Author: Nico Pei, founder of Superno va; Compiler: Felix, PANews

How can new issuers of stablecoins stand out between Tether and Circle? The founder of Supernova, which focuses on on-chain interest rate swaps, issued an article stating that building synthetic foreign exchange on the basis of USDT/USDC to provide local currency experience for global users is the most realistic and efficient path. The following is the essence of the content.

Key points:

• Stablecoin neobanks are the next major growth area for retail mass adoption of cryptocurrencies, and FX is becoming part of its core underlying architecture.

• Tether and Circle have spent over a decade building massive liquidity, distribution channels and network effects around USDT/USDC. This is extremely difficult for new FX stablecoin issuers to replicate.

• Rather than compete by issuing spot FX stablecoins, synthetic FX is adopted: users continue to hold the underlying USDT/USDC, while account balances are denominated in their preferred local currency.

Stablecoin neobanks are moving beyond crypto-native banks to disrupt the way consumers and businesses around the world transact. About $6 billion in venture capital has poured into the space over the past year.

However, given the current on-chain FX infrastructure, the stablecoin neobank effectively becomes a “USD-account-only bank.” This limitation creates tremendous opportunity, as 95% to 99% of the world uses currencies other than the U.S. dollar for accounting purposes.

Consumption increased 24 times a year, turning from a trading tool into a daily currency

A friend from Tether once said that diversifying the holder group is one of the company's three most important goals. If the holder group is dominated by giant whales, USDT’s TVL will fluctuate uncontrollably. All stablecoin issuers hope to win over retail and corporate users who use stablecoins for daily transactions and banking, not more traders/whales.

"It is far better for 1 billion people to each hold 10 USD in USDT than for one giant whale to monopolize 10 billion USD."

The Stablecoin New Bank provides a perfect opportunity for stablecoins to reach daily retail investors and enterprises. In addition to currency speculation (trading), the mainstream public will experience the convenience and superiority of stablecoins as currencies for transactions, savings, and investments, thereby surpassing the current scale bottleneck dominated by transactions.

Here’s a snapshot of the stablecoin neobank’s momentum: Crypto card spending surged 525% in 2025, jumping from $14.6 million to $91.3 million, with ether.fi leading the way with $55.4 million, with single-day spending on ether.fi cards reaching $3.7 million. This means that annualized stablecoin consumption has reached $1.35 billion, a 24x increase from last year.

When something grows 24x in less than a year, you have to pay close attention. Meanwhile, ether.fi launched their Euro (EUR) product last week.

Stablecoin neobanks are a brand new battlefield, and there is no absolute winner yet. From 2018 to the present, whoever has the best fiat currency deposit and withdrawal liquidity and is widely accepted on CEX will be regarded as the best stablecoin and receive most of the growth dividends. So, how to win in this new battle? What kind of stablecoin is suitable for neobanking?

Only doing US dollar accounts, it is difficult for new stablecoin banks to win

Historically, single-currency neobanks have failed to gain market acceptance. Big fintech giants like Wise, Revolut and Airwallex all started out in Forex trading. When PayPal went public in 2002, its foreign exchange business also accounted for more than 40% of its revenue.

Cross-border capital flows are much more difficult than domestic ones, so these successful new banks have the opportunity to shine in the foreign exchange field and establish market dominance in specific payment channels or consumer/business groups.

As a result, stablecoin neobanks that only offer USD accounts may face significant obstacles in growing and differentiating, let alone competing with existing fiat currency neobanks. Between 95% and 99% of businesses worldwide keep accounts in currencies other than the U.S. dollar. Currently, stablecoin neobanks cannot serve these businesses or consumers.

With a scale difference of 700 times, why is it difficult for foreign exchange stablecoins to rise?

Although many excellent teams and public chain ecosystems (especially Base and Codex) are eyeing opportunities in the foreign exchange market, the cruel reality is that the sum of all foreign exchange stablecoins is only a fraction of the size of U.S. dollar stablecoins. That’s about $600 million versus $400 billion, a 700-fold difference.

Tether’s success proves that stablecoins are a business with strong network effects. Tether is the highest quality stablecoin precisely because of the vast network built around it.

Given that the TVL of foreign exchange stablecoins is very limited, most foreign exchange stablecoins face the following dilemma:

• Lack of liquidity leads to unstable anchoring. (For example, the depeg of Paxos Gold on 10/10 could happen to any FX stablecoin with limited liquidity and TVL. PAXG had $1.2 billion in TVL at the time, almost three times the size of EURC, the largest FX stablecoin).

