Stablecoin Singleness

Jai Massari is cofounder and Chief Legal Officer of Lightspark Group Inc. and is Of Counsel at Arktouros, PPLC. Previously, Jai was a partner in the Financial Institutions Group of Davis Polk & Wardwell LLP. She is a Fellow of the Berkeley Center for Law and Business and adjunct at Stanford Law. She is a Trustee of the Board of the Practicing Law Institute.

A new report by the Bank for International Settlements (BIS)¹ makes an alarming claim about stablecoins:  they are inherently unsound money and should be relegated to a “subsidiary role” in payments. Why? According to the BIS, stablecoins fail to satisfy the “singleness of money” — the principle that money used for payments should be accepted at par, so that a payment instrument representing $1 will always be accepted as exactly $1.²

The BIS’s conclusion that stablecoins cannot exhibit singleness is wrong. Perhaps reflecting a need to vigorously defend the existing two-tier money system and its vision of the finternet, the report overstates the shortcomings of stablecoins and the benefits of the system. Yes, there is risk in failing to “re-learn the historical lessons about the limitations of unsound money.” An equal risk lies in applying the lessons of the past without accounting for meaningful innovations in new forms of money.  

We should continue to carefully evaluate the risks posed by stablecoins, particularly those unique to stablecoin payments. Illicit finance is one risk identified by the report. Other risks unmentioned in the report include privacy and the challenges of cross-border regulatory coordination, particularly for money that — as a technological matter—moves just as easily across borders as within.

As the policy debate continues, stablecoin projects and regulation rapidly progress. To fully capture the promise of stablecoin payments, and to fully understand the risks, we must take a clear-eyed look at the differences between the two-tier system and stablecoin payments and the critical role regulation plays in defining both.

Singleness

Singleness requires that money be interchangeable — fungible across issuers and accepted for payment at par. As the BIS correctly states, when singleness is maintained, "a dollar is always worth a dollar," enabling money to function as an information-insensitive medium of exchange that agents accept "with no questions asked." 

With the rise of stablecoin payments, the report tells us that society faces a stark choice: either we take a misguided “detour involving private digital currencies” (here, stablecoins) or we stay the course with “tried and trusted foundations” rooted in central bank infrastructure (existing two-tier systems). Yet by failing to closely look at the differences between the existing systems and stablecoin payments, the report incorrectly casts stablecoins as incapable of singleness.

The existing two-tier system: built for credit money

The BIS describes how today’s “two-tier” money systems — in which central banks give commercial banks exclusive access to central bank reserves and payment systems, and commercial banks issue deposit money to the private sector — are superior because they have the requisite singleness. These systems depend on commercial bank deposits as the primary form of money available to the general public. 

Deposits are credit money, created primarily by banks lending to consumers and businesses. A bank loan of $100 creates a deposit of $100 in the borrower’s account, generating new money. The deposit is an unsecured liability of the bank — a contractual promise that the bank will transfer deposit funds through payment systems or turn the deposits into cash when the account holder instructs.

Deposit money, on its own, does not exhibit singleness. Instead, as the BIS describes, bank deposits achieve singleness thanks to a set of complex institutional arrangements. The BIS focuses particularly on the fact that when a customer of one bank makes a payment to a customer of another, settlement occurs via a transfer of central bank reserves from the sender’s bank to the recipient’s bank. This process “homogenises the credit risk of deposits from different banks, making them into a uniform payment instrument.”

Other measures reinforce the singleness of commercial bank deposits. These include capital, liquidity, and other prudential requirements for banks, along with public backstops such as access to the Fed Discount Window and FDIC deposit insurance. Commercial laws that govern payments, like the Uniform Commercial Code, round out the pack. 

Stablecoins: non-credit money that can also achieve singleness

Compared to bank deposits, one might expect singleness to be easier to achieve with properly designed and regulated stablecoins — because they are non-credit money.³ The BIS instead starts with the opposite view, and, based on a misunderstanding of stablecoin mechanics, reaches an incorrect conclusion that stablecoins cannot achieve singleness.

