Stablecoin Growth Challenges 24/7 FX Liquidity

The growth of local-currency stablecoins is putting 24/7 foreign exchange liquidity to the test, according to TransFi CEO Raj Kamal. Stablecoin issuers are launching tokens tied to currencies like the euro, sterling, and yen, which would bring more foreign exchange activity directly into payment transactions.

Kamal noted that over 70% of flows from fiat currencies into dollar stablecoins already originate outside the U.S. dollar. Each flow requires a currency conversion somewhere in the process, even when the token used for payment is denominated in dollars.

The increasing adoption of local-currency stablecoins may lead to fragmentation across currencies, issuers, and blockchains, leaving businesses relying on dollar stablecoins as intermediary assets. Banks will need to establish redemption, FX, and network connections to turn token issuance into regular commercial use.