• Not accepted by fintech companies or CEXs

• Even if it is accepted, its liquidity for fiat currency deposits and withdrawals is very limited.

• Insufficient liquidity with important trading pairs (including USDT/USDC)

• Almost no revenue opportunities

• Complex compliance/licensing processes in different regions

• Most importantly, because the peg mechanism is untested, the stablecoin will struggle to be adopted by stablecoin neobanks and wider fintech companies unless it reaches a certain scale. This is a "chicken and egg" problem that may take a long time and a lot of resources to solve.

High quality stablecoin

A good bank stablecoin must excel in all of the following areas:

• Deposit/Withdrawal Channel Liquidity

• Strong anchor stability independent of overall market liquidity

• Income Opportunities

• Main trading pair liquidity

• Extensive centralized finance/traditional finance/payment acceptance

• Have a strong presence on low Gas chains

• Brand/code recognition

Inspiration from traditional financial foreign exchange: rely on derivatives rather than spot

According to the Bank for International Settlements (BIS), only about 31% of global foreign exchange trading volume comes from spot transactions, while about 69% comes from derivatives markets. This suggests that modern FX markets are primarily driven by synthetic exposures, hedging and financing activities rather than physical currency exchanges.

Consequently, average daily notional trading volume in FX swaps is as high as $4 trillion.

One of the most important non-spot foreign exchange instruments is the non-deliverable forward (NDF): this is a cash-settled foreign exchange forward during which no physical currency exchange occurs. The two parties to the transaction do not deliver the underlying currency, but only settle the profit and loss difference in US dollars.

NDFs are particularly common in situations where currency convertibility is restricted, offshore channels are fragmented, or offshore liquidity is insufficient for efficient physical settlement, as synthetic USD settlement exposures are operationally more expedient than acquiring and settling local currencies.

For example:

• A company wants to have exposure to the Swiss franc over the next 3 months.

• Instead of acquiring and settling physical Swiss francs, the company enters into Swiss franc NDF contracts, effectively denominating the account in Swiss francs while holding U.S. dollars.

• On maturity, only the difference in profit and loss in US dollars (compared to the agreed exchange rate) is settled.

Many modern NDF structures also employ a mark-to-market (MtM) mechanism, whereby unrealized gains and losses are regularly pledged or settled over the life of the contract, thereby reducing counterparty risk and improving capital efficiency. Market-to-Market Non-Deliverable Forward (MtM NDF) FX transactions effectively allow accounts to remain funded in USD while cost-effectively denominating balances and P&L in another currency.

The shortest path for on-chain foreign exchange transactions: NDF foreign exchange, not spot trading

For currencies that lack deep or efficient spot liquidity, MtM NDF is an effective solution. The tool is already widely used in TradFi to handle trading pairs such as USD/CHF, USD/KRW, USD/INR, USD/BRL, and USD/TWD. They are often used by corporates, banks and offshore investors to obtain synthetic foreign exchange exposure without actually settling in local currency.

Cryptocurrencies also face similar structural problems:

• Not all currency pairs have deep spot liquidity;

• There are operational difficulties in maintaining a fully collateralized local currency stablecoin;

Therefore, the MtM NDF structure is ideally suited for crypto-native FX systems.

Users can:

• Keep the USDT/USDC funds in your account sufficient

• At the same time, through the MtM NDF structure, long foreign currencies while holding a short position in the US dollar;

• Efficiently roll account value and P&L into the target currency without leaving the USD settlement track.

Advantages include:

• Strong oracle-based anchoring: exposures track reliable FX reference rates rather than relying on decentralized local spot liquidity.

• USD Stablecoin Track and Yield Preserved: Users continue to hold USDT/USDC, gaining access to the deepest on-chain liquidity and yield opportunities.

• Superior Liquidity and Convenient Trading Access: USDT/USDC has the strongest global trading access, exchange integrations, and trading liquidity across crypto markets.

• Cross-currency scalability: Any currency with a reliable USD oracle can be supported synthetically. There is no need to connect with local banking structures, local custody or purchase sovereign bonds like traditional fiat-backed stablecoin issuers.

• High capital efficiency: only the foreign exchange profit and loss difference is settled or mortgaged regularly, without the need for a full nominal spot exchange.

This is highly consistent with how off-chain institutional FX markets operate today: with synthetic exposure and cash-settled risk transfer layered on top of the dominant USD funding and collateral system.

Who will use NDF forex trading on the chain?

