Corporate Blockchains Are Unlikely to Work
That they are optimized for stablecoins doesn't diminish their flaws
TLDR: There is a lot of excitement around new payment-focused blockchains being launched by corporations like Stripe, Tether, and Circle. In this post I explain why they are likely to fail in the long run. Their creators misunderstand blockchain as a technology that makes corporate activity more efficient, as opposed to a set of tools that allow communities to take power away from corporations. The narrow focus of these chains eliminate the features that make blockchains appealing in the first place.
New blockchains for payments are all the rage right now.
Stripe, the highly successful FinTech, is partnering with a prominent crypto VC firm to launch a new blockchain called Tempo. Tether, the oldest and largest stablecoin issuer, is affiliated with something similar called Plasma. Circle, the 2nd-largest stablecoin issuer and a public company, is launching a chain called Arc.
All three are optimizing for stablecoins and payments. Tempo’s website calls the project “The blockchain designed for payments” (emphasis mine). Circle’s website refers to Arc as “An Open Layer-1 Blockchain Purpose-Built for Stablecoin Finance.” Plasma is “Redefining how money moves.”
I believe that all three are well-intentioned. I think they can muster some initial adoption thanks to the resources and distribution of their respective partners. But I’m skeptical any of them will work in the long run.
I don’t argue this lightly. Stripe is one of the highest valued private companies in America and its leadership is revered in both tech and finance. Tether has weathered a lot of controversy—even by crypto standards—and is now a profit-making machine raising money at a reported gargantuan valuation. Circle had a very successful IPO.
All three businesses deserve credit for their achievements. Today, their leaders talk a big game about the larger transformation of financial services to come. But their collective decision to launch new networks that they will have significant influence over tells me they may not fully believe this. Their actions make me wonder whether they are just trying to rebuild the card networks on top of blockchain infrastructure.
Contrary to popular belief, blockchains don’t make payments faster or cheaper. Modern payment systems are faster than even the most sophisticated crypto platforms. And although today’s blockchain systems are likely to improve, a distributed system consisting of heterogenous participants needing to reach consensus will always be less performative than one run by a single operator, ceteris paribus.
But that’s OK because Blockchain wasn’t invented to improve infrastructure. It was invented so communities could wrestle control of activities that are prone to network effects, like payments, away from centralized entities likely to abuse their position, as history has shown them to be likely to do.
Put together, these forces mean that decentralized systems are likely to be effectively faster and cheaper in the long run. Not because they deploy better hardware or faster software, but because there is no central authority that can abuse, overcharge, or censor users. The lack of “anyone being in charge” also opens the door to the other killer features blockchains are associated with, like smart contracts.
Also contrary to popular belief, there is no technical reason why a bank, FinTech, or card company can’t let you “program” payments. One could even argue that some already do via APIs. But this sort of programmability is not very useful because there are few guarantees. The operator could always turn off their API, kick you off their platform, change your code, or raise its prices. Having the power to do these things is why companies want network effects for their platforms in the first place. Companies could also go out of business or be forced to shut down. What happens to your code then?
A public blockchain can’t do any of these things without close to universal consent.
The same goes with the type of interoperability that is now possible via tokenization. Every payment or settlement system—whether decentralized or not—can be used to track ownership of different assets. They all use ledgers, and adding a new asset to any ledger is as simple as adding a column to a spreadsheet. There are also legal and regulatory constraints, but TradFi needs those because everything is trusted. What makes a public blockchain special is the lack of an authority who gets to decide which assets are allowed. True interoperability can only exist on a credibly neutral settlement system.
If better technology was all it took to make payments programmable and interoperable, or even just faster and cheaper, then card transactions would be close to free and programmable—Visa and Mastercard have some of the best tech teams in the world.
Fees remain high and payments remain “dumb” because card companies are oligopolies with entrenched network effects. Card issuers charge what they can, not what they must. For proof, look up their gross margins. Visa could port its entire network onto a centralized blockchain and still charge exactly what it does today.
Blockchain, when applied properly, is a profit disruptor. The value that it creates comes from the power it saps from others. This is even true for Bitcoin, a scarce yet easily accessible asset whose current value—however substantial—pales in comparison to the seigniorage rights it deprives central banks of, by offering their citizens an alternative. There is less money printing in the world today than there would have been if Bitcoin didn’t exist. Ethereum expands the surface area of this value vampire attack to other activities, like payments and capital markets. But it too is only appealing because it’s decentralized.
Tempo, Plasma, and Arc won’t be, and that’s their Achilles heal.
Any blockchain that is designed to disproportionately benefit a single entity or group is the worst of both worlds. It won’t give users the low cost or high performance of legacy systems, or the economic and political benefits of decentralized ones.
When it comes to stablecoins, we are all potential users.
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I wrote my first blog post on stablecoins being a killer app over 7 years ago, after watching Circle announce USDC at a crypto conference. I’ve written many other posts on this topic since then and dedicated an entire chapter in my last book to it. I’ve gotten some things wrong, including how long they would take to go mainstream. But the one thing I believe now more than ever is that stablecoins will fundamentally change our behavior around money, so much so that it’s a disservice to think of them as just faster and cheaper payments.
Cost and efficiency are a part of that equation, but arguably the smaller part. The behavioral changes that stablecoins are likely to inspire have more to do with the features of neutral networks listed above. For example: It’s not just that stablecoins can be programmed, it’s that the code that will animate their usage is accessible to all and guaranteed to execute. Stables won’t just interoperate with other assets. Those assets will enjoy the same guarantees as money.
The AI agent that you empower with a stablecoin down the line will enjoy more rights than you yourself do from a bank today. And the new behaviors that you adopt because stablecoin transactions are effectively free won’t be disrupted by an arbitrary price hike.