Indeed, stablecoins today are accepted at par for payments.⁴ Yes, it is true that today stablecoins from different issuers are not interchangeable with each other. The market correctly distinguishes USDT from USDC based on regulatory, structural, and economic differences between the issuers of those stablecoins.

But as new laws — like the GENIUS Act in the United States — come into force, we will quickly see standardization of stablecoin issuance, resulting from more uniform regulation of stablecoin issuers and, thus, uniformity across regulated payment stablecoins. These laws do for stablecoins what central bank money and payment services, prudential oversight, and public sector backstops do for bank deposits. They create a legal and economic structure that establishes the trust and safety needed for singleness. 

For stablecoins, this means minimizing and standardizing the credit risk of the stablecoins arising from their issuer.⁵ Payment stablecoin issuers will all need to hold the same types of high-quality, liquid reserve assets, on a 1:1 basis with issued stablecoins, to back their obligations to redeem those stablecoins. They will be subject to capital and liquidity requirements based on the credit, market, and other risks of those reserve assets and their own operations. Issuer disclosures, including about their reserves and redemption obligations and processes, will be standardized and provided to regulators and the public. And the treatment of stablecoin holders in bankruptcy or resolution of the issuer will be more clear. 

The result is that the market should not care about the identity of the issuer of a payment stablecoin — that information will be irrelevant to the quality of the stablecoin as money. Payment stablecoins should be uniform across issuers, without need for further “homogenizing.” This is the basis for singleness in stablecoins. 

To be clear, stablecoin regulation cannot entirely eliminate the risks of stablecoins as money. Stablecoin issuers may fail, for all the usual reasons. They can be affected by market-wide disruptions, issuer mismanagement, and fraud. But banks are exposed to these same risks, plus the additional vulnerabilities that arise from bank liquidity and maturity transformation. Singleness can exist under these conditions.

The BIS’s singleness arguments do not hold

Nonetheless, the BIS argues that stablecoins fail the singleness test on two grounds. First, stablecoins operate differently from bank payments: they transfer directly between payment counterparties, rather than through a series of ledger updates involving (at a minimum) the payor’s bank account, the payee’s bank account, and each bank’s central bank reserve account. And because stablecoin payments are not ultimately settled on central bank balance sheets, “singleness cannot be guaranteed.” Thus, according to the BIS, the simplicity of stablecoin payments is instead a fatal flaw for singleness.

This conclusion, however, mistakes process with outcome. The core innovation of stablecoins is that payments can fully settle and clear in real time, onchain, with none of the complex clearing or settlement systems that deposit-based payments require. That there is no need to convert money held by the payor into a different type of money that the payee can hold is a feature, not a bug. For stablecoin payments, a payee should be willing to accept any regulated payment stablecoin a payor sends onchain, no questions asked, because regulation should ensure that each stablecoin is a dollar equivalent. The BIS assumes that this cannot be the case because they are viewing the innovative aspects of non-credit money (stablecoins) through the ill-fitting lens of credit money (bank deposits).

The second critique is that stablecoins are traded in secondary markets at prices that deviate from par. The report concedes that “small deviations from par could be viewed as consistent with a somewhat looser definition of singleness.” But in the end, the report concludes that these deviations result in stablecoins undermining the no-questions-asked principle and therefore singleness.

This critique is based on a misunderstanding of stablecoin market trading. Stablecoin secondary market transactions are not payments. They are more like FX transactions or ATM withdrawals, which exchange one type of money for another — bank deposits in one currency for those in another or bank deposits for paper cash. Taking into account spreads and fees, we do not require these transactions to be done at par in service of singleness. Similarly, stablecoin trading enables market participants to acquire more or dispose of excess stablecoins as needed for payments. But they are not themselves payments and should not be viewed as such. 

