The Situation

A U.S.-sanctioned stablecoin issuer is attempting to scale into a “crypto giant” by expanding distribution and liquidity pathways despite being cut off from parts of the regulated banking perimeter. The near-term play isn’t winning institutional treasurers; it’s staying spendable and swappable by embedding deeper into crypto-native venues and non-U.S. rails. [CoinDesk]

The delta versus prior stablecoin “growth stories” is the mechanism: sanctions convert scaling into a market-structure problem—who will make markets, who will custody, which off-ramps will clear, and which chains/apps will tolerate the compliance externality.

This lands as policymakers and central bankers openly frame stablecoins as payments infrastructure (not just crypto liquidity), raising the stakes for which stablecoins get embedded into regulated settlement workflows. [Bloomberg]

The Mechanism

• Distribution replaces “trust” as the growth lever: a sanctioned issuer can’t easily expand via regulated U.S. banking partners, so it pushes adoption through exchange listings, DeFi integrations, wallets, and offshore PSPs where the compliance burden is pushed to endpoints.
• Liquidity comes from market makers willing to warehouse reputational risk: scaling requires tight spreads and deep pools; sanctions don’t kill the token, but they raise the cost of balance-sheet participation and can concentrate liquidity in a smaller set of counterparties.
• Off-ramps become the chokepoint: even if the stablecoin circulates on-chain, convertibility into fiat is mediated by banks, EMIs, and payment institutions—the sanctioned label increases “debanking” probability and forces reliance on jurisdictional arbitrage.
• Chain selection becomes compliance strategy: the issuer will bias toward ecosystems where it can maintain freeze/blacklist controls (to appease some partners) while still reaching high-velocity venues; this tends to produce a split stack: permissioned controls at the token level + public execution venues at the app level.
• Second-order effect: accelerates “stablecoin tiering”: sanctions pressure hardens a two-tier market—(1) regulated, reserve-transparent coins that can plug into bank/payment workflows, and (2) high-distribution coins that remain liquid in crypto but face higher friction in TradFi interfaces.
• RWA tokenization implication: sanctioned stablecoins are structurally disadvantaged as settlement assets for tokenized Treasuries/credit because RWA issuers, transfer agents, and custodians need clean rails to satisfy investor eligibility, AML, and audit requirements—so the sanctioned coin’s growth likely stays outside the institutional RWA loop.

The State of Play

Market Position
This is a race between network effects and access constraints. The issuer can still scale unit usage if it becomes the default quote currency in certain venues, but every incremental integration forces partners to underwrite: “Will our bank, auditor, or regulator view this exposure as toxic?” The practical result is a growth curve that can look strong in on-chain metrics while remaining fragile at the fiat boundary (redemptions, payroll, merchant settlement).

For incumbents and bank-linked stablecoin efforts, this is free positioning: “stablecoins, but with bank-grade counterparty acceptability.” The more central banks and supervisors talk about stablecoins as payments plumbing, the more value accrues to issuers with regulated reserve custody, audited attestations, and protected distribution (banks/EMIs), not merely liquidity.

Regulatory Landscape
Sanctions enforcement is a parallel regime to stablecoin legislation: even “perfect” stablecoin bills don’t help a token that counterparties fear will trigger secondary exposure or compliance escalations. Meanwhile, regulators are tightening the definition of what “institutional-grade” on-chain instruments look like (transfer restrictions, agented recordkeeping, controlled corporate actions), which indirectly raises the bar for which settlement assets can sit inside those workflows.

Europe is simultaneously signaling interest in euro-denominated stablecoins for payments, which—if it turns into supervisory preference—further marginalizes sanctioned or jurisdictionally ambiguous issuers from regulated corridors. [Bloomberg]

Key Data

• Sanctions status is the key structural variable: it increases the probability of exchange delistings, banking partner exits, and liquidity fragmentation (even if on-chain circulation grows). [CoinDesk]
• The issuer’s scalability ceiling is set less by issuance capacity than by redeemability surface area (number/quality of fiat rails that will clear).
• Expect measurable concentration in LP/market-making counterparties and venues as risk-tolerant actors dominate the order book and pools.
• The “institutional adoption” benchmark is whether the coin can be used in regulated settlement contexts (custodian-supported, policy-allowed) versus remaining primarily a crypto-native collateral/settlement instrument.
• Macro tailwind but selective: policymakers increasingly discuss stablecoins as payments instruments, which benefits coins with clean compliance posture and hurts coins with sanctions overhang. [Bloomberg]

What’s Next

The immediate catalyst is distribution decisions by regulated choke points: large exchanges’ listing posture, major market makers’ willingness to quote size, and—most importantly—whether any credible non-U.S. banking/EMI channels expand (or retract) convertibility. Watch for (1) new payments licenses or EMI partnerships that create fresh off-ramps, and (2) policy statements that effectively codify “acceptable stablecoin” criteria for institutional settlement—because that’s where the sanctioned issuer’s scaling story either decouples into a durable crypto-native network or hits a hard ceiling at the fiat edge.

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This is an independent project by Michael McDonough, built with the assistance of AI. Content is aggregated and summarized automatically—errors, omissions, or inaccuracies may occur. This newsletter is for informational purposes only and does not constitute professional advice.