There is a recurring assumption in conversations about the future of money: that blockchain technology, given enough time and engineering talent, will eventually scale into a seamless global payment layer. A recent BIS working paper titled “ Tokenomics and blockchain fragmentation” by Hyun Song Shin pushes back on that assumption with some force. The argument is not about technical limitations but about something more stubborn – the economics of how decentralised systems stay alive.
The Coordination Problem Nobody Talks About
Every public blockchain depends on a network of validators – participants who check transactions and maintain the integrity of the ledger. These validators do not work for free, and they should not be expected to. The paper formalises something that often gets glossed over in crypto discourse: the reward validators need is not simply compensation for running servers. It also has to cover a strategic risk – the risk that other validators might not show up.This is what economists call a coordination problem. Each validator’s willingness to contribute depends on how many others will do the same. The more decentralised the system – meaning the higher the share of validators who need to agree before a transaction is recorded – the more fragile this coordination becomes, and the more validators need to be paid to stay in. In the paper’s formal model, the minimum reward required to keep validators participating rises with the stringency of the consensus threshold. At the extreme, if every single validator must agree (full unanimity), no finite reward is enough to make the system work.
Congestion Is the Revenue Model
Since validator rewards ultimately come from user fees, this has a direct implication for how blockchains are designed. The platform cannot simply maximise capacity and let fees fall to near-zero – that would undermine the very mechanism keeping validators engaged. The blockchain, in a real sense, needs to stay congested. Transaction fees spike when demand is high, and those spikes are not failures of engineering; they are the rent extraction mechanism that keeps governance solvent. Ethereum’s gas fee history illustrates this cleanly. During periods of intense activity – DeFi booms, NFT minting frenzies – fees climbed to levels that shut out ordinary users making routine transfers. The paper presents this not as a design flaw waiting to be fixed, but as the system working exactly as the tokenomics require. A toll road analogy helps: a highway authority that relies on toll revenue cannot afford to eliminate congestion entirely. The blockchain faces the same constraint, with the added complication that the road also has to fund its own security.
Why New Chains Keep Appearing
When fees on an established chain become too heavy for marginal users, those users migrate. This is the origin of blockchain fragmentation. New chains emerge to capture that displaced demand, offering lower fees precisely because they run with less stringent consensus requirements – fewer validators, lower thresholds, less decentralisation. Solana pulled in retail users wanting fast and cheap. Tron became the default rail for stablecoin remittances across emerging markets. BNB Chain, Avalanche, and others carved out their own corners. By late 2025, each of the top three chains was generating broadly similar annual fee revenue, reflecting a landscape where no single platform dominates. The paper frames this not as a competitive market finding its equilibrium, but as fragmentation working against the social function of money. Money draws its value from network effects – the more people who use it, the more useful it becomes to any individual user. Fragmentation cuts directly against this. Instead of a widening acceptance network, you get a collection of separate pools, each with its own liquidity, its own user base, and its own coordination dynamics.
Stablecoins Inherit the Problem
The implications for stablecoins are significant and uncomfortable for the industry. Stablecoins were pitched as the bridge between the volatility of crypto assets and the stability needed for real commerce. They have grown rapidly, with transaction volumes at scale. But the paper points out that a stablecoin does not exist as a single instrument – it exists in as many forms as there are blockchains hosting it. A USDC on Ethereum and a USDC on Solana are, in economic terms, different things. They settle on different ledgers, depend on different validator groups, and cannot be directly exchanged without routing through a bridge – software protocols that introduce delay, cost, and meaningful hack risk. Cumulative bridge exploit losses ran into billions of dollars between 2021 and 2024. Regulation that focuses on backing ratios, redemption terms, and disclosures – the current centre of gravity in stablecoin policy globally – does not touch this problem. Rules on what backs a stablecoin do not change the consensus threshold on the chain carrying it, and they do not make a token on one chain fungible with its equivalent on another. The fragmentation lives in the infrastructure, not in the instrument.
What This Means for the Monetary System
The paper’s broader point is really about what makes money work at a societal level. Traditional systems achieve what economists call singleness – a dollar held at one bank is worth exactly a dollar at another – because a central institution sits behind that promise, guaranteeing conversion and smoothing settlement across the whole system. That anchor is what lets money’s network effects compound rather than splinter. The more decentralised you push things, the higher the coordination cost, and the stronger the pull toward fragmentation. None of that, though, takes away from what blockchain has genuinely built – programmable money, automated settlement, transparent ledgers are real, durable contributions to how financial infrastructure can work. The paper’s argument is ultimately that these innovations are worth keeping, and that pairing them with institutional anchors – whether through regulated stablecoins, tokenised deposits, or unified ledger frameworks backed by central banks – is how they reach their full potential. The technology is sound. The fragmentation challenge is understood. And the roadmap for combining blockchain’s capabilities with the coordination foundations that money actually needs is clearer now than it’s ever been.