The paper, authored by Maryam Taghiyeva of the Centre for Citizenship, Enterprise and Governance in the United Kingdom, addresses a gap that has persisted in the digital money literature. While earlier work, including analyses by the C.D. Howe Institute and the Bank for International Settlements, had recognised in broad terms that stablecoins and CBDCs could coexist, no systematic account existed of the specific regulatory, infrastructural, and macroeconomic conditions under which that complementarity actually materialises. The new study fills that void by proposing a five-layer architecture and testing it against real-world evidence.

The proposed architecture stacks digital money into five functional tiers. At the top sits the policy layer, where regulators define the legal conditions under which digital assets can operate. Below it lies the sovereign settlement layer, anchored by central banks issuing comparatively risk-free public money in the form of CBDCs. The third tier is the infrastructure layer, comprising payment networks and blockchain rails that connect traditional finance to digital assets. The fourth is the programmable transaction layer, where user-facing instruments—currently dominated by fiat-backed stablecoins, with tokenised deposits and tokenised real-world assets emerging—enable payments and financial applications. Finally, the market layer captures real-world adoption patterns shaped by macroeconomic conditions and institutional trust.

A central finding concerns the role of payment infrastructure. The study formulates a hypothesis that integration with mainstream payment rails is a stronger determinant of stablecoin adoption than sovereign licensing or state backing alone. The evidence supports it. Visa has piloted and expanded settlement using Circle’s USD Coin (USDC), reporting more than $225 million in USDC settlement transactions across a network that now supports multiple stablecoins and blockchain networks in over 30 settlement currencies. Mastercard, through its collaboration with the cross-border payments provider Thunes, enables financial institutions to send funds directly into stablecoin wallets via Mastercard Move, a money-transfer network spanning more than 200 markets. Stripe, in partnership with Shopify, has rolled out stablecoin payment tools for online merchants, with volumes growing fastest in markets where dollar settlement offers an advantage over local currency volatility.

The counterfactual is instructive. Nigeria’s eNaira, a fully licensed sovereign digital currency launched in October 2021 with active government support, has achieved minimal transactional adoption. By late 2022 the eNaira had been downloaded roughly 800,000 times, according to the International Monetary Fund, but active wallets represented only a fraction of downloads, reflecting low engagement and limited merchant acceptance. In the same market, dollar-denominated stablecoins such as Tether and USDC have achieved substantial peer-to-peer volumes by virtue of their integration with accessible digital rails and existing user behaviours. The study is careful to acknowledge that this comparison cannot fully disentangle currency substitution from infrastructure effects, since a naira-denominated CBDC is set against predominantly dollar-denominated stablecoins, but the contrast remains illustrative of the association between infrastructure integration and adoption.

Regulatory clarity emerges as a necessary but not sufficient condition. The study scores five regulatory frameworks across nine parameters covering token specifications, reserve backing, issuer requirements, transparency, consumer protection, custody, redemption, issuance design, and counterparty due diligence. The United Arab Emirates’ VARA rulebooks and the Monetary Authority of Singapore’s framework score highest at 18 points each, followed by the European Union’s Markets in Crypto-Assets Regulation (MiCA) at 17, the United States’ GENIUS Act at 16, and the United Kingdom’s forthcoming FCA regime at 14. Jurisdictions with the most complete frameworks correspond to those where institutional stablecoin activity—licensed service providers, payment network integrations, and tokenisation pilots—is most developed. Yet a striking qualification emerges: retail adoption follows an entirely different logic. Argentina and Nigeria, which fall outside the regulatory index entirely, lead the world in retail stablecoin usage despite having no formal frameworks in place.

That paradox is explained by macroeconomic conditions. Argentina’s annual inflation exceeded 211 percent in 2023 and remained above 150 percent through 2024, rendering peso savings functionally untenable. Peer-to-peer stablecoin trading volumes surged during the 2023 currency crisis, and a survey by Americas Market Intelligence found that roughly 53 percent of Argentine adults had purchased digital currencies in 2022, with 46 percent citing protection against inflation and payments rather than speculation as their motivation. Nigeria’s naira depreciated by more than 70 percent against the US dollar between 2023 and 2024 while inflation exceeded 30 percent, and the country ranked fifth globally in Chainalysis’s 2025 Crypto Global Adoption Index, with approximately 60 percent of its stablecoin transaction volume tied to cross-border remittances according to TRM Labs. In both countries, stablecoins function as digital substitutes for foreign currency access—tools of value preservation rather than technological fashion.

