Sixty-something years ago, a dynamic was unfolding between US banks that bears an eerily similar dynamic to that being played out between Stablecoins and their issuers today. It revolved around the same medium of exchange (US Dollar) and exhibited the same pattern of fragmentation that we see today.

It will result in the exact same outcome.

Bank To The Future

In the 1950s and 60s, American banks were experimenting with a new idea: Credit Cards. Seeing the relative success of company “charge plates” like Diners Club, Banks saw themselves as the perfect vendor for general-purpose spending cards.

Bank of America’s BankAmericard was the first general-purpose dollar card, famously piloted in Fresno, California. The premise was simple: If you bank with us, you can have a card. You can spend this card at any merchant that also banks with us.

Settlements on the card network were clunky and manual. Merchants authorized transactions by physically calling banks or flipping through printed “hot card” lists for small transaction amounts. Fraud was rampant.

Even so, the program worked well enough that other banks quickly launched their own. Despite some regulatory turbulence, they were relatively successful. However, as the networks grew, the utility curve — the rate at which customer bases benefited from these programs — levelled off.

The reason? Fragmentation.

Every bank had its own rules, networks, and risk practices. Merchants had to juggle multiple relationships with many banks to support each card. Consumers needed a stack of cards to shop at different stores.

The goal for each bank was to operate nationally and offer cards and merchant accounts to everyone in America. A single card, on a single network, could enable consumers and merchants to buy and sell goods across the country, offering the most coverage to consumers and the least headaches to merchants. Own the network, own the economy.

However, there were two big problems:

1. Regulation — The McFadden Act prevented banks from operating at a national level. Banks were small and regional, often restricted to a single City or State. Banks could not pursue nationwide programs alone.

2. Incentives — Banks had little reason to accept other banks’ card networks, especially if they had a card network of their own. They were, for all intents and purposes, adversaries. Convincing a bank to build the future of their business upon a network that an adversary owned was unreasonable.

Given that no bank wanted to accept payments from another bank’s card, and no bank could offer services nationally, alliances were formed.

Alliances enabled a consortium of banks to issue and accept each other’s card payments. The goal of these alliances was to establish a coalition of regional banks large enough to cover the entire United States, thereby offering services nationwide with minimal inconvenience to consumers and merchants.

This did happen, for a time, but the alliances eventually broke down. Inner-alliance rivalry meant no bank wanted to cede control to another. Larger banks partnered with smaller regional banks to offer coverage, but demanded more of the revenue. Smaller banks were worried about control, profit share, and branding. Standards for issuance, redemption, or risk management that were proposed favoured one bank over the other, resulting in little to no acceptance of shared standards. Alliances competed against each other, poaching banks from one to another, resulting in the very same problem that the alliances were formed to resolve. In a classic case of coordination failure due to misaligned incentives, the alliances fell apart.

The result? Network effects stalled. Cards, as we know them today, were not a widely accepted medium of exchange. America, for the most part, did not see cards as a replacement for Cash and Cheques.

Jeremy And Paolo’s Excellent Adventure

Today’s Stablecoin ecosystem looks uncannily like credit cards in the 60s. The pool of issuers is numerous and growing, each teasing or launching a new Blockchain specifically tailored to Stablecoin payments.

Tether is one of the most profitable companies on planet earth, but the regulatory uncertainty that has existed up until recently meant that new players have been hesitant to join the party. This is no longer the case thanks to clarity from the new administration in Washington. Circle, PayPal, and Stripe are all in, and more are expected to enter over the coming months and years.

Most of these are and will be wildly successful. However, as their respective networks are launched and user bases grow, the utility curve will start to level off.

The reason? Fragmentation.

Circle has recently announced Arc, a USDC-specific L1 chain. Stripe has acquired Privy and Bridge, and announced Tempo, a “blockchain for Stablecoin payments”. Each launch proclaims neutrality and shared standards, not realizing that they’re making the same claims that bank alliances did in the past. They’re all competing, launching networks, and expecting adversaries to build future business on a network that is adversarial to them.

2. Incentives — Banks had little reason to accept other banks’ card networks, especially if they had a card network of their own. They were, for all intents and purposes, adversaries. Convincing a bank to build the future of their business upon a network that an adversary owned was unreasonable.

The parallels are clear.

Adversaries have no incentive to build future business on a network that is adversarial to them. Why would Stripe build the future of their business on Arc, and vice versa?