A simple narrative of "foreign exchange is the next development direction" will not work. Details determine success or failure, and it is not easy to achieve a 10-12-digit TVL in foreign exchange stablecoins. Teams working in this direction cannot take it for granted that as long as the product is built, the holders will miraculously appear. Three things need to be very clear:

• Who is your owner

• Why do they hold it

• How to assign them

1. New banks, custodians and wallets require multi-currency accounts

Total deposits are one of the most important metrics for neobanks and stablecoin chains. Without native FX infrastructure, international businesses cannot easily hold on-chain and are forced to fall back to local banking systems. Therefore, many stablecoin neobanks and stablecoin chains risk becoming mere pass-through channels for deposits and withdrawals of funds, rather than true financial operating systems.

MtM NDF infrastructure changes this landscape.

Stablecoin neobanks, custodians, wallets and payment platforms can integrate APIs to provide synthetic FX pricing services directly on top of USD stablecoin rails. For the end user, the experience becomes a simple switch:

• Switch the account's currency display from USD to EUR, CHF, SGD, HKD, etc.

• Or hold balances denominated in multiple currencies in a single account.

• While the underlying settlement, staking and liquidity infrastructure remains USDT/USDC.

The interests of stablecoin neobanks, custodians and wallets are highly aligned with those of MtM NDF:

• Expand international users

• Increase deposits and retained balances

• Reduce users’ transfer to the traditional banking system

• Support multi-currency accounts to form differentiated competition and public relations highlights.

Therefore, international business/individual users can:

• Keep funds completely on-chain

• Continue to enjoy the deep liquidity and benefits of USD stablecoins

• Also cost-effectively hold FX exposure through synthetic FX markets

The product has benefited from positive macroeconomic factors, with the U.S. dollar depreciating about 10-12% against the euro over the past year, driving up demand for non-U.S. currencies while users continue to hold U.S. dollar stablecoins.

2. The income from foreign exchange arbitrage trading will be much higher than that of Ethena

Forex derivatives are also widely used in arbitrage trading, which is one of the largest macro strategies in the world. The classic example is the Japanese yen arbitrage trade:

• Financing with low-yielding Japanese yen.

• Go long on high-yielding currencies (such as the Brazilian Real BRL).

• Earn the interest rate difference, which is the "Carry".

The Brazilian real's interest rates regularly sit above 10%, making it one of the most popular arbitrage currencies for hedge funds and macro investors. These transactions are typically done through NDFs, forwards and FX swaps rather than physical spot exchanges.

Compared to cryptocurrency basis trading products like Ethena:

• FX arbitrage is tied to sovereign interest rate differentials, not cryptocurrency funding rates

• The market is larger and more institutionalized

• Due to the size of the global foreign exchange derivatives market, its trading capacity is also larger

• Returns are generally lower than the peak of crypto arbitrage trading, but historical data shows that it is more stable and more scalable

This creates a huge opportunity for on-chain FX arbitrage vaults: users hold USDT/USDC as collateral, gain foreign currency exposure through MtM NDF synthesis, and earn sovereign FX arbitrage on the chain without leaving the USD stablecoin track.

3. Enterprise global payment

Over the past year, Bridge has allowed business customers to accept fiat payments in Euros (EUR), Mexican Pesos (MXN), Brazilian Reals (BRL), Colombian Pesos (COP), and British Pounds Sterling (GBP), with funds automatically converted to USDC.

However, currently foreign exchange can only be received and cannot be held on the chain. For businesses that do their finances or accounting in currencies such as Swiss Francs (CHF) or Singapore Dollars (SGD), this means they still need access to the local banking system. This is especially important when serving global enterprises, and Tempo is actively promoting the adoption and expansion of such services among global enterprises.

Stripe supports NDF-like FX hedging in its fiat global payments. If a merchant wants to settle in currency A and a customer pays in currency B, the merchant can hedge the foreign exchange risk for a specific period and provide the customer with a stable, locked-in local currency price.

Stripe’s NDF foreign exchange API is used for fiat currency payments

A similar on-chain model can be applied to stablecoin payments: users continue to hold and trade USD stablecoins, while merchants or wallets can synthetically hedge their preferred local currency without relying on spot FX liquidity or local stablecoin issuance.

It is worth mentioning that Stripe's foreign exchange products have very high profit margins, with annualized hedging costs of approximately 73%.

Although the product primarily serves corporate and retail payment processes, which are generally low-risk and highly predictable, the product still charges approximately 20 basis points per transaction. Annualized, this translates into a hedging cost of approximately 73%, an unusually high fee for FX risk transfer. This both highlights the profitability of the business and demonstrates that users are not price sensitive when it comes to seamless global payments and currency certainty.