Stablecoin Fragmentation Creates New Risks for Businesses

No single stablecoin can efficiently serve emerging markets, global trading desks, and U.S. institutions simultaneously.

That acknowledgment underpinned the launch Tuesday (Jan. 27) of Tether’s dollar-backed USAT stablecoin, the crypto firm’s first foray into the now-regulated U.S. stablecoin landscape.

Tether’s own existing USDT stablecoin already represents roughly 60% of the $308 billion stablecoin market, where it is the dominant trading pair on most international exchanges and the primary dollar proxy in emerging markets, or where access to U.S. banking remains limited or unreliable.

Tether’s strategic advantage has long rested on operating at the margins of the mainstream financial system. Past concerns over the issuer’s transparency, anti-money laundering controls, and jurisdictional ambiguity have traditionally kept Tether largely excluded from U.S. banks, broker-dealers, and payment systems.

For years, that unspoken tradeoff was accepted. USDT became indispensable to crypto markets precisely because it was not constrained by the rules governing U.S. financial institutions. The cost was institutional exclusion, while the benefit was the lion’s share of the global stablecoin market.

USAT, however, is not a repackaged version of USDT. The launch of a domestically compliant stablecoin by Tether reflects a recognition that the next phase of stablecoin growth may not be driven by offshore exchanges alone, but by integration into mainstream financial and enterprise workflows.

Underscoring this, Bo Hines, formerly executive director of the White House Crypto Council and a contributor to the GENIUS Act, the first U.S. law to establish a federal framework for stablecoins, was tapped by Tether leadership to help plan and execute the company’s entry into the U.S. market with USAT. He has served as CEO of USAT since September 2025.

The harder question ahead may be whether institutions will find themselves willing to separate the benefits of individual stablecoin products from the broader history of their issuers. Because most illicit activity on the blockchain now includes stablecoin use.

Read also: New US Stablecoin Reserve Rules Could Upend Crypto’s Biggest Players

Trust Drives Competition

USAT enters a U.S. and institutional market that has, until now, been dominated by Circle’s USDC. Circle positioned itself early as a U.S.-aligned issuer, emphasizing transparency, regulatory engagement, and conservative reserve management. That strategy paid off. and USDC became a preferred stablecoin for U.S.-based exchanges, FinTech platforms and institutional users.

Circle is now seeking a federal charter of its own. Tether, by partnering with Anchorage Digital Bank, a federally regulated stablecoin issuer, and the stablecoin’s designated reserve custodian and preferred primary dealer is Cantor Fitzgerald, has effectively bypassed that timeline. From a regulatory sequencing perspective, that may give Tether a first-mover advantage in federally supervised stablecoin issuance.

In this context, “federally regulated” is not just a legal status but a signal to banks and enterprises, as well as policymakers, that a stablecoin is designed to coexist with existing financial institutions rather than disrupt them outright. What once looked like the technical problem of how to tokenize a dollar and keep it stable has become a question of governance, trust and jurisdiction.

A stablecoin designed for permissionless global markets, for example, is likely to behave differently in a crisis than one designed for regulated domestic finance. One issuer may freeze assets to comply with sanctions; another may resist intervention; and still a third may do both.

Tether in many ways helped build the global crypto economy from outside the U.S. financial system. With USAT, it is testing whether institutional America is willing to let it in on different terms, with a different product, and under closer supervision.

See also: Digital Dollars Keep Getting Stuck Outside the Real Economy

The Issue With Interoperability

By introducing USAT, Tether has not abandoned its global model but segmented it. That holds a lesson for the rest of the landscape, as it implies a fragmented stablecoin marketplace where different tokens may serve different economic functions. Some will dominate cross-border remittances and others will underpin corporate treasury operations, while still others may act as settlement layers for decentralized finance.

Treating these instruments as interchangeable can obscure the implications of their design and issuance. As the market matures, convergence at the blockchain protocol layer is increasingly colliding with divergence at the institutional layer, resulting in a potentially new competition where “one dollar on-chain” is no longer equivalent to another.

Visa, for example, last month announced the launch of its Stablecoins Advisory Practice which is meant to help firms choose the right asset for their particular needs.

And PYMNTS and Citigroup this month announced the launch of a weekly podcast series offering corporate leaders practical guidance on stablecoins and tokenized real-world assets.

“From the Block: Straight Talk on Stablecoins and Digital Assets for Corporate Leaders,” which debuted Jan. 13, will be co-hosted by PYMNTS CEO Karen Webster and Citi Global Head of Digital Assets, Treasury and Trade Solutions Ryan Rugg.