The strongest evidence for deliberate layering comes from the United Arab Emirates and Singapore. The UAE is developing the Digital Dirham CBDC in parallel with licensed dirham-pegged stablecoins under VARA, and pilot data shows Digital Dirham activity concentrated in government payment flows—including the first recorded government transaction using sovereign digital currency infrastructure, conducted with the Ministry of Finance in 2024—while VARA-licensed stablecoin activity, from more than 600 licensed providers by early 2025, concentrates in retail and commercial payments. Singapore’s Project Guardian, involving institutions such as DBS Bank, JPMorgan, and Standard Chartered, has conducted live tokenisation transactions in foreign exchange and government bond markets with total notional value exceeding SGD 1 billion by 2025, while retail payment applications remain a separate track. In both cases, CBDCs gravitate toward settlement and infrastructure functions rather than competing as programmable retail instruments.

The study also looks forward to a multi-instrument future. Tokenised deposits—on-chain representations of commercial bank liabilities—are already operational through JPMorgan’s Kinexys and Citi’s Token Services, processing live transactions with institutional counterparties. Unlike stablecoins, which carry issuer and reserve risk but sit outside bank balance sheets, tokenised deposits carry commercial bank counterparty risk but often benefit from deposit insurance. Researchers at the Bank for International Settlements, notably Garratt and Shin, have argued that this distinction matters for the singleness of money: bearer instruments such as stablecoins risk departing from par value, whereas tokenised deposits settling in central bank money are more conducive to monetary stability. Tokenised real-world assets, recognised under MiCA’s asset-referenced token category, VARA’s asset-referenced virtual asset classification, and Singapore’s tokenised capital market product guidance, are beginning to serve as collateral and settlement assets, adding a third dimension to the programmable layer.

The policy implications are significant. Regulators, the study concludes, are not required to choose between stablecoins and CBDCs; the task is to design frameworks that enable their coexistence while managing risks. The question is no longer whether the two can coexist but how the terms of that coexistence should be structured—a question the UAE, Singapore, and now the United Kingdom, where the FCA has selected four firms to trial stablecoin products in its Regulatory Sandbox ahead of full enforcement scheduled for October 2027, are already answering in practice. What emerges is a hybrid, multi-pillar monetary system: sovereign digital cash anchoring settlement, regulated private tokens driving user-facing innovation, and an infrastructure layer binding them together. The layered future of money, the evidence suggests, has already begun.

Subject of Research: Complementary roles of regulated stablecoins and central bank digital currencies in a layered digital money architecture

Article Title: Layered digital money: the complementary roles of regulated stablecoins and CBDCs

Article References: Taghiyeva, M. (2026). Layered digital money: the complementary roles of regulated stablecoins and CBDCs. Frontiers in Blockchain, 9, Article 1882471. https://doi.org/10.3389/fbloc.2026.1882471

Image Credits: AI Generated

DOI: 10.3389/fbloc.2026.1882471

Keywords: stablecoins, CBDCs, digital money, MiCA, VARA, payment infrastructure, tokenised deposits, Argentina, Nigeria, financial regulation, blockchain, monetary architecture

The research team, led by scholars from Université Mohammed V de Rabat and United Arab Emirates University, analyzed the regulatory models of Switzerland, the European Union, the United Arab Emirates and the United States through a Law and Economics lens, treating each legal framework as a dynamic incentive system designed to minimize institutional transaction costs. The stakes are far from academic. By 2025, the total capitalization of crypto-assets exceeded $4 trillion, and stablecoin transfer volumes reached an unprecedented $27.6 trillion—a volume that surpasses the combined processing power of the world’s largest traditional credit networks. Tokenization, the authors conclude, is no longer a niche experiment but an infrastructure challenge to the legal foundations of global finance.

At the heart of the study is a deceptively simple question of ontology: what, legally speaking, is a token? Technically, a token is nothing more than a cryptographically secured entry in a decentralized database managed by a network of nodes. Yet through the mechanism of representation, that entry can stand for a stake in a company, a share of a building, a debt security or a digital currency. The researchers distinguish three structural configurations. In direct tokenization, the token is itself the legal instrument, so an on-chain transfer equals an immediate and absolute transfer of ownership—the pinnacle of compliance by design. In indirect tokenization, the token represents rights over an intermediary such as a special purpose vehicle, reintroducing traditional counterparty risk. In the “digital twin” model, the token is merely an informational mirror with no independent legal force, offering minimal efficiency gains.

