The full-chain stablecoin war: Circle, Tether and Frax's digital dollar game

Written by: jin, Crypto KOL

Compiled by: Felix, PANews

If you ignore this fight, someone else will make the rules for you to govern your money. Most people may not realize that the largest on-chain power struggle in recent years is taking place right now.

The Ambassadors by Hans Holbein (1533)

In Hans Holbein’s 1533 masterpiece The Ambassadors, two dignitaries stand confidently surrounded by the cutting-edge technology of their time.

On the left is the aristocracy with hereditary power and global influence: the king.

On the right is the bishop, who represents the system and structure: an official in a suit.

Between them is an alchemist's table: a globe, sundial and scientific instruments, symbolizing their attempt to master complex and innovative machinery.

But Holbein hides a warning. At their feet, a distorted, gigantic human skull visible only from a certain angle. The skull portends rupture: beneath the calm face, a high-stakes conflict is waiting to upend the order.

Today, the same drama is happening in the world of digital currency.

The battle of full-chain stablecoins is a contest between three forces: the current king with a huge global empire (Tether's USDT); the institutional forces that sell architecture and compliance (Circle's USDC); and the subversive alchemist... The "full-chain" technology and concept itself both breaks and threatens the balance between the two sides. This is the story of this conflict, a war for control of the digital dollar, where everything seems to be at stake.

The full chain war: Fighting for the only real dollar

In 2024, an invisible financial empire processed more transactions than Visa. At its core is Tether’s USDT, a roughly $144 billion empire with a fatal weakness.

As Niccolò Machiavelli once said, “If trouble is detected in advance, it can be easily dealt with; if it is not, it is too late to remedy it, for then there is no cure… The same is true in politics.”

Nico may not know stablecoins, but he knows power. Data on payment flows show that even entrenched dominance can be shaken.

Each chain is like a customs checkpoint; dollars flow between chains like goods are manually loaded before being shipped in containers.

This fragmentation is a weakness, and in the crypto world, weakness means competition. A gradient descent war based on incentives; a fight for control of the digital dollar itself.

The prize is: becoming the only true, universal, cross-chain dollar.

The groundbreaking new report "A Bottom-Level View of Stablecoin Payments" (hereinafter referred to as the "Report") jointly released by Artemis, Castle Island Ventures and Dragonfly provides real and reliable data. The report, co-authored by industry veterans including Nic Carter, analyzed $94.2 billion in real-world payment flows from 31 companies and proposed that stablecoins have evolved from speculative trading tools to a global high-traffic settlement network.

This is the story of how the king of stablecoins waged a war to unify his empire with battlefield intelligence: a new weapon called USD₮₀ (USDT0).

USDT is the reserve and USDT0 is the channel.

The contestants: A king, a man in a suit, and an alchemist

The full-chain stablecoin battle is a story of strategic games, each of which is influenced by the philosophy of power and can be fully revealed through data.

1. King: USDT/USDT0

The Stablecoin Payments report confirms what many people have speculated: Tether's USDT is the king of digital dollars and the symbol of the entire royal family. In the large number of real-world payment samples covered by the report, USDT's transaction volume market share is as high as 90%. These transactions come from the streets around the world, not Wall Street. The report shows that its empire is built on the Tron network, which is considered by the report to be the most popular payment network.Blockchain, and is far ahead.

USDT0 is Everdawn Labs's fully fungible token (OFT) standard built on LayerZero, and its design is a subtle integration move. It allows traditional USDT to be locked in Ethereum's vault while an equal amount of new, fully fungible USDT0 is minted on the target chain. This is a single, standard asset that can circulate anywhere. The market demand for this solution was immediate. In just a few months since its launch in 2024, USDT0 has facilitated over $2 billion in cross-chain transfers.

2. Men in suits: USDC/CCTP

If USDT is the people's king, then USDC is the long-awaited challenger, eyeing the throne of the institutional sector. The report confirms that USDC is lagging behind but firmly in second place, a reality that makes its strategic choice even more critical. USDC's power comes from trust, compliance, and deep connections with traditional finance. It is worth mentioning that Circle's recent IPO was very successful.

The Cross-Chain Transfer Protocol (CCTP) launched by Circle directly targets Tether’s weaknesses to address the fragmentation problem.

