A lot of what people think about stablecoins is wrong

Having actually worked in the space for a long time I find all these "experts" mildly annoying.

It seems all anyone wants to read, write, talk about or work in is STABLECOINS¹.

It has been a good year for crypto² but in particular for stablecoins:

• US Congress got their act together and passed GENIUS³ to regulate stablecoins.

• Tether seems to have moved past their narrative as a center for nefarious activity to one of upstanding company working closely with the US government.

• Stablecoin issuer Circle continues to trade at an astronomical public marketcap which has at times been larger than the actual AUM of USDC⁴.

• And finally, last week all anyone wanted to talk about was Hyperliquid’s USDH proposal⁵ where $7-8B in market cap was up for grabs.

Having worked in the space since 2019, I wanted to offer some opinions on why many of the prevailing narratives around stablecoins are wrong and speculate a bit on where it is probably going⁶.

As a bit of background, from 2019 to 2025 I worked at crypto infrastructure provider Paxos⁷. While I was there I worked on a lot of different things including at different times:

• USDG Global Dollar - the Global Dollar Network stablecoin which includes partners like Kraken, Robinhood, Anchorage, OKX, WorldPay, Galaxy, etc.

• BUSD Binance Dollar - a whitelabel offering that peaked at about $26B in marketcap before regulators forced it to be shutdown⁸.

• HUSD Huobi Dollar - a whitelabel for centralized Exchange Huobi⁹ which is now forgotten to history. Huobi ultimately made the call to shut it down to focus their efforts elsewhere.

• PYUSD PayPal Dollar - a whitelabel for payment services company PayPal.

• USDP Pax Dollar - the company’s stablecoin with its own branding¹⁰.

• USDL Lift Dollar - a natively yield bearing stablecoin that distributes yield automatically and programmatically on-chain.

• Plus a bunch of other stablecoin-ish things that didn’t or haven’t yet been launched publicly.

Magic internet money.

Where people are right:

First let’s get through the easy and obvious part.

1. US Dollar Stablecoins are the future of finance
   There are something to the tune of $22T of US Dollars in circulation. 44% of global FX trade is in USD denominated pairs. The world runs on US Dollars. In a world where the world’s assets are all tokenized and on-chain, it stands to reason that US dollar stablecoins will be a central part.

2. Stablecoins are an important instrument to maintain US dollar hegemony

   The US exercises profound global influence through its control of the world's dominant currency and financial infrastructure, a form of soft power that rivals its military might. The US effectively operates the world's financial operating system. This dominance grants Washington extraordinary leverage: it can unilaterally impose sanctions that exclude nations from the global banking system. Countries and corporations must maintain dollar reserves and access to US banks to participate in international trade, giving America the ability to reward allies with market access and credit while punishing adversaries through financial exclusion. This "weaponization of finance" has become increasingly central to US foreign policy. In an increasingly on-chain world, US policy will continue to shift to ensure that US Dollar Stablecoins (and not something Yuan or Euro backed) remain dominant.

3. Stablecoins are growing very fast

   Anyone who can read a chart can recognize this one, see below:

The Block has pretty great analytics on these things.

4. Stablecoins as a future economic opportunity is really big
   This particular chart is perhaps misleading (volumes =/= market size) but you get the idea.

   

5. Stablecoins will not destabilize the economy
   Elizabeth Warren has been the most vocal with the minority arguments that stablecoins will somehow destabilize the economy. Her arguments can largely summarize as whataboutism and are pretty disingenuous¹¹. Among the argument themselves: insufficient consumer protections (regulated stablecoins are actually better than wires because of seize and freeze capabilities), this will supercharge terrorist financing (AML¹² laws are still very much a thing), the underlying assets can be invested in the same risky assets that caused 2008 and 2020 meltdowns (I can’t even figure out what technically true narrow case she is trying to allude to here, but largely the allowed backing assets are cash or cash equivalents like Treasuries¹³).

6. There is a lot of money for people with Stablecoin expertise
   Anecdotally talking to friends looking at new opportunities, this chart actually seems low. I suspect this is driving a lot of why everyone wants to talk, write, read, etc. about stablecoins.

   

   Full article from Bloomberg.

Where people are wrong:

1. What actually counts as a stablecoin
   To me the overly broad definitions used for Stablecoins confuses a lot of other things. Tokens like USDe (tokenized basis trade), PAXG (tokenized gold which moves with the gold market), DAI (holds a peg through algos), etc., are not stablecoins. They are each interesting in their own right but they are very different and they are not stablecoins.

2. Stablecoins will weaken our reliance on the traditional banking system
   There are a lot of people in crypto who fully embrace the crypto-anarchist vision of a fully decentralized finance system. This is great and a fun part of crypto but my view is that crypto will never be fully mainstream if it is fully decentralized. Stablecoins that are regulated and fully backed by dollars¹⁴ tie the system more tightly to the traditional banking system than they allow a system to be removed from it. Even if these stablecoins are used in places like defi and for decentralized use cases, they are still very much anchors to the traditional banking system and that’s actually a good thing.