The correct test for singleness, in stablecoins and otherwise, is whether payors and payees accept an instrument reliably at par in the context of making payments. Small deviations from par in secondary trading markets, driven by transitory supply and demand imbalances, do not prevent stablecoins from meeting this test. Instead, this market trading is a new feature that helps stablecoins maintain their peg to par value and creates market incentives to move liquidity to where it is needed — not the opposite. 

The BIS is right to note that large or persistent deviations could erode confidence and impair payment usage. But as regulatory standards and infrastructure supporting stablecoin markets mature, these deviations should become rarer and more constrained. And in regulated markets, deviations from par should reflect supply and demand dynamics, and can serve as an incentive for market participants to manage and move stablecoin liquidity to where it is needed. Ultimately, secondary market trading should support, not undermine, stablecoin payments at par.

Conclusion

We have good reason to believe stablecoins can function as good money. Stablecoin payments today — whether for P2P remittances or payments for goods and services — are conducted, valued, and settled at par even as stablecoin secondary market prices fluctuate. Wallets focused on payment services routinely treat stablecoins as at-par instruments for transfers and payments, and they provide free or low cost access to stablecoins for users on their platforms. As comprehensive regulation comes into force, it should be possible to achieve the same outcomes on a larger scale.

In the face of that reality, we should question any theoretical argument that stablecoins have failed on singleness or are somehow inherently inappropriate for mainstream payments. In reality, we have just now begun to see whether and what improvements they can spur, and the possible “major leaps in economic activity” that can come from the new technology. While there is room to debate the details of GENIUS and improve stablecoin regulatory frameworks, arguments based merely on the mechanics of stablecoin payments or secondary market trading leave too little scope for innovation.

The report would have us embrace technological innovation in payments only if it relies on central bank infrastructure. We should reject this premise, because it means we limit ourselves to incremental improvements in payments services based on incumbent infrastructure, inevitably missing larger opportunities. Yes, this may mean that new technologies disrupt the existing system. But rather than trying to turn back the clock, we should welcome these opportunities and seek to ensure that they can be developed safely.

It appears that policymakers and regulators around the world agree. By regulating stablecoins, they are opening an important door to the larger opportunity presented by the new payments technology underlying stablecoins and advancing new technologies for AML/CFT compliance, digital identity and verified credentials. The market will test whether stablecoins are a detour or the path to more modern and better payments services.

The opinions shared in this article are the author’s own and do not reflect the views of any organization they are affiliated with.

^[1] Bank of International Settlement, Annual Economic Report 2025, III. The next-generation monetary and financial system, https://www.bis.org/publ/arpdf/ar2025e3.htm. The BIS is an international organization that serves as a central bank for national central banks and supports various monetary and financial stability policy initiatives by these banks.

^[2] In addition to the perceived core failure of singleness, the BIS argues that stablecoins also fail two further tests essential for sound money: “elasticity” (the ability to expand or contract money supply as needed) and “integrity” (resilience against fraud, illicit finance, and system abuse). While this post does not address these assertions, they seem also to be based on some misunderstandings about how stablecoins function and the interplay between stablecoins and existing forms of money, like bank deposits.

^[3] E.g., Massari, Barrage, Stablecoin Myth Busting, Open Banker (Mar 11, 2025), https://openbanker.beehiiv.com/p/stablecoinmythbusting; Written Statement of Jai Massari, Exploring Bipartisan Legislative Frameworks for Digital Assets, Hearing Before the United States Senate Committee on Banking, Hou ing, and Urban Affairs, Subcommittee on Digital Assets (Feb  26, 2025), https://www.banking.senate.gov/imo/media/doc/massari_testimony_2-26-25.pdf.

^[4]  This is true today, for example, for stablecoin payment services provided in the United States by Stripe (https://docs.stripe.com/crypto/stablecoin-payments) and PayPal (https://www.paypal.com/us/digital-wallet/manage-money/crypto/pyusd).

^[5] Again, the contrast with deposits is clear: credit risk is not minimized but instead deposits are made “homogenized” to singleness by the two-tier system as described by the BIS in its report.

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