Banks could lose up to $500 billion after Fidelity’s official token launches on Ethereum with freezing powers

Fidelity announced the launch of a stablecoin on the Ethereum mainnet, positioning the token as a compliant payment dollar distributed through the company’s brokerage, custody, and asset management channels.

The move comes amidst a kind of stablecoin sprawl, as estimates suggest 59 new major stablecoins will be issued in 2025 alone, according to third-party tracker Stablewatch.

This looks like overcrowding, but it’s segmentation. Stablecoins that are all labeled “$1” are no longer fungible once distribution, compliance boundaries, redemption rails, authorized users, chain portability, and financial strategies are factored in.

Fidelity’s FIDD Digital Dollar

Fidelity’s token, the Fidelity Digital Dollar (FIDD), is issued by Fidelity Digital Assets of the National Association, a national trust bank. Reserves consist of cash, cash equivalents, and short-term U.S. Treasury securities managed by Fidelity Management & Research.

Although tokens can be transferred to any Ethereum mainnet address, Fidelity’s documentation expressly reserves the right to restrict or freeze certain addresses.

Primary distribution is carried out through Fidelity Digital Assets, Fidelity Crypto, Fidelity Crypto for Wealth Managers, and exchanges. Fidelity is committed to publishing daily supply and reserve net asset value disclosures at the end of each business day.

The numbers bear out the urgency. Stablecoins are now a $308 billion market, and on-chain payment activity is reaching scale. Visa and Allium said total stablecoin trading volume over the past year was $47 trillion, or $10.4 trillion excluding outliers.

Visa’s own stablecoin payments amount to an annual execution rate of $4.5 billion, compared to the company’s annual payments of $14.2 trillion.

Standard Chartered has warned that US banks could lose up to $500 billion in stablecoin deposits by 2028. JPMorgan previously retracted its multitrillion-dollar forecast, pegging the stablecoin market at about $500 billion by 2028, noting that only about 6% of demand was settled at the time.

Restricted lanes have just opened

Two regulatory developments explain the timing.

The first is the GENIUS Act, which will become law in July 2025, establishing a federal framework for payments stablecoins and explicitly considering interoperability standards.

In December 2025, the Office of the Comptroller of the Currency conditionally approved the license and conversion of several national trust banks, including Fidelity Digital Assets, Circles First National Digital Currency Bank, Ripple, BitGo, and Paxos.

This approval period brought the issue within clearer supervisory boundaries and transformed compliance oversight into a competitive function.

Fidelity’s token looks like Fidelity’s decentralized settlement dollar, with explicit compliance boundaries in the U.S. and built-in policy surfaces that are operationally different from offshore “anyone can own” dollars.

The company’s status as a national trust bank provides it with direct regulatory oversight, and its distribution through the Fidelity platform provides instant access to securities trading clients, advisors, and institutional custodial clients.

Redemptions are made during Fidelity business hours and within banking transactions and not through the offshore correspondent network.

The token resides on the Ethereum mainnet, a choice that favors composability through decentralized financial protocols and cross-platform payments over permissioned private chains.

5 wedges that generate different dollars

The theory of segmentation hinges on recognizing five structural differences that actually make stablecoins non-fungible, even though they all claim to be dollar-equivalent.

Distribution moats determine who and how you can onboard at scale, including brokerage customers, card networks, and marketplaces. Fidelity tokens are distributed natively through Fidelity rails and exchanges.

Tether’s US-facing token, USAT, is issued via Anchorage Digital Bank and is designed for US compliance and is a separate product from USDT, which targets a different regulatory lane.

Klarna’s stablecoin trial represents Commerce Native’s distribution and differentiates it from intermediaries and exchanges. The European bank stablecoin movement is driven by regional compliance and distribution, and represents a similar segmentation movement outside the US.

Compliance boundaries define authorized users and policy controls such as trust bank oversight, KYC and AML requirements, blocklist and freeze powers, and frequency of disclosure.

Fidelity’s documentation explicitly discusses address restrictions and freezes. This creates a token that can run on open infrastructure while maintaining regulatory compliance hooks that satisfy banking regulators.

Trade-off: Constrained configurability.

Redemption rails and settlement times separate on-chain “internet time” transfers from fiat redemption constraints. Who has access to banks and how quickly redemptions can be completed will determine whether a stablecoin functions as an instant payment or a deferred payment.

Visa noted that stablecoins may be used behind the scenes even if a merchant “does not accept stablecoins.” In this case, the stablecoin becomes the payment layer and the seller receives dollars.

Chaining forms of portability where liquidity is pooled and composability comes into play. Other tokens start more in walled gardens and expand later, or start multi-chain from day one. Fidelity’s choice reflects a bet on where liquidity and interoperability standards will be integrated.

The treasury strategy covers the composition of reserves and who captures the yield, the issuer and the customer, and the constraints on paying interest directly. Fidelity’s reserves include internally managed short-term U.S. Treasury securities.

Other issuers are making different bets on reserve yields, pass-through economics, and commitment to transparency.

Stablecoins are becoming more than just digital cash, they are becoming compliant distributed products.

While the number “59 new stablecoins” is likely an understatement and sensitive to definitions, it does indicate that new entrants believe that distribution and regulatory boundaries will differentiate them from incumbents.

The market is testing whether brands, compliance moats, and native distribution channels can carve out space in an area dominated by Tether and Circle.

Fragmentation pressure creates demand for interoperability

Looking ahead, the question is not “too many stablecoins” but who will build the interoperability and clearing layer that harmonizes them.

As a key shaper of the product market for new monetary formats, Citi is clearly demonstrating trust, interoperability, and regulatory clarity. The firm revised its 2030 issuance forecast to $1.9 trillion in the base case and $4 trillion in the bull case, citing growth and announcements in 2025.

Standard Chartered’s $500 billion deposit shift by 2028 represents a banking disruption scenario where stablecoins compete directly with bank funds. JPMorgan’s skepticism about demand for payments of just 6% lends credence to reality.

The three scenario bands define the next 12 to 24 months.

In the base case, we see segmented growth and partial interoperability. That means launching more brand funds, but clearing the layers makes them functionally interchangeable in many flows.

In the bearish case, we see fragmentation coupled with slow merchant penetration. Stablecoins continue to be largely traded, and DeFi collateral has limited payment share, consistent with JPMorgan’s previous skepticism.

In the bullish case, we see that internet time settlement is becoming the norm. Deposit replacement is accelerating, with Standard Chartered’s $500 billion deposit shift being a headline signal that stablecoins are competing directly with bank funding.

The GENIUS Act and OCC Trust Bank approval standardized the lanes.

The Fidelity token shows what the lane is actually like. The dollars move at internet speeds, operate within the compliance perimeter of the United States, and are distributed through Fidelity’s existing customer base.

This token is not trying to replace Tether or Circle. It seeks to become the clearing layer of Fidelity’s own financial services stack, and potentially a neutral rail for inter-institutional clearing where both parties prefer trust bank-issued dollars.

The market will decide whether distribution and compliance moats justify tens of dollars in fragmentation, or whether consolidation pressures will push the industry towards a few dominant tokens and interoperability standards.

Fidelity is betting that customers want a dollar they can trust, that regulators can oversee, and that Fidelity can control.

If this theory holds true, stablecoin issuers won’t be the only winners over the next two years. They are the infrastructure players that build the clearing, authentication, and interoperability layers that allow different dollars to settle with each other without everyone having to hold the same thing.