3. Privacy and stablecoins cannot co-exist
   This is more of a per blockchain thing but there are plenty of innovations happening to obscure information at a per transaction level, even on fully public chains. I’m confident this problem largely gets solved over the next few years.

4. Stablecoins today are universally cheaper and faster than alternatives

   In general this one is becoming more true everyday, but it depends on what methods for sending dollars you are comparing. I’d argue that today this isn’t really true most of the time but in the future it absolutely will be. Cross-border remittances at low amounts can cost you 6-8% in fees and take 2-3 days to receive. Sending a wire is often free¹⁵ and instant as long as it is within the fed wire window¹⁶, but send one on a Saturday and it doesn’t land until Monday morning¹⁷. Sure, sending a stablecoin peer to peer is free and instant by comparison but the vast majority of volumes hasn’t shifted in this direction yet and…

5. On/Off-ramp problems have to be solved before we can say Stablecoins are faster than existing alternatives
   Related to the prior point is on-ramping (getting from dollars in a bank account into stablecoins) and off-ramping (going from stablecoins back into dollars in a bank account) has to improve before stablecoins are fully faster than alternatives. This step can often be measured in days which is pretty painful and antithetical to the “faster” than alternatives argument. Alternatively a possible way this problem gets solved is that enough day to day activities can be done on-chain to the point where you the frequency at which you on/off ramp is very low.

6. An agreed upon definition of depegging
   The crypto media can be overly hyperbolic and is way too quick to say a stablecoin depegged¹⁸. There is a difference between redemptions (going direct to the issuer and asking for dollars in exchange for stables¹⁹) and acquiring a stablecoin on a market (as a USD/USD[X] trading pair). A depeg implies that the correlation between the volume weighted price the stabecoin is trading at is some amount away from exactly $1.00. To me trading within 1-2 cents of a dollar (in either direction) for brief periods of time is pretty normal behavior²⁰ caused by simple supply and demand. I’m not going to attempt to define a perfect definition here but hyperbolic media articles claiming a “depeg” of one cent for one hour aren’t helpful.

   

   For about an hour of the March 2023 banking crisis USDC traded at $0.9683 on rumors of not being able to honor redemptions when banks opened up on Monday. Does this count as a depeg? The media definitely talked about it as one.

7. The market opportunity for stablecoins is interchange²¹

   In the scope of every credit card transaction there are a variety of fees that usually add up to somewhere in the 2-3% range. This has somehow evolved into the overly simplified argument of: there are $26T in credit card transactions per year so at 3% the market size is $780B. Now don’t get me wrong this is a really big market that is ripe for disruption but that isn’t how you should size the market.

   

   Interchange and the associated fees are complicated.

   This diagram is only relevant in the US market²² which is largely unregulated²³. For instance, Europe regulates this fee stack at 0.3% maximum on credit cards and 0.2% for debit cards²⁴. Consumers might feel like everything is more expensive because of these fees but they actually get quite a bit in return. Consumer protections like charge backs and lack of liability for fraud on your card are hugely valuable²⁵. Being able to take a piece of plastic/metal out of your pocket anywhere in the world and hand it to someone in exchange for good/services with basically no questions asked is actually pretty magical. There is value offered for these fees but they won’t stay this high forever.

8. Circle and Tether have won and its game over for everyone else
   While these two issuers represent most of the market share today, the market is still very early (stablecoins have only tokenized about 1.3% of the world’s dollars²⁶). I’m obviously bullish on the approach Paxos has taken (whitelabels + the Global Dollar Network model). Many major payment providers like Stripe (~$1.4T payment volume per year) have also announced plans. I predict there will be many winners here. But, whoever owns distribution is going to be able to force adoption in a big way. Distribution matters here far more than being an early mover.

9. Issuance is where all the value accrues

   On the face of it issuers get to keep ~4.2%²⁷ of all of AUM. There is lots of evidence issuers don’t keep all of this. Circle’s public disclosures pretty clearly state half of their revenue immediately goes out the door to Coinbase. It’s well known that Tether pays many of the centralized Exchanges a portion of the revenue to ensure USDT denominated trading pairs remain prioritized. I believe 99% of this revenue ends up going back to end users. As we just saw in the USDH Hyperliquid proposals, the race to the bottom escalates quickly. One issuer proposed 100% of revenue²⁸ going back to Hyperliquid. All of the major issuers will have to strike deals for distribution if they don’t own it themselves which will eat into revenue. At scale even if an issuer can can retain 20-40 bps there are giant businesses to be built but they look more like Blackrock than Visa in terms of margins.

   The real economic winners will be whoever owns distribution and core infrastructure. Distribution can force adoption and likely command an equal or greater slice of revenue than the issuers.
   Distribution is everyone who owns the relationship with the end user. Examples of distribution are non-custodial wallet providers (MetaMask, Phantom), payment providers (PayPal, Stripe) and Exchanges (centralized: Coinbase, Kraken and decentralized: Uniswap, Sky).
   Core infrastructure is everything required to make stablecoins work (beyond issuance). Often these players can extract tolls of a few basis points based on activity at the per transaction level. As usage grow, revenue grows. Examples of core infrastructure are the L1/L2 chains (Solana, Base, Ink) and cross-chain bridges (Wormhole, LayerZero).