Whether a token can count as property in the strict legal sense is not a pedantic debate. That classification is the linchpin for creating perfect security interests, recovering assets when a custodian goes bankrupt, and building a liquid secondary market. Skeptics such as legal scholar Stevens argue that digital assets resist classical property doctrines: unlike a physical object, a private key is information that can be copied or secretly appropriated without the original holder being physically dispossessed. Yet legislatures and courts are increasingly overriding this hesitation. Switzerland’s DLT Act of 2021 created “DLT uncertificated securities” in its Code of Obligations, elevating the distributed ledger to a legally recognized support for rights equal in standing to traditional registries. The Dubai International Financial Centre’s Digital Assets Law of 2024 goes further, declaring in Article 15 that control of a private key is the functional equivalent of physical possession. In England, the High Court’s decision in D’Aloia v. Persons Unknown signaled that blockchain assets can be protected by civil injunctions even before their classification is definitively settled.

The technological machinery of “lex cryptographia”—code that enacts and enforces rules—has advanced dramatically. Smart contracts, self-executing programs running on platforms like the Ethereum Virtual Machine, hard-code contractual terms so that settlement, asset servicing and governance occur without manual intervention. Permissioned enterprise ledgers such as Hyperledger Fabric and Corda can process upward of 3,000 transactions per second, meeting the demands of capital market infrastructure while providing the confidentiality that public chains lack. The state of the art for institutional security tokens is the ERC-3643 standard, which decouples investor identity from the token through the ONCHAINID system: investors receive digital identities carrying encrypted Know Your Customer attestations from accredited providers, and Zero-Knowledge Proofs allow the protocol to verify compliance attributes such as qualified investor status without exposing personal data on a public ledger.

The economic payoff of this architecture comes from atomic settlement. In on-chain Delivery versus Payment at T+0, smart contracts sequester both the tokenized security and the digital cash in a digital escrow, executing the exchange entirely or not at all according to the ACID principles of distributed databases. This eliminates the settlement window that plagues traditional markets, where two-day (T+2) cycles generate, by industry estimates from Goldman Sachs and Banco Santander, annual infrastructure costs of $11 billion to $20 billion through immobilized capital, margin calls and lingering counterparty risk. But there is a catch, and it is the study’s central systemic finding: the automation breaks if the cash leg still relies on legacy banking rails such as SWIFT or TARGET2. Without a wholesale central bank digital currency, the promise of instantaneous, risk-free settlement remains functionally incomplete.

The four jurisdictions studied embody strikingly different answers to these challenges. Switzerland represents radical legal integration: its DLT Act makes an on-chain inscription a transfer of ownership enforceable against all, and Project Helvetia demonstrated that tokenized assets can be settled atomically in wholesale central bank digital currency. The European Union has instead chosen supervised experimentation, with a six-year DLT Pilot Regime capped at EUR 6 billion in aggregate capitalization—a limit critics consider too timid to attract major institutions—and, crucially, no wholesale CBDC, forcing reliance on stablecoin substitutes that reintroduce bank counterparty risk. The United Arab Emirates pursues competitive specialization through its financial free zones: the DIFC codifies private-key possession and guarantees clients priority reclamation of assets in insolvency, while Abu Dhabi’s ADGM has legally validated “governance by code,” allowing a DLT Foundation’s rules to live inside smart contracts, and the central bank is actively piloting a digital dirham. The United States remains the fragmented outlier, split between the SEC and CFTC and still governed by the 1946 Howey test; the GENIUS Act of July 2025 imposes 1:1 reserve requirements on stablecoin issuers but does not take effect until 2027 at the earliest.

Despite these divergences, the study identifies powerful functional convergences. Every jurisdiction now applies a “substance over form” principle, qualifying tokens by their economic reality rather than their label—a token marketed as a utility asset that pays dividends will be requalified as a security, with consequences ranging from nullity of issuance to criminal sanctions. Programmable standards like ERC-3643 and ERC-1400 are becoming a common on-chain language across legal traditions, and Multi-Party Computation has emerged as the global custody standard, fragmenting private keys across independent parties so that no single entity ever holds the complete secret. These cryptographic safeguards, the authors note, were hardened by catastrophic failures such as the 2022 collapse of FTX, where billions in client funds were misappropriated in the absence of legally robust asset segregation.

