central banks acting as the ultimate validators.

eszalay@thefullfx.com