Stablecoins — digital currencies pegged one-to-one to cash and reserves — are multiplying rapidly as the market seeks alternatives to traditional banking. The latest entrant, Open USD, launched with backing from a consortium including Visa, Mastercard and Coinbase, joining an increasingly crowded field of crypto-like payment instruments.

Regulators are adapting to accommodate this growth. Even the traditionally conservative Bank of England recently relaxed restrictions on stablecoin adoption, signaling official recognition of their potential role in modern finance. However, the technology's promise outpaces its practical benefits.

The primary use case remains crypto trading, serving as temporary parking spots for investors awaiting opportunities in bitcoin or other tokens. While stablecoins technically enable fast, low-cost international transfers, traditional banking delays stem more from anti-money laundering protocols than technological limitations. TRM Labs reports $141bn in illicit activity through stablecoin wallets last year, highlighting regulatory gaps that concern authorities.

Stability remains questionable despite the name. Even regulated Circle's USDC traded at just 86 cents during the 2023 Silicon Valley Bank collapse, lacking deposit guarantees or central bank backstops. Unlike central banks managing currencies for public benefit, stablecoin issuers profit directly from underlying assets, creating misaligned incentives. Central bank digital currencies could address these flaws, but the Trump administration's outright ban on CBDCs may prevent better solutions from emerging.