Yet three structural locks still hold systemic adoption back. The monetary lock is the absence of operational wholesale central bank digital currencies: although the Bank for International Settlements, the Banque de France and Project Helvetia have proven the technology works, deployment depends on sovereign monetary policy decisions beyond the reach of financial regulators. The contractual lock lies in the stablecoin market itself, where analysis of the terms of dominant issuers like Tether and Circle reveals limited redemption access, broad liability disclaimers, and legal characterizations that would likely relegate holders to unsecured creditor status in a bankruptcy—a first-order systemic risk in a market representing over 80% of stablecoin capitalization. The regulatory fragmentation lock, finally, keeps cross-border payment corridors slow and expensive even as most organizations experiment with stablecoin payments. The researchers also flag the collapse of the algorithmic stablecoin Terra USD, which evaporated $45 billion in 72 hours in 2022, as the definitive caution against automated arbitrage without tangible reserves.

The study’s conclusion is stark and, for the tokenization industry, humbling: tokenization does not yet constitute an autonomous “on-chain” financial law. Code is a powerful executor of rights, but it cannot create them; it presupposes their existence within a broader legal order. The jurisdictions that most successfully reduce institutional transaction costs—Switzerland and the DIFC—are precisely those that have permanently and explicitly aligned their positive law with on-chain realities. Until wholesale central bank money, robust insolvency protections and coherent cross-border rules catch up, the future of tokenized finance will be decided not by the sophistication of its protocols but by the willingness of sovereign legal systems to meet the code halfway.

Subject of Research: Legal and economic analysis of financial instrument tokenization across four regulatory regimes

Article Title: Compliance by design or law by decree? A comparative analysis of the tokenization of financial instruments

Article References: Sadok, H., Kassimi, S., AlQodsi, E. M., El Hadi El Maknouzi, M., Jadalhaq, I. M., & Alshawabkeh, I. (2026). Compliance by design or law by decree? A comparative analysis of the tokenization of financial instruments. Frontiers in Blockchain, 9, Article 1934036. https://doi.org/10.3389/fbloc.2026.1934036

Image Credits: AI Generated

DOI: 10.3389/fbloc.2026.1934036

Keywords: tokenization, blockchain, smart contracts, stablecoins, central bank digital currency, financial regulation, Swiss DLT Act, MiCA, DLT Pilot Regime, GENIUS Act, compliance by design, systemic risk

The study, conducted by Siddharth Bhambhwani, assistant clinical professor of accounting at Penn State, compared borrowing and deposit rates on Aave, one of the most widely used decentralized finance platforms, with U.S. Treasury yields over the period from January 2023 to March 2026. The findings, published in the journal Finance Research Letters, show that Treasury yields significantly influence rates in cryptocurrency lending markets despite the absence of any direct institutional link. The result challenges a popular narrative that decentralized finance, often abbreviated as DeFi, functions as a largely separate financial ecosystem driven primarily by cryptocurrency-specific factors.

To understand why the connection matters, it helps to understand how DeFi lending actually works. Instead of routing loans through a bank, DeFi relies on computer programs called smart contracts that run on a blockchain—a shared ledger maintained simultaneously by many computers, with no single owner. A useful mental model is a marketplace built around pools of digital assets. Some users deposit assets into these pools and earn interest; others borrow from the pools and pay interest. Unlike a conventional bank loan, however, DeFi borrowing generally requires borrowers to post cryptocurrency worth more than the amount they borrow. To borrow eighty dollars, a user might have to lock up one hundred dollars of another asset. If the value of that collateral falls close to the borrowed amount plus accrued interest, the software automatically sells it and repays the loan, a mechanism designed to protect depositors without the need for a human loan officer.

The appeal of this model is straightforward. A DeFi protocol, as these programs are known, generally does not evaluate a borrower’s credit score, income, or employment history in the way a bank might. If a user holds the necessary digital assets and meets the collateral requirements, the transaction executes automatically. Markets run continuously, and they can be accessed from many parts of the world without opening a conventional bank account. For depositors, the main attractions are yield and access: deposits based on stablecoins—cryptocurrencies designed to maintain a steady price by being tied to a traditional asset, most often the U.S. dollar—have often paid substantially more than traditional bank savings accounts. Transactions settle quickly, and the rules governing major protocols are encoded in smart contracts whose code is public and open to inspection. Yet these benefits come with substantial risks. Smart contracts can contain vulnerabilities and have been exploited, users generally lack deposit insurance, and recovering funds after a hack or failure can be difficult.