The added factor that wasn’t present in the banking scenario in the 60s is the permissionless nature of the blockchain industry. Any Chain, Wallet, or App can, and should launch its own Stablecoin. Any crypto entity with a smidgen of TVL is incentivised to offer a Stablecoin product to their user base. AAVE and GHO are great examples of this. Not only are the same pressures present in the 1960s, but now there is a boundless number of potential Stablecoin issuers lined up to reap network rewards.

The same pattern we saw with Bank Card networks in the 60s will play out with Stablecoin issuers over the near term. The network effects of each Stablecoin chain will stall, and user experience will suffer, for the same reasons that Bank Card networks did. Stablecoins, in this paradigm, will not be widely accepted as a replacement for digital fiat payment rails.

Bank To The Future Part II

So what happened with payment cards? How did we reach a point where cards are accepted as a universal medium of exchange?

No one bank forced the others into submission through sheer weight. No amount of acquisitions, alliances, booms, and busts brought about the present-day ubiquity of payment cards. The breakthrough was the creation of a neutral association. It was not an existing bank; it was not even a new bank. It was a brand new entity entirely. A neutral association that offered shared governance, common rules, and standardized technology for all the participants within it. It was, and still is, the connective tissue that unified issuers, merchants, and consumers.

That entity was Visa.

Visa was the life’s work of Dee Hock. Hock realised that a universal, widely accepted system for card payments was an incredible proposition for value exchange, and a future that he believed had to happen. He also realised that none of the existing institutions that were competing to achieve that outcome, due to the very nature of competition, would reach it. It was not the fault of any of the existing entities, but of the game they had found themselves playing.

Visa was not an existing bank, nor a new bank. It did not replace banks. Banks did not collapse due to the growth of Visa. Quite the opposite occurred: the rising tide that Visa ushered in undisputedly raised all boats.

A defining feature of Visa was that each participating bank had a seat at the table, but none controlled it. No participating bank competed with Visa, because it wasn’t a bank, and it didn’t issue its own Cards. Those early Visa days serendipitously had many parallels with the values that modern-day DAOs and blockchain organisations are founded on today.

Visa’s market cap is, at the time of writing, over $650 billion. The brand itself permeates every country, every economy, and is instantly recognisable by every person on earth. It is universally accepted, and it is the main reason that Cards are accepted as a medium of exchange today.

What Happens Next?

In the short term, Stablecoin issuers and their networks will grow. In the medium to long term, network effects will stall.

Over time, no single issuer — Circle, Tether, Stripe, PayPal, etc — will dominate without others resisting. None will hand control of the rails to a rival. The historical evidence suggests that even the best efforts to join forces or beat down the competition won’t be enough to achieve hegemony.

Without shared standards for issuance, redemption, risk management, and on-chain settlement, the ecosystem will remain fragmented. Any existing or new Stablecoin issuer that attempts to launch the “neutral” chain will find itself butting heads with entities that are directly competing with it. The same scenario that the banks found themselves in the 1960s.

With the current incentive structure and field of play, like the bank cards of the 1960s, network effects can only go so far. The existing entities will not usher in a new era of widely accepted adoption of Stablecoins as a medium of exchange.

Endgame

The long-term winner won’t be one of today’s issuers. They’ll all survive, and thrive — just as banks did. But they won’t become the network.

The winner will be a new, neutral entity. A Stablecoin-Visa, if you will. The connective tissue that binds Stablecoins, Chains, Exchanges, Dapps, and consumers into one universal system. Not another issuer. Not another chain. Something else entirely.

Billions of dollars move through Stablecoins each day. But the wars between issuers will never crown a single winner. The entity that brings about the age of Stablecoin acceptance will look different: genuinely neutral, trustless, designed for interoperability, and crucially, each issuer will have a seat at the table.

Many will be reading this and think, “That’s exactly what [my_chain_or_protocol_or_bidge_here] is!” If that’s you, you’re not getting it. It’s not Ethereum, or any of the L2 ecosystems. It’s not Solana. It’s not a Blockchain, it’s not a DApp, or a bridge, or an existing Stablecoin. All of these things suffer from the same forces that we have already seen inhibit the Bank Card networks of the 1960s.

The entity that brings about the shift does not exist yet. When they arrive, they will be the Visa for on-chain value exchange.