Stablecoins – Can You Be a Good Runner, Flyer and Swimmer at the Same Time?

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Stablecoins are having their “boring is beautiful” moment. While the headlines bounce between memes, ETF flows, and the latest L2 drama, the most important product-market fit in crypto keeps compounding quietly: dollar tokens that move at internet speed.

That success creates a question outsiders often ask with genuine confusion: why are there so many stablecoins? If the goal is “$1 on-chain,” shouldn’t one or two do the job?

In practice, stablecoins aren’t a single invention. They’re a family of designs attempting to solve a three-way tension—what I’d call the Stablecoin Trilemma: peg stability, decentralization, and scalability. Get two right and the third starts to squeal. According to CoinGecko, there are now 300+ stablecoins in circulation, and that number is less a sign of redundancy than of engineering reality: different issuers are optimizing for different constraints.

A useful analogy is biology. No creature is the best runner, swimmer, and flyer at the same time. The anatomy that makes a cheetah fast is a liability in water; the wings that make a hawk dominant in the air don’t help it sprint. Stablecoins face the same physics. Every design choice—collateral, redemption logic, liquidity venues, governance—pushes the system toward one strength while pulling it away from another.

So the proliferation isn’t noise. It’s evolution.

Why So Many Stablecoins?

Most stablecoins cluster into three major camps. They look similar on the surface—one token, one dollar—but their internal “organs” differ.

1) Fiat-backed (USDT, USDC and friends)

These prioritize peg strength and scale. They are easy to understand, easy to integrate, and usually the most liquid instruments in crypto markets. When a venue needs a quote currency that traders trust, it reaches for the stablecoin with the deepest liquidity and the tightest spreads.

The trade-off is obvious: centralization. A fiat-backed stablecoin is ultimately a promise made by an issuer, supported by off-chain reserves and subject to the rules (and whims) of the jurisdictions those reserves live in. That’s not inherently bad—finance is built on legal agreements—but it is a different risk model than “pure” crypto.

2) Crypto-collateralized (DAI, LUSD)

This camp leans into on-chain transparency and censorship resistance. The collateral is visible, the rules are encoded, and the system can function without a single company holding the keys.

But decentralization has a price tag: capital efficiency. These systems typically rely on over-collateralization, which means you lock up more value than you mint in stablecoins. It works, and it’s elegant in a “crypto-native” way, but scaling it is slower and more expensive. It’s the difference between building a bridge out of steel versus building one out of gold: both can hold weight, but only one is cheap enough to replicate everywhere.

3) Algorithmic or hybrid (FRAX-style designs)

These aim for scalability and often capital efficiency, reducing reliance on fully reserved models. In theory, this is the category that tries to look like the future—lighter collateral footprints, market-driven stabilization, adaptive mechanisms.

In practice, it’s also the category that depends most on something finance rarely likes to name: confidence. Peg stability here is not just a function of assets held, but of market structure, liquidity depth, reflexivity, and the credibility of the stabilization mechanism under stress.

Different points on the triangle. Different failure modes. Same ambition: “$1, always.”

Stablecoin Growth: The Winners and the Gravity

Stablecoins have grown from a DeFi curiosity into core infrastructure. DeFiLlama data shows a rise from roughly $128B to $300B+ over the last couple of years, with USDT and USDC still commanding the lion’s share—around 80% in many snapshots.

That dominance is not accidental. Centralized stablecoins are winning today because they are optimized for the two things markets reward most in a unit of account: liquidity and reliability. Traders don’t philosophize about decentralization during a liquidation cascade. They want the peg to hold and the exit to be open.

Regulation reinforces that momentum. Most regulatory frameworks naturally prefer entities they can license, audit, and supervise—issuers with corporate structures and identifiable reserve custodians. Meanwhile, ideas being floated in policy circles—like Federal Reserve Governor Christopher Waller’s comments around “skinny” banking concepts and access to certain reserve-like structures—hint at a future where some stablecoin issuers could be even more tightly integrated into the traditional financial system.

If that path materializes, centralized stablecoins don’t just win market share. They begin to look less like “crypto tokens” and more like new payment rails for the dollar.

And that’s where the conversation gets uncomfortable—because scale changes the risk profile.

Why Stablecoins Can Be Risky

At small scale, a stablecoin can behave like a simple product: mint, redeem, keep reserves, earn some yield, repeat. At large scale, a stablecoin starts resembling a familiar institution: a money-like liability issued against a portfolio of assets.