The mechanics of how interest rates are set on these platforms differ sharply from traditional finance. A bank decides what rate to pay on savings accounts based on market interest rates, competition for deposits, and its own funding needs. Treasury yields, meanwhile, emerge from financial markets as investors buy and sell U.S. government securities, responding to expectations about inflation, economic growth, and monetary policy. On a DeFi platform, the process is purely mechanical. Rates are determined by utilization—the ratio of assets borrowed from a pool to assets deposited into it. When relatively little is being borrowed, rates fall; when borrowing demand surges, rates climb. By design, this system contains no reference to Treasury markets, central bank policy, or any traditional benchmark. That is precisely what makes the empirical connection so striking.

Bhambhwani’s analysis found that for stablecoins, Treasury yields and DeFi rates move together in a systematic way. When Treasury yields rise, stablecoin borrowing and deposit rates tend to rise with them. The study estimated that a quarter-point move in the U.S. 10-year yield is associated with roughly a one-point move in stablecoin borrowing rates. The channel, though indirect, is intuitive. A stablecoin is designed to track the U.S. dollar, so a stablecoin depositor is effectively making a direct comparison: hold the token and earn the DeFi rate, or hold Treasury securities and earn the Treasury rate. When the outside opportunity changes, capital reallocates between the two options. Utilization shifts within the lending pools, and the mechanically determined DeFi rate adjusts—even though nothing in the protocol’s code references the Treasury market at all.

Notably, the relationship does not hold for volatile crypto assets such as Bitcoin and Ethereum. Someone depositing Bitcoin is not making the same comparison against a dollar-denominated benchmark. Instead, they are primarily focused on Bitcoin’s expected return, and a percentage-point change in Treasury yields is essentially noise compared with the often large and rapid swings in cryptocurrency prices, which can sometimes exceed ten percent in a single day. The contrast highlights that the bridge between traditional and decentralized finance runs specifically through dollar-pegged instruments, whose depositors behave like yield-seeking investors in any other money market rather than like speculative crypto traders.

The choice of the 10-year Treasury yield as the key benchmark carries particular significance. The 10-year yield reflects investors’ views about economic conditions over a relatively long horizon and serves as a foundational reference rate throughout global financial markets, influencing borrowing costs and asset valuations across mortgages, corporate debt, stocks, and other investments. What makes its relationship with DeFi especially interesting is that DeFi loans lack a conventional contractual maturity—they remain active as long as a borrower’s collateral exceeds the borrowed amount. Yet among the Treasury maturities examined in the study, the 10-year yield provided the most consistent additional information about stablecoin rates, suggesting that DeFi stablecoin markets are responding to the same broad financial conditions captured by this major traditional benchmark.

For anyone lending or borrowing stablecoins through DeFi platforms, the practical implication is that traditional interest rates may offer useful context for anticipating where DeFi rates are heading. A depositor chasing high stablecoin yields, or a borrower weighing the cost of a crypto-backed loan, can look to movements in Treasury yields as a signal of the direction DeFi rates are likely to follow. This reframes DeFi not as an isolated alternative economy but as a participant in the global market for capital, sensitive to the same macroeconomic forces—monetary policy expectations, inflation outlooks, and growth forecasts—that shape conventional asset prices.

More broadly, the findings arrive at a moment when decentralized finance is gaining mainstream appeal and policymakers, investors, and researchers are debating how integrated it has become with the existing financial system. The evidence from Aave’s lending markets indicates that as decentralized finance matures, traditional and decentralized markets may increasingly function not as two completely separate financial systems, but as interconnected parts of a larger market for capital. For a sector whose founding promise was independence from traditional finance, the data suggest a different reality: even code-governed lending pools, with no direct link to Wall Street or the Treasury market, cannot fully escape the gravitational pull of the world’s benchmark interest rate.

Subject of Research: The relationship between decentralized finance lending rates and U.S. Treasury yields

Article Title: Q&A: Is decentralized finance truly independent from traditional markets?

Article References: Q&A: Is decentralized finance truly independent from traditional markets?. (n.d.). Original publication

Image Credits: AI Generated

DOI: Not provided

Keywords: decentralized finance, DeFi, stablecoins, Treasury yields, Aave, cryptocurrency lending, smart contracts, interest rates, blockchain, Finance Research Letters, Penn State, financial markets