By allowing users to destroy real USDC on one chain and mint an equivalent amount of native USDC on another chain, Circle has created a standard for clean, high-integrity value transfer. This strategy has begun to pay off in specific markets. The report notes that while USDT dominates globally, USDC has also captured a significant share, with trading volume in markets such as Argentina and India accounting for almost half of the total, indicating that its compliance-first strategy has resonated with emerging venture-backed fintech companies in these regions. The risks of single-signature and other trade-offs are a whole topic in themselves.

3. Alchemist: FRAX

FRAX and other alternatives are “almost non-existent” in payment reporting datasets.

This does not mean failure, but it clarifies their roles. Frax is not currently competing for the king of the payment field; it is more like an alchemist in the laboratory, constantly exploring the boundaries of the digital dollar and putting pressure on the market to force the giants to evolve, otherwise they will risk being eliminated.

FRAX combines algorithmic reaction with institutional support, but the memory of UST still makes many cautious.

As with most closed financial systems where violence cannot be used (*FreedomTM), this statement is particularly apt: "In a closed financial world, whoever has more money determines the outcome."

Frax USD is now minted as frxUSD, which derives its power from the “divine custodians” appointed by the governance body.

BlackRock’s BUIDL, Superstate’s USTB, and Janus-Henderson’s JTRSY lock verifiable treasuries and cash, minting one token for every dollar locked; when the token is destroyed, the vault must return the dollar, so the peg depends on on-chain auditable reserves.

So far, these programs have been a huge success. How does it work?

Yield seekers deposit frxUSD into the sfrxUSD vault, which will back assets towards the highest yielding combination of short-term treasuries, DeFi carry trades, or AMO market making, allowing interest rates to rise while the par value remains the same.

Long-term investors participate in FXB auctions, redeem existing FRAX for larger shares at maturity, and outline a native on-chain yield curve that is not affected by external credit risk. On Fraxtal, every transaction is clearly visible, and the renamed FRAX token provides fuel for gas and is locked through veFRAX to control the entire lab.

All of this happens on the Fraxtal L2 chain, with the commodity token FRAX (formerly FXS) acting as gas fees and providing an anchor for broader ecosystem governance through the veFRAX locking mechanism.

Even so, every anchor asset attracts its Soros.

Who will play Soros? Any platform with deep pockets and on-chain leverage. Jump Crypto, Wintermute, or similar institutions fit this mold.

They can borrow large amounts of frxUSD or traditional FRAX, sell it below the anchor price, and then short it layer by layer, and then redeem it through the custodial vault that still holds the reserves.

Profits are derived from the difference between tokens purchased at a discount on the market and the full amount of USD released upon redemption. The spread widens if the oracle lags or the bridge becomes congested. Accumulating veFRAX during quiet market periods can accelerate system stress.

This may be an oversimplification, but a bearish analyst might say it’s like building a highly convex bond market on a fragile curve.

Time will tell, experiments like this tend to have incredibly long-term positive effects.

After all, this is cryptocurrency…currency is just an empty shell until people actually use it. What makes empty code become everyday currency?

A Tale of Two Dollars: The Unification of Street Dollars and Corporate Dollars

The real significance of USDT0 is its ability to connect two very different worlds: the world of street dollars and the world of corporate dollars. Nathan’s “value realization hierarchy” framework can better understand this division. He believes that stablecoin users fall into two categories: “people who need stablecoins and people who don’t need stablecoins.”

Street Dollar is the survival of USDT.

Ana, a freelance designer in Bolivia, uses it to fight inflation, which averages more than 100% per year. David, a small business owner in Lagos, uses it to pay Chinese suppliers, bypassing the strict foreign exchange controls of the central bank.

For them, USDT is a utility. As Nathan explains, for users in these emerging markets, “the permissionlessness of stablecoins is a transformative unlock.” It gives them access to stablecoins that were previously unthinkable. This is Tron’s economic model, and the Stablecoin Payments report shows that more than 52 million addresses hold USDT balances of less than $1,000.

As Paolo Ardoino (Tether CEO) has explained, the digital dollar will fill the market gap left by fiscal policy incompetence and corruption. Permissionless means permissionless.

Trust confers value; true, sustained adoption is earned.

The Enterprise Dollar is an opportunity for USDT. It is the dollar used in Ethereum and its L2 high-tech financial cloud. It is a programmable dollar that can be used as collateral for loans, generate returns in complex liquidity pools, and is also a tool for high-frequency arbitrage. For Western users, Nathan believes that "programmability is the main catalyst for innovation in Western stablecoins."

