The Race To Be The New Everything Bank
Why the future of stablecoins is the future of finance and why crypto is valuable
Most analysis of the crypto industry starts and stops with the price of Bitcoin1. Depending on what timescale you are talking about Bitcoin might be doing very good or very bad2. But the price of bitcoin is sort of irrelevant as a measure of the future of the industry. The dream and vision of crypto is far bigger than Bitcoin3.
The future dream of crypto is a total disruption of the financial system from a closed system with gatekeepers owning access to an open and fully permissionless one4 where everyone is welcome5 and controls are decentralized and in the hands of the people. Like all disruption related things, the upstarts want this future vision of a more open system, the incumbents don’t (please don’t hurt my profits, then I’ll have to work hard to offer a better product instead of coasting on momentum). Actually getting to the end state isn’t really the point, the point is directionally to pull the system as far as possible in that direction. This push and pull is playing out on a lot of different fronts.
The importance of Bitcoin was proving that a new, distributed, abstracted representation of value6 could get significant adoption. It paved the way for Ethereum (programmable layer on top of a token) and many other innovations. Playing that trend line out you get to tokenization, the ability to represent anything (stocks, future event probabilities, etc.) on-chain with all of the benefits (programmability, speed, cost, security, interoperability, etc.) of a blockchain.
The way the future vision of crypto will be realized is through tokenizing the world’s assets, not making everyone buy things with Bitcoin. Tokenization is the way this new wave of upstart platforms will try to finally disrupt the legacy banking platforms.
It feels like a long simmering conflict of upstarts versus incumbents shifted towards more of an open war with Coinbase’s disclosures last week that they are working on adding a number of new asset classes to the platform including prediction markets and stocks. Tokenization is the technology underneath how some of these Coinbase assets will work. It isn’t just Coinbase trying to do this though. Pick any number of large crypto native or fintech platforms (Robinhood, Kraken, SoFi, etc.) and you can see the same moves being made.
While the idea of tokenization7 is to represent anything on-chain, it is already here in a big way in the form of stablecoins which are tokenized on-chain dollars. In five years the industry has gone to a few billion to over $300B in stablecoins8 in existence.
Tokenizing dollars is just the first step. A lot of other things (private credit, institutional alternative funds, private equity, corporate bonds, commodities, stocks, etc.) are also actively being tokenized and put on-chain. The average person won’t know or care that accessing these assets is now happening on a blockchain, the same way you don’t today know or think about whether your money travels via ACH, Wire, Swift, etc. The average person will still just tap a button in an app but by tokenizing all assets, they all become interoperable (and get all the value propositions mentioned above) in a way that isn’t possible in traditional finance.
So back to this war.
On one side is Robinhood (or insert any number of other large Fintechs like Coinbase) and the other is JPMorgan (again insert any large bank). For simplicity I’ll just use RH vs JPM throughout but use whatever examples you want in your own mental model.
RH wants to be JPM but in digital first form. JPM sees RH as an annoying upstart to be squashed so they are begrudgingly adding crypto related services, access to private markets, etc., to stop outflows of funds going from Chase accounts to fund RH trading.
Upstart versus incumbent. RH wants to overthrow JPM through tokenization. The same way Amazon became the everything store, everyone wants to be the new everything bank. Everyone believes the way to get there is through tokenization, starting with stablecoins.
RH wants to eventually offer every single financial service9 JPM does and ultimately fully own the full customer lifecycle for your financial life. On one hand is the traditional tech story of a nimble, fast moving company pitted against the arrogant10 incumbent who cannot innovate. Usually it is the fast moving upstart who is going to eat their lunch, but given the amount of regulation11 and importance to everyday life the financial system has, this one won’t go as fast in my estimation.
Things are still very early. We are somewhere in the phase of banks starting to get a bit nervous. Articles written by thinly veiled lobbyists12 full of vacuous arguments13 are emerging to try to defend the incumbents.
