Following the recent passage of legislation in the U.S., payment stablecoins seem to be on the brink of wider-scale adoption and explosive growth in market capitalization. In this post, we contend that the driving factor is not their proximity to digital cash instruments, but rather how they are transferred—via global, open-access, peer-to-peer systems, or “permissionless blockchains,” for short.
The Current State of Stablecoin Activity
Stablecoin market capitalization has recently exceeded $260 billion and total transfer value reached $27.6 trillion in 2024, surpassing the combined value processed by Visa and Mastercard. On the surface, this appears to represent a fundamental shift in how value is transferred digitally.
However, research by Visa and Allium Labs suggests that less than 10 percent of stablecoin transaction volumes are organic (that is, come from real people). Instead, they find that most stablecoin activity is linked to bot-like transactions, a reflection of factors inherent to blockchain-based systems. Automated market makers, decentralized exchanges, and algorithmic trading strategies generate significant transaction volume without representing actual payment flows. In addition, non-economic transfers could be made for purposes of obfuscation, privacy, or even the manipulation of on-chain statistics. Finally, the composable and transparent nature of decentralized finance protocols means that a single payment can trigger multiple, observable on-chain movements. These facts highlight the critical distinction between transaction value and actual payment adoption. While blockchain infrastructure is processing massive amounts of value, use cases for consumer and business payments are still developing.
Notwithstanding these caveats, the growth in legitimate on-chain transactions is substantial. Excluding bot-like transactions, the annual volume of stablecoin transactions rose from $3.29 trillion in 2021 to $5.68 trillion in 2024, a roughly 80 percent increase. This growth demonstrates the practical utility of stablecoins for real-world payments.
What Does the Future Hold?
The landscape of real-time payments has become increasingly competitive with the launch of new, faster payment systems—including FedNow, the Federal Reserve’s fast retail payment system. FedNow enables near-instant money transfers, in contrast to the hours or even days traditional U.S. payment systems sometimes require. In addition, it’s cheap, runs 24/7, and connects customers across thousands of financial institutions.
FedNow’s technical capabilities align closely with many of the benefits commonly associated with stablecoins. On FedNow, funds are transferred directly from the sender’s bank account to the receiver’s bank account, providing immediate finality and reducing counterparty risk for retail customers. This architecture addresses many of the speed and settlement issues that have historically plagued traditional payment systems, and challenges the value proposition of stablecoins as domestic payment solutions.
Other faster payment solutions that exist today include Real-Time Payments (a fast payments platform supporting Zelle), same-day ACH, and peer-to-peer payment platforms (such as Venmo and CashApp). These systems vary in settlement type, payment rail, costs, payment protocols, and transaction value limits. Each serves different market segments and use cases.
So, what differentiates stablecoins from these alternatives? The answer lies in accessibility. All the faster payment solutions, including FedNow, operate within the traditional banking system, requiring both sender and receiver to be customers of participating financial institutions. Unbanked and underbanked populations are excluded, and international transactions for which correspondent banking relationships are required are typically not supported. There are initiatives like the BIS Innovation Hub’s Project Nexus that seek to connect faster payment systems around the globe. However, these efforts are not yet fully operational. In contrast, stablecoins are already accessible worldwide and enable transactions without restrictions on value or counterparties. The borderless nature of stablecoins provides significant advantages for international payments, remittances, and cross-border commerce.
These advantages are not intrinsic to the form of money that stablecoins embody but instead arise from their issuance on permissionless blockchains. Indeed, any monetary instrument issued on such blockchains can achieve borderless, global reach. New types of tokenized money instruments are emerging daily, spanning non-fiat-backed stablecoins, tokenized Treasury funds, and deposit tokens, each offering benefits that will attract different segments of the market.
Permissionless Blockchains as Public Infrastructure
What attributes should permissionless systems possess to support the exchange of tokenized money and assets? We identify three key criteria:
- Universal access to settlement. Allowing for payment instruments to be transferred across digital wallets self-managed by individuals provides opportunities for all who are seeking dollar settlement. This takes full advantage of the global, open-access community of blockchain systems.