Before USDT0, these two worlds were separate from each other. This created a serious problem, which was also highlighted by Sam Broner of a16z.

He called it the challenge of achieving “monetary currency,” meaning that all forms of money should be equally interchangeable. Tron USDT locked in the world of street dollars is not the same as Ethereum USDT in the world of DeFi dollars.

USDT0 attempts to solve this problem.

USDT is the reserve and USDT0 is the channel.

Ana can transfer her earned street dollars to Arbitrum’s savings protocol in a simple transaction and earn 5%. David’s company can pay suppliers $219,000 using the same asset that previously cost $26 to transfer. USDT0 connects the raw, chaotic energy of the street with the powerful, efficient mechanisms of DeFi, making Tether’s dollar truly integrated.

上图所示，稳定币支付的首选Blockchain Tron，就充分体现了这一点。Tron 提供最低的手续费，并在新兴市场得到广泛采用。

LegacyMesh locks up every token of the Tron or TON network. Arbitrum will then mint a one-to-one USDT0 twin coin that can circulate natively on Ethereum, Berachain, and any LayerZero-connected chain.

In short, this design compresses dozens of bridge versions into a single canonical token and expands Tether’s influence in DeFi and other areas.

Dollars leaving the streets arrive intact to yield farms and credit markets, moving at block speeds rather than taking a detour through escrow. With Tron, TON, Ethereum, and Arbitrum already connected, the network now encapsulates most USDT in a single circuit and gives it a “gas-saving passport” to the wider world.

This is an important addition to Tether’s arsenal.

Endgame: The Battle of Stablecoin Channels

The arrival of full-chain technology heralds a new endgame. Tether’s USDT0 strategy now presents a two-pronged strategy:

• Core Defense: On low-cost chains like Tron, traditional USDT continues to defend its massive empire of street dollar users and leverage its network effects for planned migration via LegacyMesh.

• Offensive Expansion: USDT0 acts as a vanguard aimed at conquering new areas: high-end DeFi, institutional platforms, and next-generation mobile payment applications.

Three major battlefields are still open:

Where is the next key battleground? While Tether dominates in trading volume, Circle is winning the VC-backed startup race. Will the next generation of high-growth payment companies and neo-banks choose the regulatory compliance of USDC or the tactical flexibility of assets like USDT0? The battle for the next generation of fintech infrastructure is a key battleground.

Can CCTP win in terms of user experience? USDT0 realizes its full-chain vision through a third-party protocol (LayerZero). CCTP is a first-party, vertically integrated solution. Can Circle provide developers and institutions with moreSafety, a faster or simpler user experience? In a world of bridge hacks, a fortress built and controlled by the issuer itself is a powerful selling point.

Will the “corporate dollar” choose another path? The report points out that B2B payments are now the largest and fastest growing sector, with an average transaction size of more than $219,000. This type of capital flow is precisely the most sensitive to counterparty risk and regulatory scrutiny. As this market matures, will companies and financial institutions naturally gravitate to the “suits” (USDC) rather than the “king” (USDT) and his special forces?

What happens when the West wakes up? The report focuses on the emerging market payments space, where USDT dominates. But what happens when stablecoin use cases begin to take off in the U.S. and Europe, driven by programmability and yield? This is Circle’s home turf. When these markets come online, can Circle translate its strong position among Western developers and institutions into a broader network effect?

As Chuk writes in his article “Stripe, Stablecoins, and the $100 Billion Race to Reinvent Finance,” the dollar is being unbundled from the old world and rebundled on-chain.

Another player worth watching is Plasma. Backed by Bitfinex, Founders Fund, and others, Plasma is a sidechain that anchors its state to Bitcoin while running an EVM-compatible, zero-fee environment optimized for stablecoin transfers.

This design means that USDT locked in Plasma can be transferred at POS speeds while still inheriting Bitcoin’s settlement guarantees, providing Tether with a dedicated channel that neither Tron nor Ethereum can match.

If USDT0 becomes a universal encapsulation of this liquidity, Plasma can handle wholesale settlement of Street-Dollar and safeguard these funds as they trickle into the higher-yielding corporate dollar space, thus tying the entire system together in a way that Circle’s CCTP cannot easily replicate.

