A new Bank for International Settlements paper argues that stablecoins suffer from a fundamental flaw: fragmentation. Hyun Song Shin contends that because these digital tokens exist on multiple blockchains, they cannot achieve the singleness that makes traditional money useful. While stablecoins like USDC and USDT appear interchangeable, tokens on different blockchains are actually non-fungible.

This fragmentation stems from blockchain economics. Validators must be paid through congestion rents that rise with network popularity, creating a trade-off between security and usability. Users seeking cheaper transactions migrate to less congested chains, while security-focused users remain on expensive networks. The result is a proliferation of blockchains and stablecoins that cannot achieve universal acceptance.

Bridging between blockchains offers a partial solution but comes with risks and costs. Chainalysis estimates hackers stole over $2.5 billion from bridge exploits between 2021 and 2024. Even layer-two solutions don't solve the problem, as they create additional fragmentation without shared liquidity pools. Shin's analysis suggests that decentralisation's inherent costs make stablecoin fragmentation not a bug but a necessary feature that undermines their potential as a true payment instrument.