- Code without constraint. Smart contracts can automate complex payment flows, enable conditional payments, and integrate with decentralized applications. This programmability opens new possibilities for business process automation and financial innovation. While programmability is not unique to permissionless blockchains, let alone to distributed ledger technology, permissionless blockchains stand out as anyone can program, and compose a program with any other asset on the blockchain.
- Innate composability. Composability means assets and contracts can freely reference and interact with each other. While it is possible to compose across multiple asset classes in traditional finance, this requires significant coordination and consensus across stakeholders. In contrast, on permissionless blockchains composability arises as an innate and defining feature.
There remain substantive issues that must be resolved before permissionless blockchains can reach mainstream adoption.
- Permissionless blockchains, unlike instant payment systems, are not regulated by central banks and are not fully integrated into established financial ecosystems. This instills a level of insecurity and mistrust that many tokenized solutions experience due to their decentralized nature.
- Making payments on permissionless blockchains requires individual users to understand nuanced aspects of blockchain settlement and the novel risks associated with the custody of on-chain assets. Major efforts to streamline the user experience are underway by creating standards that improve account management (for example, with EIP-7702) and incorporating authentication processes that are already familiar to the general public (for example, through implementations of zkLogin). These initiatives offer more flexible and natural ways for users to secure and access their assets on-chain, and ultimately lower the burden of account management.
- Consumers require transactional privacy. Since public blockchains provide a transparent record of all transactions, transactional privacy requires some form of end-to-end encryption. Several blockchains offer transactional privacy using cryptographic techniques. However, institutional users often require higher standards of privacy and control, requirements that certain platforms aim to achieve.
In addition to these usability issues, there are safety, resiliency, and efficiency issues that permissionless blockchains must resolve.
- They must prevent illicit financial activities, such as money laundering and terrorism financing. These require both knowing and tracking the identities of users (e.g. know-your-customer, or KYC, capabilities), as well as transaction monitoring (e.g. anti-money-laundering, or AML, processes). Implementing these capabilities remains challenging for permissionless blockchains. Identity verification conflicts with permissionless systems; censoring select transactions can be difficult due to their decentralized nature.
- They must meet high operational standards, and for those that become systemically important, undergo supervision. This poses challenges for distributed networks where no central entity can bear responsibility or represent their stakeholders.
- To fully integrate with and meet the demands of traditional finance systems, public blockchains require significantly higher throughput capabilities, on par with or exceeding the thousands of transactions per second processed by established systems. Various scalability solutions, including modifications to Layer 1 blockchains (e.g., sharding, proof-of-stake) and Layer 2 solutions (e.g., rollups, state channels), are being developed to bridge this gap. However, the simultaneous achievement of optimal decentralization, security, and scalability remains a significant challenge.
Final Words
Recent legislation provides regulatory clarity on payment stablecoins, but more importantly reflects a rising interest in allowing people to exercise greater control over their money. This control was largely surrendered with the ascendance of book-entry money, where payments relied on the updating of proprietary data sets. In some respects, permissionless blockchains represent a return to peer-to-peer transfers of value, albeit in digital form. We have argued that this can be beneficial, provided the individual’s desire for control is balanced against society’s need for safety and the business community’s demand for functionality.
Rod Garratt is a professor of economics at the University of California, Santa Barbara.
Michael Junho Lee is a financial research economist in the Federal Reserve Bank of New York’s Research and Statistics Group.
How to cite this post:
Rod Garratt and Michael Junho Lee, “The Future of Payment Infrastructure Could Be Permissionless,” Federal Reserve Bank of New York Liberty Street Economics, November 25, 2025, https://doi.org/10.59576/lse.20251125
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Disclaimer
The views expressed in this post are those of the author(s) and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author(s).