And whenever you issue money-like liabilities, a temptation appears: fractional behavior.

Even if an issuer is fully reserved on paper, the reserve composition matters. If you know not everyone redeems at once, you can invest a portion of reserves into longer-duration or higher-yield assets to boost profitability. That’s rational. It’s also where fragility creeps in.

When markets are calm, this works fine. When markets are stressed, redemption demand clusters. Liquidity becomes the only metric that matters. If a stablecoin cannot meet redemptions quickly with truly liquid assets, you invite the oldest dynamic in finance: a run.

The irony is sharp. Crypto was, in part, a reaction to a system that requires central-bank backstops. But if stablecoins become systemically important—and if their reserve management drifts toward duration and yield—then in a true crisis the only credible backstop may be… the same kind of intervention crypto wanted to route around.

That doesn’t mean stablecoins are doomed. It means stablecoins are becoming finance, and finance comes with rules of gravity.

The Future of Stablecoins: Why This Still Wins

Despite the risk, stablecoins remain one of the clearest upgrades to how money moves. They are not perfect money, but they are better rails—and rails shape economies.

Here are four dimensions where stablecoins are already outperforming legacy systems:

Speed
Stablecoin settlement can be seconds on chains like Ethereum L2s, Tron, or Solana. Even “instant” bank transfers can be instant in user experience yet slow in finality, cut off by batch windows, compliance holds, or cross-border correspondent banking.

Accessibility
If you have a phone and an internet connection, you can hold and send stablecoins. No branch visit. No minimum balance. No permissioned onboarding to move value across borders. That matters—not as a slogan, but as a practical unlock for global commerce.

A Different Insurance Model
Banks are insured (to a limit) because banks take maturity and credit risk. Stablecoins, ideally, shouldn’t need to. The real risk moves from market exposure to operational and technology risk: smart contract vulnerabilities, custody risks, issuer governance, and reserve transparency. In principle, those risks can be engineered down—and, in some cases, insured in ways that look more scalable than the traditional $250k-per-depositor regime.

Yield and the End of “Dead Money”
Stablecoins are evolving from payment instruments into programmable balances. Many already touch on-chain lending markets, and the frontier is obvious: tokenized money market funds and cash-like instruments that keep a stable $1 price while earning yield. It’s a fair question: why shouldn’t everyday payments run on a token that behaves like dollars and carries a built-in, transparent yield mechanism?

That last point is where things get politically and economically interesting. If stablecoins become the default way value moves, the fight won’t just be about crypto market structure. It will be about who gets to issue “dollars on the internet,” under what constraints, and with whose permission.

Stablecoins aren’t multiplying because builders can’t agree. They’re multiplying because the problem has no single optimum. You can be a great runner, flyer, or swimmer—but you can’t max out all three. The stablecoin trilemma forces choices, and those choices produce different winners in different environments.

In the near term, centralized stablecoins will likely keep dominating because they’re built for liquidity and scale. In the long term, the market will keep carving out niches for decentralized and hybrid designs—especially where censorship resistance, transparency, or composability isn’t a preference but a requirement.

The real question isn’t “Which stablecoin wins?” It’s what kind of financial system we’re quietly rebuilding on-chain—and whether we’re honest about the trade-offs before stress tests force the lesson.

Gleb Kurovskiy, Luminary Chief Digital Officer

Gleb Kurovskiy is a leading fintech innovator and Chief Digital Officer at Luminary Bank, specializing in blockchain, AI, and payments. With 8 years of experience in finance, including a tenure as Lead Economist at the Central Bank, and a PhD from EPFL, one of the world’s top technical universities, Gleb combines deep academic expertise with hands-on experience in building high-impact financial systems.

As a forward-thinking leader, Gleb has successfully driven the implementation of crypto lending, staking, and blockchain protocol integrations, achieving in months what traditional banks often take years to build. He believes in leveraging the best of traditional finance and blockchain to create efficient, interoperable systems, redefining the way modern financial infrastructure is designed and operated.

Gleb is widely recognized for his vision at the intersection of finance and technology. A finalist of the Econometric Game — World Championship in Econometrics, he continues to shape the future of digital finance, exploring the programmability of money and building next-generation financial systems that are fast, yield-bearing, and reliable.

Gleb has a publication at Swiss National Bank FinTech Conference on Cryptoassets and Financial Innovation: “How algorithmic stablecoins fail”.

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