Stablecoins: What's Behind the Misleading Media Narrative
The media often conflates three different types of stablecoins into one entity. However, the public-chain stablecoin, private-chain stablecoin, and tokenized deposit have distinct characteristics that are crucial for understanding their uses and implications.
A public-chain stablecoin is a fiat-collateralized token that exists on a blockchain like Ethereum or Solana. For every digital token minted, there is one real dollar in a bank account or short-term U.S. Treasury bill. USDT and USDC dominate this market, with a total stablecoin market cap of over $300 billion by 2026.
The public-chain version is used for DeFi applications like lending markets on Aave, where users can earn, borrow, and settle without needing bank approval. This permissionless quality allows for instant transactions across the globe, with transparency provided by a public ledger that anyone can audit.
In contrast, private-chain stablecoins are used by banks for interbank settlements and large corporate payments. They prioritize control over openness, with built-in controls and no publicly disclosed information. The GENIUS Act allows licensed banks to build on private chains, which has led to the development of tokenized deposits.
The Federal Reserve's FedNow rail settles bank dollars instantly without using ledger technology. To be considered a stablecoin, a digital dollar must exist as a token on a distributed ledger under federal law.