The neutrality of public blockchains also means that anyone can issue a stablecoin, and given the ease of doing so, everyone will. Stripe itself just announced a white-label issuance service. The most successful issuers will be the ones that give away their economics. Circle’s current rev-share arrangement with Coinbase, and the intense competition to win the Hyperliquid bakeoff, are an indication of what’s to come. Visa and J.P. Morgan need to make money from payments, countless companies who don’t do payments today but may decide to issue a stablecoin tomorrow don’t.
But now we have a conundrum. If users prefer stablecoins, but issuing one won’t be very profitable, then what’s a highly successful FinTech like Stripe or still-profitable issuer like Circle or Tether to do?
Launch their own blockchain, of course. Everyone else is doing it, so why not them? Stripe, as its defenders keep telling me, has massive distribution. Circle is a public company with a great brand and Tether has a gazillion dollars. At best, these companies can bias their infrastructure to disproportionately benefit them. At worst they can sell a token (Plasma already has).
Alas, a blockchain designed to disproportionately benefit a single entity is not a good blockchain. This is not an ideological complaint, and has nothing to do with that entity’s intent. It’s a practical observation. These chains are not as useful as their neutral counterparts.
Specifically: Arc (Circle) and Tempo (Stripe) are both permissioned chains. This means Circle and Stripe will get to play gatekeeper on who can participate in their network, in the same way Visa and Mastercard do. I’ve written extensively on why permissioned blockchains are a bad idea. They lead to censorship—a validator that is licensed, regulated and known must always cover its ass—and censorship leads to abuse and rent seeking. Tempo plans to someday become permissionless but this is a trusted outcome. Plasma (Tether) is ostensibly permissionless, but its token distribution is wildly concentrated, so Tether Inc. will have an outsized impact on how the chain evolves.
I certainly get the appeal of a more centralized blockchain targeted for a specific use case. But just because something is easy to do doesn’t mean it’s a good idea. For example, all three corporate networks allow users to pay fees in stablecoins, as opposed to a volatile cryptocurrency like ETH. That’s great for usability, but bad for decentralization, because stablecoins can be censored in ways native coins can’t.
A skeptic might argue “But who’d want to censor a stablecoin payment, even if they could”? That’s the wrong framing. Censorship is a lot like Chekov’s proverbial gun. Once introduced, someone is going to have to use it, for the simple reason that it’s an option. Even if none of the three companies listed above want to censor anyone, they may be compelled by a court or government to do so. It wasn’t that long ago when the US government forced banks to censor the entire crypto industry. We of all people should know better.
Perhaps more importantly, the influence that these firms clearly hope to maintain over their corporate chains will alienate others from joining them. Will Block (formerly Square) want to port its business unto a blockchain launched by Stripe, a competitor? Probably not. Neither will Mastercard given how Visa is named as a “partner.” PayPal has its own stablecoin and competes directly with Circle and Tether. Will it assume that Arc and Plasma will treat it fairly? Will the countless other stablecoins about to hit the market?
Blockchain networks are often argued to be borderless and global, in ways TradFi systems aren’t. But this too is only true if the chain is neutral. How will Chinese regulators feel about stablecoins on chains launched by American corporations? Not great, I imagine. Neither will the European governments who have been trying to get rid of Visa and Mastercard forever (doing so is a major motivation behind the Digital Euro).
Thus: Block and Mastercard are going to need their own corporate chains. So are Amex, AliPay, and Adyen. So might every other bank and FinTech. The resulting “on-chain” ecosystem will be even more fragmented than the off-chain one SWIFT facilitates, and that’s saying something. Right on cue, SWIFT itself just announced some kind of bank-consortium stablecoin chain. And let’s not forget whatever centralized database with useless cryptography Canton and Fnality are going to offer.
The alternative is for everyone to use a neutral platform like Ethereum, one that’s not biased towards any corporation, country, or consortium. Ethereum has independent validators all over the world, Arc won’t. Ethereum doesn’t need to make money from stablecoins, Stripe will. Ethereum doesn’t have a “preferred” stablecoin, but Plasma does. Ethereum doesn’t care what different governments want, but corporations have to.
Ethereum is not as fast or cheap as any of these chains, but it’s a misnomer to assume that every payment—in any amount, for any activity—needs instant settlement with microscopic fees. Wire transfers and credit card swipes routinely take days to settle and cost tens of dollars to end users. Stablecoin transfers on Ethereum are already an order of magnitude faster and cheaper for most users. Payments that need even more speed and less cost can take place on Ethereum L2s.
More importantly, the neutrality that Ethereum provides is worth the tradeoffs when compared to a corporate chain that might go full TradFi someday. To not worry about such outcomes is to ignore the power of incentives.
Ethereum is also home to the largest DeFi ecosystem in all of crypto, and DeFi loves stablecoins. But DeFi demands neutrality. Capital always goes to the markets with the fairest legal systems, on chain or off. Corporate blockchains won’t offer this. They’ll probably advertise their DeFi solutions (Plasma already does) but I doubt users will trust them for high-value activities.
And to think that we’ll have a bunch of chains for payments and a bunch of other chains for DeFi is to miss the whole point of what this revolution was about in the first place. The behavior changes likely to be induced by both require them to live on the same platform.
I don’t fault anyone for the place we are now in. The cambrian explosion in corporate blockchains is part confusion, part profit-motive, and mostly a lack of imagination. If you think blockchain is just a technology, and that the only way to upgrade payments is by making them faster and cheaper, then a non-neutral chain is a logical next step.
I on the other hand don’t have a personal dog in the fight, and think blockchain is a set of tools communities can use to re-architect trust, thus enabling hard-to-imagine format changes and unpredictable new behaviors. That’s why I think corporate blockchains that optimize for corporations’ stablecoining are unlikely to work.