10. Market cap =/= economic activity

    While everyone is mostly focused on market cap (big numbers go up), better metrics to get a sense of growth are transaction count and transaction volume. To me these are both better indications of real usage. While market cap growth has been spectacular it is also happening in an environment of increasingly efficient usage of capital so if anything market cap undercounts real growth.

Source: Visa

Source: Visa

Conclusion

Six years building with stablecoins has taught me this: we're witnessing the stages of a massive transformation. Today's numbers are nothing compared to what is ahead.

Forget the narrative that Tether and Circle have won. When traditional financial institutions commit, everything changes. The real battle isn't about issuance; it's about controlling distribution.

The stablecoin gold rush isn't ending. It's just getting started. And the real opportunity isn't where everyone's looking.

1. If you are here to understand what a stablecoin is:
A stablecoin is a type of cryptocurrency designed to maintain a stable value relative to a reference asset, typically the US dollar or other major fiat currencies. Unlike traditional cryptocurrencies such as Bitcoin or Ethereum, which can experience significant price volatility, stablecoins aim to combine the benefits of digital currencies (instant processing, security, and privacy of payments) with the stable valuations of traditional fiat currencies. They are most often backed by cash or cash equivalents (highly liquid, low-risk financial investments with maturities of three months or less, easily convertible into known amounts of cash and considered stable enough to be treated as "near cash" on a balance sheet). Stablecoins generate revenue most commonly by investing in cash equivalents like US Treasuries.

2. YTD Bitcoin is up 24%, Eth is up 39%, XRP is up 48%, SOL is up 26% and BNB is up 32%, you love to see it.

3. The fact that the two competing versions of the bill were STABLE / GENIUS will forever be funny.

4. This continues to blow my mind because: 1/ the actual revenue they generate is so dependent on interest rates which will certainly decline over the next few quarters and 2/ the fact that they give half their revenue to Coinbase. My theories on why the stock trades where it does: 1/ people don’t really understand stablecoins beyond it being “hot” and growing, 2/ people are making a very long term future bet on a world where stablecoins are like 100x more significant than they are today and 3/ there just aren’t any other ways to get direct investment exposure to stablecoins (see point 1).

5. The back and forth revised proposals and constantly moving Polymarket on the subject were hotly debated in the former Paxos employee chat this week. 🍿

6. Even though on this point I will possibly be wrong.

7. I am also a shareholder who obviously wants to see them do well, so take this all with a grain of salt.

8. It turns out that if a regulator drops an investigation after you shut down a product there unfortunately isn’t anything you can do about it although personally I wish they could send Gary Gensler a bill.

9. Huobi was a Top 5 Exchange at the time, there is an alternative history where this one could have been as big as BUSD.

10. Feels like just the other day it was rebranded from Pax Standard to Pax Dollar but…wow it was quite a while ago.

11. I find most the lack of intellectual honesty in all politicians too much to stomach

12. Anti-money laundering

13. For what its worth my best guess is that at one point the bill allowed short dated bonds as a backing asset and in both 2008 (an actual financial crisis) and 2020 (a pandemic where all economic activity halted overnight so it doesn’t feel like this applies at all) there were issues with categories of things you might say are bonds so maybe that what is meant here? I don’t know, the whole argument seems intentionally disingenuous.

14. These are the stablecoins that will inevitably win

15. It is surprisingly difficult to find reliable data on wire fees.

16. The standard Fedwire Funds Service window is from 9:00 p.m. ET on the preceding calendar day to 7:00 p.m. ET on the funds-transfer business day, Monday through Friday, excluding Federal Reserve Bank holidays.

17. Or Tuesday if it is a Bank Holiday weekend, which can be very bad and stressful when you are frantically trying to send funds somewhere. I’m convinced the early crypto folks who decided trading should be 24/7/365 did not ever experience Holiday weekend cash transfers in their prior lives.

18. Here is a great example of a real depeg from this week. Dropped from $1.00 to $0.20, only recovered to $0.94.

19. Possibly the reason these things are conflated is because even as of today Tether (marketcap $170B) is the largest issuer but it is notoriously difficult to get a seat for a redemption account directly with them.

20. There are also lots of perfectly normal scenarios around taking something to 0 to 1 initially, launching on a new chain, etc.

21. I’m aware interchange is just one of these fees, I didn’t want to turn this into an argument about how everyone positions these fees. Don’t get me started on cash discounts.

22. The biggest market in the world

23. Also the reason we have sweet sweet rewards programs in the US but nowhere else. How did you think these programs are funded?

24. For what it’s worth, debit card interchange in the US is regulated and fees are substantially lower than credit cards.

25. Crypto payments will have to address these to some extent to be viable.

26. M2, (includes physical currency, checking accounts, savings deposits, and money market accounts. It's the broadest commonly-used measure of dollar supply) not physical dollars. Plus at the rate the government is printing dollars, this is a growing market!

27. Or whatever EFFR (the effective Fed Funds rate) is at a given moment.

28. Probably still worth it if that issuer backed USDH with their own native stablecoin. Getting a $7B bump to market cap is worth a lot of money.