Can stablecoins become a real alternative to traditional Forex?

1. More Than Just the Dollar

For years, stablecoins were synonymous with the US dollar. Whether USDC, USDT or DAI – nearly all digital assets aiming to preserve value were pegged to USD, reinforcing the dollar's dominance even in the decentralized world. But slowly, new contenders have emerged: euro-backed tokens like EUROC, ZCHF for the Swiss franc, and XSGD for the Singapore dollar.

At first glance, this might seem like a niche development. But for risk-aware investors and globally active users, it opens up a new dimension: the ability to hedge currency risk or conduct multi-currency operations directly on-chain – without the need for banks or forex brokers.

It's not a full-fledged Forex market – not yet. But it's already functional enough to be useful.

2. What's Already Possible Today

Despite the early stage of development, a handful of fiat-backed stablecoins have already reached a level of maturity that allows for basic but meaningful FX-like operations. These include:

• EUROC by Circle, offering euro exposure with strong regulatory backing
• ZCHF, a crypto-collateralized Swiss franc token designed for transparency
• XSGD, a fiat-backed stablecoin regulated in Singapore
• And of course, the ecosystem standard: USDC, still the most trusted USD stablecoin

With these tokens, users can already:

• Swap between currencies (e.g., USDC ↔ EUROC) on decentralized exchanges
• Hold diversified stablecoin portfolios to hedge against USD exposure
• Execute cross-border payments denominated in different fiat currencies
• Provide liquidity to multi-stablecoin pools and earn yield with implicit FX exposure

While these tools are still relatively underused, they allow for the first time a global on-chain cash layer across multiple fiat currencies – something that was previously unthinkable without a bank account in each region.

3. Risk Landscape: Why It's Not Forex

For all the excitement around on-chain stablecoins, one thing is clear: this is not traditional FX trading. The tools are limited, the infrastructure is fragmented, and the risks are real. While swapping stablecoins might feel like trading fiat, the underlying mechanisms are often far less stable.

Liquidity Risks

Most non-USD stablecoins suffer from low trading volumes and shallow order books. Even modest trades can trigger significant slippage, and exit liquidity in times of stress is often uncertain.

Smart Contract Risks

Using synthetic or collateralized stablecoins (like ZCHF or agEUR) means trusting complex DeFi protocols. These carry risks ranging from oracle failures to liquidation bugs and governance exploits.

Peg Stability

Even "stable" stablecoins can lose their peg. While fiat-backed coins like USDC and EUROC tend to stay close to parity, synthetic tokens like agEUR or jCHF have historically drifted away – sometimes dramatically.

Regulatory & Censorship Risks

Fiat-backed stablecoins like USDC or XSGD are centrally issued and regulated. This adds credibility, but also means funds can be frozen or blacklisted. For some users, that introduces counterparty risk similar to traditional banking.

Lack of Derivatives

Unlike real FX markets, DeFi lacks forward contracts, options, or leverage products for stablecoin pairs. This limits your ability to hedge or speculate on currency movements in a structured way.

4. Case Studies: What Hedging Looks Like in Practice

While the current tools may be limited, there are already real-world use cases where stablecoin-based hedging provides meaningful value. Here are three examples that show how risk-aware users can benefit from today's early on-chain FX infrastructure:

Case 1: Euro-Based DeFi Investor

A crypto investor based in Germany earns yield in USDC via lending protocols like Aave. To avoid long-term exposure to USD exchange rate fluctuations, they periodically swap USDC for EUROC, maintaining a portfolio that tracks the euro. The stablecoin swap happens on-chain, often within a single transaction, without the need for banks or off-ramps.

Outcome: Passive FX hedging through stablecoin rebalancing – low friction, high flexibility.

Case 2: Swiss-Based Stable Liquidity Provider

An active DeFi user in Switzerland prefers to avoid USD exposure entirely. They hold ZCHF instead, a crypto-collateralized CHF stablecoin, and use it as a base asset in Curve pools or personal payments. While ZCHF has lower liquidity than USDC, it enables a form of currency-native DeFi participation – which matters for personal risk management.

Outcome: Currency alignment without off-chain banking intermediaries.

Case 3: Multi-Currency Treasury for a European Crypto Company

A Swiss-based crypto analytics startup holds reserves in both USDC and ZCHF to manage operational costs and hedge FX risk. Income from international clients (mostly in USDC) is partially swapped into ZCHF to reflect CHF-denominated expenses like salaries and taxes. The swaps are done via on-chain DEXs or aggregators, minimizing custody and banking overhead.

With our Performance Reporting, you can analyze your stablecoin strategy's performance in detail – professional evaluations without manual effort. The tool helps you track the actual performance of your currency strategy and optimize your allocation accordingly.

Outcome: A basic, but effective treasury hedging strategy using fiat-backed stablecoins – executed fully on-chain, with transparent risk exposure.

4. The Infrastructure Gap: What's Still Missing

❌ No True Spot Markets

Most swaps happen via automated market makers (AMMs) like Curve or Uniswap. While effective for small amounts, these pools lack the depth, speed, and precision of traditional FX markets with limit orders and order books. Professional-grade execution is still out of reach.

❌ No Derivatives for FX

There are no structured instruments like forwards, futures, or options on stablecoin pairs. This means no real way to hedge long-term exposure or express directional views on currency moves – something essential in traditional FX.

❌ Fragmented Ecosystem

Stablecoin liquidity is spread across multiple chains (Ethereum, Polygon, Arbitrum...) and fragmented among issuers and protocols. Interoperability is limited, and bridging stablecoins across chains can introduce security and slippage risks.

❌ Lack of FX Aggregators & Indexes

There are no reliable FX benchmarks or index products in DeFi that track currency baskets or offer transparent pricing across pairs. This makes performance tracking and passive exposure strategies difficult to implement.

In short: the plumbing of a real FX system is missing. But that's also why early adopters – especially those who understand risk – can find an edge here.

5. Outlook: Early but Promising

The idea of Forex on the blockchain may sound far-fetched – and for now, it is. There's no deep liquidity, no derivatives, no proper market infrastructure. But dismissing the space entirely would be a mistake.

For risk-aware users and forward-looking investors, stablecoin-based currency exposure already offers meaningful utility:

• Hedging foreign income or DeFi yield
• Holding digital reserves in multiple fiat currencies
• Reducing reliance on traditional banks for FX operations

Yes, the tools are rough. Yes, the spreads are wide. But the core building blocks are here – and improving steadily. If DeFi continues to evolve, it's not hard to imagine a future where global currency flows run on permissionless infrastructure, supported by regulated fiat-backed stablecoins and decentralized liquidity venues.