Stablecoins vs. CBDCs: It depends on how big your economy is
- Why large economies choose stablecoins
- Why small economies choose CBDCs
- The anti-fragility argument
- The convergence
- The binary framing is wrong
I basically worked on a CBDC project when I was at the Fed. They called it a stablecoin project — Project Hamilton — but it was kind of like, basically a CBDC. The experience gave me a strong opinion on the stablecoin-versus-CBDC debate, and it's simpler than most people make it.
The answer depends on one variable: how big is your economy?
Why large economies choose stablecoins
If your economy is big enough that you can support multiple stablecoins — because the private markets have some ability to get an edge at scale, and one issuer takes one basis point off the float, another takes two, and suddenly there's competition — then you'll have privately issued stablecoins.
There are two reasons for this:
Competition is productive. When Circle, Tether, PayPal, and others are all competing to issue stablecoins, they compete on distribution, yield-sharing, developer tools, and compliance quality. This competition makes the product better for users in ways that a government monopoly never would. A CBDC has no competitive pressure to improve. A stablecoin issuer that doesn't improve gets replaced.
Stablecoins let governments sell debt in a new way. This is the part people miss. Every dollar of USDC outstanding is a dollar of Treasuries that Circle had to buy. At $60 billion in USDC, that's $60 billion of demand for US government debt — purchased by the private sector, voluntarily, without the government needing to do anything. The stablecoin market is, functionally, a new distribution channel for sovereign debt.
This creates a political reality where governments are incentivized to allow private stablecoin issuance. It's free demand for their bonds.
Tether's strategy reinforces this dynamic. They've stated that "we will never have anything that is not dollar against USDT" — no Brazilian real, no euro, nothing but dollar primary pairs. When the largest stablecoin issuer in the world commits to dollar-only issuance, it entrenches dollar dominance in a way that benefits the US government. Every country that adopts USDT effectively creates more demand for US Treasuries. Large-economy stablecoins don't just distribute sovereign debt — they extend monetary influence.
Why small economies choose CBDCs
But as you get to smaller economies — where the debt is less trusted and where there's not really enough competition in the financial infrastructure sector — I think you'll see CBDCs instead.
In a small economy, the math doesn't work for private issuers. There isn't enough volume to sustain multiple competing stablecoins. The local financial sector may lack the sophistication to manage stablecoin reserves. And the government has a strong incentive to maintain control over the monetary system because it's their primary economic policy tool.
In these cases, the central bank steps in directly. Basically, the central bank is responsible for mints and redeems. The CBDC functions like a stablecoin — same speed, same programmability, same 24/7 availability — but issued and managed by the state rather than private companies.
Brazil's PIX is a useful example. It's a government-run instant settlement rail that already functions like a proto-CBDC. I think systems like PIX will evolve into proper stablecoins over time — government-issued, central bank-managed, but running on the same blockchain infrastructure that private stablecoins use.
The anti-fragility argument
There's a deeper structural reason to prefer multiple private issuers in large economies. You know the GSIB banks — there are about seven banks that we call globally systemically important. HSBC, JP Morgan, and a few others. There's a reason why there's seven of them and why most governments don't want any one bank to be more than 17% to 20% of the market.
That's because concentration creates risk. The CEO dies. An important part of the technology stack is attacked. A compliance failure cascades. If one entity controls too much of the system, a single point of failure becomes a systemic event.
The same logic applies to stablecoin issuers. At least for the upcoming years, I would expect that the regulatory posture in the US — practically, from an anti-fragility perspective — would be that we should have a diverse set of issuers, each running independent processes for core parts of this, until we begin to really understand what makes stablecoins good, useful, and resilient.
A CBDC is, by definition, a single point of failure. That's acceptable in a small economy where the alternative is no stable digital currency at all. It's not acceptable in the world's reserve currency.
Ironically, the largest private stablecoin already operates like a quasi-CBDC. Sebastian from Tether describes their model as a "central bank of digital assets" — they have no more than 500 clients worldwide for primary mint and redeem. They want to solve "no more than two, three customers per country," then let those customers distribute to the market. That's not a consumer product. That's a central bank with a handful of primary dealers. It demonstrates the concentration risk that comes with a single dominant issuer, even a private one.
The convergence
Over the course of 30 years, I think we're ultimately going to reorganize. Stablecoin issuers will get more and more consolidated, and then you'll have public-private partnerships on stablecoin issuance.
Here's how I see the timeline:
Near term (now - 5 years): Clear separation. The US and EU have privately issued stablecoins. Smaller economies experiment with CBDCs. The two systems barely interact.
Medium term (5 - 15 years): Convergence begins. Large-economy regulators start requiring more oversight of private issuers, making them look more like quasi-governmental entities. Small-economy CBDCs start incorporating private-sector infrastructure for distribution and innovation. The line blurs.
Long term (15 - 30 years): Public-private partnerships become the norm. Stablecoin issuance involves both government oversight (ensuring reserves, managing monetary policy) and private-sector competition (distribution, UX, developer tools). It looks less like "stablecoins vs. CBDCs" and more like the current banking system — privately operated, publicly regulated — but rebuilt on faster, more transparent infrastructure.