The next battleground in this war of the upstarts becoming the new incumbents is stablecoins. Legislation passed this year to formalize rules around stablecoins in the form of the GENIUS Act14. At the time the major disagreement was on how yield generated by a stablecoin could be passed back to end users. Big banks won what they believed at the time to be an important compromise which they are now trying to back track on: issuers (Circle, Tether, Paxos) cannot pass yield generated15 on stablecoins back to end users but third parties (like exchanges or wallets or basically everywhere these instruments are actually held) can pass the yield back.
To big banks like JPMorgan this is a hugely important battle to win. A huge way they make money is by earning and keeping the yield generated by their own customer’s assets. At the consolidated firm level in Q4 2024 net interest income was $23.5 billion out of $43.7 billion total revenue for JPM, about 54% of quarterly revenue16. if JPM has to go from offering 0.05% to 3.5% interest on every checking and savings account to compete with stablecoin offerings, that is going to get very expensive very fast.
Will Robinhood tokenize the world faster than JPM can support crypto native assets? I think so but traditional institutions like JPM are also so huge they have a lot of resources they can throw at the problem in the form defensive acquisitions to stave off what today might feel inevitable. After all in the 225+ year history of JPM, this is hardly the first time a disruptive technology has come along, but this time definitely feels different.
In any case, definitely an interesting space to be building in at Gravity for the next few years.
Actually it starts and stops with the person’s personal preconceived notions of the industry, decoupled from facts.
No asset class can beat it if your timing was early but the same could be said for many things if you were just early with perfect timing. Extreme price appreciation is different than de facto assumption it will take over the world.
And thankfully bigger than shitcoins like Doge or Pepe or Shib.
I’m not sure this is actually fully possible - mainstream adoption by the average person needs a degree of safety and regulation that the traditional institutions have to provided, US soft power of being the world’s reserve currency and controlling the world financial system isn’t going to go quietly into the night, DeFi UX is still borderline unusable, the long list of reasons this isn’t going to fully happen goes on and on.
I consider myself an inclusive person but I think we can all agree there are certain people we don’t want accessing the financial system (see: list of sanctioned countries and individuals)
The value of anything is what someone else is willing to pay for the thing. Any argument that Bitcoin is worthless willfully ignores this idea.
Tokenization isn’t just securitization (legal process of packaging things up), sure you could do this before with SPVs but signing terms of services and checking accredited investor status via form submission is a really kludgy user experience and was never going to get mainstream adoption.
Background on stablecoins from a really smart person who has worked in the area.
Even an ATM service that delivers cash to your doorstep…for the record I’m skeptical on what existing problem this solves but I also live in a world where the Bodega across the street has a 24/7 ATM.
Jamie Dimon’s pet rock comment will be written on JPM’s epitaph: https://finance.yahoo.com/news/jpmorgan-ceo-jamie-dimon-once-180108805.html
Thinking about other industries that were consumed by tech (taxis, etc), even regulation doesn’t save you in the end. Progress is inevitable.
Example from The Atlantic which largely bases its argument on an algorithmic, incorrectly labeled “stablecoin” from three years ago even though current legislation wouldn’t even allow this instrument to legally call itself a stablecoin.
The NY Times had a particularly sensational headline the other day: The Crypto Industry’s $28 Billion in ‘Dirty Money’, which could alternatively be titled “in a three year timeframe we found a sort of bad association of less than 0.01% of transactions with nefarious entities” but if you want to read a detailed repudiation, check this out.
The fact that the competing versions of this bill were STABLE and GENIUS will forever be hilarious. Not all politicians are a stick in the mud.
Generally yield from stablecoins is from the underlying dollars being invested in US Treasuries which as of today generate somewhere between 3.5-4%, most of which usually goes back to the end user. The exception to this is Tether which today got downgraded to junk by the S&P Global.
Admittedly not 100% of this is profit but directionally you get the idea.