USDT0 is a key move to consolidate Tether's empire, and through Plasma it can also help it exert influence in new areas.

The key point that USDT0 can surpass Circle’s CCTP

The most obvious breakthrough for USDT0 lies at the intersection of convenience, compliance friction, and fee pressure:

1. Wage and remittance corridors in emerging markets already rely on Tron’s liquidity but are eager to directly access DeFi’s yields.

2. Medium-sized B2B settlements: For example, supplier payments of $50,000 to $500,000, where wire transfer cut-off times and bank limits are unbearable.

3. DeFi protocols that are unwilling to use bridges want to have a single, low-gas-cost dollar between different chains for collateral and liquidity mining.

4. Mobile fintech app for those seeking USD accounts without a banking partner.

By diving deeper into these four real-world niches first, USDT0 can solidify its volume advantage before Circle takes over.

USDT0’s DeFi Strategic Plan

USDT is still king on the streets, but USDC dominates the dashboard.

To change this balance, Tether would have to undermine the specific barriers that USDC enjoys.

The Vault dashboard relies heavily on USDC: In January 2025, the top ten yields on Vault.fyi were all USDC, with Revert Lend USDC having an annual interest rate of 14.9% and Gauntlet USDC Core having an annual interest rate of 14.7%.

This changed in June 2025, when 2 out of 10 platforms adopted USDT.

On dashboards like vaults.fyi, this dominance is based on three practical advantages:

1. Most yield strategies (Maker DSR, Aave, Morpho, Compound, Ethena Hedge) accept or return USDC.

2. Traders believe that USDC is the dollar with the cleanest accounting on the chain.

3. Its bridge is first-party (CCTP), so encapsulation rarely fragments liquidity.

The following are introduced one by one in order:

1. Strategy coverage. Maker, Aave, Morpho, Compound, and Ethena all settle in USDC, so builders use it by default. Tether can fight back with funding, with paths like USDT0 → sUSDe → Ethena or USDT0 → Fraxlend → Curve stables. By wrapping them in ERC-4626 and adding a temporary 50-100 bp incentive mechanism. Once Yearn, Beefy, and Enzyme list these vaults, the habit of using USDC will gradually disappear.

2. Perceived compliance. Maker and Morpho are still writing down USDT. Since each USDT0 token is backed by a treasury on the Ethereum side and minted natively on each chain, Chainlink's reserve proof price feed mechanism will allow the risk committee to adjust these write-downs. The borrowing table clearly shows the gap between the two: on June 10, 2025, the fee for borrowing USDT on Aave v3 was about 4.9%, while the fee for borrowing USDC on the same platform was only 0.6%. However, this does not change people's trust in the reserves themselves.

3. Bridge convenience. Developers love Circle’s first-party bridge. USDt0 can achieve this convenience by relying on OFT and LegacyMesh: token addresses appear on every major rollup, so vaults that rebalance between Arbitrum, Optimism, and Base only need to hold a single ERC-20 token without repeated burn and minting cycles.

4. Depth of the funding pool. Curve and Balancer are still anchored to USDC. USDT can use the funds from its market maker book to start a full-chain three-pool and return 100-150 basis points of LP fees within a quarter. On Balancer, vlBAL or implicit incentives of about 30-40 basis points per week can also attract the same depth of funds.

5. 聚合器的惯性。诸如 vaults.fyi 之类的仪表盘会显示所有被索引的内容。USDT0 或 LayerZero 可以托管每个经过审计的 USDT0 金库的开放 JSON 源。一旦策略通过安全审查，就会获得与 USDC 相同的展示空间。

If USDT activates these five levers at the same time: reference strategy, reserve proof oracle, cross-chain native assets, subsidized depth pool, and public index; then the annualized rate of return should tend to USDT0.

Yield hunters chase numbers, not loyalty; once this spread emerges, USDC’s dashboard lead could disappear within a quarter, and Alchemist’s experiment would gain new liquidity.

The future currency war will be fought on more fronts. The outcome will be determined by who owns the past and the present, and more importantly, who can capture the most valuable areas of the future by combining street dollars and corporate dollars to create the real dollar.

Omar Little said it well: "If you attack the king, you better not miss."

The article comes from the Internet:The full-chain stablecoin war: Circle, Tether and Frax's digital dollar game