Key Takeaways
- New Layer 1 blockchains are being custom-built for stablecoins.
- Stable, Arc, and Plasma incorporate features like fast finality and stablecoin gas fees.
- Emerging platforms are backed by PayPal, Circle and Tether.
With stablecoin adoption rising amid new use cases and growing interest from large institutions, there are doubts over the long-term sustainability of the current blockchain infrastructure.
Against this backdrop, PayPal, Circle and Tether are throwing their weight behind new Layer 1 (L1) blockchains that are optimized for stablecoin transactions.
The Limitations of Existing Blockchains
Blockchain’s advocates often tout the technology’s allegedly superior throughput compared to legacy payment systems. But as they currently stand, most blockchains would buckle under the amount of transactions global card networks process.
This problem is well-documented for Ethereum, which rarely exceeds 20 transactions per second (TPS). But even much faster, more efficient chains have limitations.
Take Solana as an example. During a recent stress test, the network surpassed 100,000 TPS. However, those were mostly lightweight “no op” transactions that only required around 2,000 compute units (CUs) each.
In contrast, stablecoin transfers can use up to 20,000 CUs.
Moreover, while Solana fees remain low even under a high load of stablecoin transactions, costs are unpredictable and must be paid in SOL, introducing additional complexity.
To solve this, new blockchains have emerged that use stablecoins as their native gas token.
Stablecoins Gas Payments
Some of the first blockchain platforms to explore stablecoin gas fees were Gnosis and Celo.
Gnosis, an Ethereum sidechain, supports bridged DAI for gas payments and is currently migrating to the upgraded USDS. Meanwhile, Celo’s multicurrency gas model supports native assets like cUSD and cEUR.
While Gnosis and Celo provided an important proof-of-concept, a new generation of L1S are integrating USDT and USDC, which make up the vast majority of all stablecoins.
A Dedicated Chain for USDT
In July, Stable was proposed as a new L1 network optimized for USDT payments. Because the gas currency is the same as the payment currency, users don’t need to hold crypto or rely on inefficient abstraction mechanisms.
The project is nominally independent from Tether, but retains close ties to the USDT issuer and has received funding from its sister company, BitFinex.
On Monday, Sept. 22, Stable onboarded its second major stablecoin, PayPal’s PYUSD. PayPal Ventures also invested in Stable’s latest funding round.
Circle Enters the Fray
With USDT gaining its own dedicated L1, Circle has moved to develop a rival platform for USDC.
Announced in August, Arc is pitched purpose-built infrastructure for USDC. It will integrate stablecoin gas payments and a network of validators that have been pre-approved by Circle.
This sets it apart as a kind of hybrid platform that combines the features of a blockchain with the more permissioned design of traditional payment systems.
In line with Circle’s general strategy, many of Arc’s features are tailored for regulatory compliance.
Although the platform is open to criticism from blockchain traditionalists, who favor censorship resistance and decentralization, Circle’s expanded control function could be attractive to risk-averse institutional users.
USDT Goes Omnichain With USDT0
On Thursday, Sept. 25, another stablecoin-focused L1 built around USDT is set to launch.
Like Stable, Plasma is powered USDT0, a blockchain agnostic stablecoin issued when users lock up native USDT on Tron, Ethereum, or any other supported chain. While it have a native token, XPL, the new L1 is designed so that end-users don’t pay transaction fees.
Exactly how much support the concept has from Tether remains unclear.
The project website leans heavily on the Tether brand, and quotes Tether CEO Paolo Ardoino, who called the stablecoin “a much needed solution for seamless USDT movement across ecosystems.”
Maintaining a degree of distance from USDT0 could be a strategic choice for Tether.
Once stablecoins are locked in the USDT0 contract, Tether has no control over the new tokens, which circulate freely on Plasma and other chains.
This essentially absolves the stablecoin issuer from responsibility for freezing assets and creates new possibilities for private transfers and uncensored transactions.
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James Morales is CCN’s blockchain and crypto policy reporter. He has been working in the news media since 2020, writing about topics such as payments, banking and financial technology. These days, he likes to explore the latest blockchain innovations and the evolving landscape of global crypto regulation.
With an educational background in social anthropology and media studies, James uses his platform as a journalist to explore how new technologies work, why they matter and how they might shape our future.