How does this convergence actually happen? Probably not through the government putting Treasuries on-chain. Marco Macchiavelli thinks the Fed would instead create a facility — like the money market mutual fund liquidity facility — enrolling banks as intermediaries. The primary dealers would act as agents of the Fed, buying treasuries and receiving reserves, with the Fed neutralizing any leverage cost. It's probably easier to extend existing Fed infrastructure through intermediaries than to go directly on-chain. The convergence between stablecoins and CBDCs will likely happen through the same primary dealer system that already exists — just extended to cover stablecoin reserves.
The binary framing is wrong
The "stablecoins or CBDCs" debate is a false choice. Both will exist. Which one dominates in a given economy depends on that economy's size, institutional capacity, and political structure.
The US will have private stablecoins because it can support competition and because it benefits politically from the demand they create for Treasuries. El Salvador might issue a CBDC because it can't support competing private issuers and because it needs direct control over its monetary system.
And over time, they'll look increasingly similar — because the technology is the same, the user needs are the same, and the regulatory challenges are the same. The only question is who's running the infrastructure. And even that question has the same answer it's always had in finance: it depends.
Quotes
Project Hamilton
Source: Sam Broner / Common Prefix — Jan 20, 2026
I basically worked on a CBDC project when I was at the Fed. They called it a stablecoin project, Project Hamilton. But it was kind of like, basically CBDC.
Economy size determines the model
Source: Sam Broner / Common Prefix — Jan 20, 2026
If your economy is big enough that you can support multiple stablecoins — because the private markets have some ability to get an edge at scale, and I take one basis point off the float, you take two, and suddenly there's competition there, and we can make a better product — then you'll have multiple stablecoins, and they'll be privately issued. For a couple of reasons. One is that the competition is good, people can make money. The second is because it allows the country to sell debt in a new way.
Small economies get CBDCs
Source: Sam Broner / Common Prefix — Jan 20, 2026
But as you get to smaller economies where the debt is less trusted and where there's not really enough competition in the financial infrastructure sector, I think you'll see a CBDC there. And basically the federal — whatever their central bank is — will be responsible for mints and redeems.
PIX will become a stablecoin
Source: Sam Broner / Common Prefix — Jan 20, 2026
I think PIX will sort of turn into — PIX, the Brazilian instant settlement rail — will turn into a stablecoin kind of. But the dollar or the euro will have a proper stablecoin that's privately issued.
The GSIB anti-fragility argument
Source: Sam Broner / Common Prefix — Jan 20, 2026
You know, the GSIB banks — there's like seven banks that we call globally systemically important banks. I think it's like HSBC and JP Morgan and a few others. There's a reason why there's seven of them and why most governments don't want any one bank to be more than 17-20% of the market. And that's because it creates too much risk — risk implicit just to that business. The CEO dies, an important part of the technology stack is attacked or something. And so, at least for the upcoming years, I would expect that the regulatory posture in the US — practically, from an anti-fragility perspective — would be that we should have a diverse set of issuers, each running independent processes for core parts of this, until we begin to really understand what makes stablecoins good, useful, and resilient.
The 30-year convergence
Source: Sam Broner / Common Prefix — Jan 20, 2026
Over the course of like 30 years, I think we're ultimately going to reorganize. These stablecoin issuers are going to get more and more consolidated, and then you'll have public-private partnerships on stablecoin issuance.
Circle with five master accounts is "game over"
Source: 30 min with Sam (Marco Macchiavelli) — Feb 5, 2026
Marco: If you allow Circle to have master accounts at five central banks, it's game over.
The Fed would use primary dealers, not go on-chain
Source: 30 min with Sam (Marco Macchiavelli) — Feb 5, 2026
Sam: If stablecoins grow to 3-5% of outstanding cash and really become a huge part of the market, and then you get a run — you could actually see the government put Treasuries on-chain or provide liquidity direct to on-chain treasury markets in some way.
Marco: I think what they'll do instead is a facility like the money market mutual fund liquidity facility where they enroll banks as intermediaries to go in between. I think they will do that. They will get the primary dealers to be agents of the Fed to buy treasuries, give them reserves, and then neutralize any leverage cost by saying that these purchases don't hurt their supplementary leverage ratio. I think they will do that. It's probably easier to do that than to go directly on-chain. I think we are at least five, seven years away from being comfortable with that.
Tether as "central bank of digital assets"
Source: Sam/Seb — Jan 15, 2026
Sebastian (Tether): Our business is not even B2B. It's like business-institutional. We have no more than 500 clients worldwide for Tether to mint and redeem. We are like a kind of a central bank of digital assets. We want to solve no more than two, three customers per country — to provide the solution in primary market, and then they distribute to the market, and then we create a lot of secondary markets.
Tether will never do non-dollar primary pairs
Source: Sam/Seb — Jan 15, 2026
Sebastian (Tether): Circle is opening a primary market — Brazilian Real against USDC. We will never have anything that is not dollar against USDT. At least that's our management decision so far. Same with USAT.
Affinity on global dollarization benefits
Source: Zoom: The Better Money Company / Affinity — Jan 9, 2026
Sam: The reason why Affinity is interesting to me is because there actually is a collaboration. I'm fairly sure we are values-aligned on having the benefits of global dollarization and global dollar access. And with that in mind, one of our key goals over time is to help other monetary spheres adopt a clearinghouse to run their own stablecoins built on US technology. And also make it easier for them to access US dollars.
Luis (Affinity): I think we can provide real value there.