Author: Arthur Hayes, founder of BitMEX; Translator: AIMan@黄金财经
While Circle CEO Jeremy Allaire had to take over the position at the request of Coinbase CEO Brian Armstrong, I hope that for those who trade any "stablecoin" related products in the public stock market, this article will prevent you from rapidly swelling because promoters shove shit into the asses of ignorant gamblers. It is based on this opening statement that I will begin to explore the past, present and future of the stablecoin market.
Professional cryptocurrency traders are unique in some ways in the capital markets because they must have a deep understanding of how funds flow in the global fiat banking system if they want to survive and thrive. Stock investors or foreign exchange traders do not need to understand how stocks and/or currencies are settled and transferred. Transactions must rely on the services of brokers, who will quietly provide this service in the background.
First of all, it is not easy to buy your first Bitcoin; it is not clear which option is the best and safest. Most people’s first step, at least when I started getting into crypto in 2013, was to buy Bitcoin from someone else, either through a direct bank wire or with a cash payment. After that, you can gradually transition to trading on exchanges that offer two-sided markets, where you can trade larger amounts of Bitcoin for lower fees. But getting your fiat currency onto an exchange isn’t easy. Many exchanges lack solid partnerships with banks or are in a regulatory gray area in their home countries, which means you can’t wire funds directly to the exchange. Exchanges come up with workarounds, such as directing users to transfer fiat directly to local agents who issue cash vouchers on the exchange, or setting up an affiliated business that appears to the bank account holder to have nothing to do with crypto to obtain an account and direct users to transfer funds to that business.
Scammers take advantage of this friction and steal fiat in a variety of ways. The exchange itself may lie about where the funds are going, and then one day…poof—the website disappears along with your hard-earned fiat. If fiat is transferred in and out of crypto capital markets through third-party intermediaries, these people can abscond with the money at any time.
Because of the risks of moving fiat money in crypto capital markets, traders must have detailed knowledge and trust in the cash flow operations of their counterparties. I received a crash course in global payments as money moved within the banking systems of Hong Kong, mainland China, and Taiwan (I refer to the region as Greater China).
Understanding how money moves in Greater China helped me understand how the business of major Chinese and international exchanges (such as Bitfinex) works. This is critical because all real innovation in crypto capital markets is happening in Greater China. This is especially true for stablecoins. Read on and you’ll understand why this is so important. The most successful example of a crypto exchange in the West is Coinbase, which was founded in 2012. However, Coinbase’s innovation was that it established and maintained banking relationships in one of the most hostile markets to financial innovation: Pax Americana. Otherwise, Coinbase is nothing more than an overpriced crypto brokerage account, and that’s all it needs to propel its early shareholders to billionaire status. The reason I’m writing another article on stablecoins is because of the huge success of the Circle IPO. To be clear, Circle is seriously overvalued, but its price will continue to rise. This listing marks the beginning, not the end, of this round of stablecoin mania. The bubble will burst after a stablecoin issuer goes public on the public markets (most likely in the U.S.) and uses financial engineering, leverage, and showmanship to siphon tens of billions of dollars of capital away from suckers. As usual, most of those willing to part with their precious capital don’t understand the history of stablecoins and crypto payments, why the ecosystem has evolved the way it has, or what this means for which issuers will succeed or fail. A charismatic, charismatic figure will take the stage, spout off all sorts of gibberish, wave his (most likely male) hands around, and explain to you why this leveraged shit he’s selling is about to corner the multi-trillion dollar stablecoin total addressable market (TAM).
If you stop reading here, then the only question you need to ask yourself when evaluating an investment in a stablecoin issuer is: how will they distribute their product? In order to achieve distribution at scale, i.e. be able to reach millions of users at an affordable price, issuers must have access to channels through cryptocurrency exchanges, Web2 social media giants, or traditional banks. Without distribution channels, they have no chance of success. If you can’t easily verify that the issuer has the right to promote the product through one or more channels, then walk away!
Hopefully my readers won’t waste their money in this way because they read this article and are able to think critically about the stablecoin investment opportunity in front of them. This article will discuss the evolution of stablecoin distribution. First, I will discuss why and how Tether developed in Greater China, which laid the foundation for their conquest of stablecoin payments in the Global South. Then, I will discuss the boom in Initial Coin Offerings (ICOs) and how this created a true product-market fit for Tether. I will move on to the first attempts by Web2 social media giants to enter the stablecoin space. Finally, I will talk about how traditional banks will get involved. Again, because I know X makes an article longer than a few hundred characters hard to read, if a stablecoin issuer or technology provider cannot distribute through cryptocurrency exchanges, Web2 social media giants, or traditional banks, then they have no business.
Currently, successful stablecoin issuers Tether, Circle, and Ethena all have the ability to distribute their products through large cryptocurrency exchanges. I will focus on Tether's development and touch on Circle a little to illustrate how it is almost impossible for any new entrant to replicate their success.
Initially, cryptocurrency exchanges were overlooked. For example, from 2014 until the late 2010s, Bitfinex was the largest global exchange outside of China. At the time, Bitfinex was owned by a Hong Kong operating company that had multiple local bank accounts. This was great for an arbitrage trader like me living in Hong Kong because I could wire funds to the exchange almost instantly. There was a street across from my apartment in Sai Ying Pun where almost all the local banks were located. I would shuttle between banks with cash to reduce fees and collection time. This was very important because it allowed me to turn over funds once a day during the workday.
Meanwhile, in mainland China, the three largest exchanges, OKCoin, Huobi, and Bitcoin China, all opened multiple bank accounts in large state-owned banks. It took me 45 minutes to take a bus to Shenzhen, and with my passport and basic Chinese skills, I opened multiple local bank accounts. As a trader, by having connections with banks in mainland China and Hong Kong, I had access to all the liquidity in the world. I was also sure that my fiat would not be lost. In contrast, I lived with fear every time I wired money to certain Eastern European exchanges because I did not trust their banking system.
But as cryptocurrencies grew in popularity, banks started closing accounts. You had to check the health of each bank-exchange relationship every day. This was very detrimental to my profits as a trader, the slower money moved between exchanges, the less money I made through arbitrage. But what if you could move electronic dollars on the blockchain, rather than through traditional banking channels? Then the U.S. dollar, which was and still is the lifeblood of the crypto capital markets, could flow between exchanges around the clock, almost for free.
The Tether team worked with the founders of Bitfinex to develop such a product. In 2015, Bitfinex allowed Tether USD to be used on its platform. At the time, Tether used the Omni protocol as a layer on the Bitcoin blockchain for sending Tether USD (USDT) between addresses. It was a prototype smart contract layer built on top of Bitcoin.
Tether allowed certain entities to wire dollars to bank accounts, and in return, Tether would mint USDT. USDT could be sent to Bitfinex to buy cryptocurrencies. Holy shit, why was there so much excitement about only one exchange offering this product?
Stablecoins, like all payment systems, only become valuable when a large number of participants with economic influence become nodes of the network. In the case of Tether, in addition to Bitfinex, cryptocurrency traders and other large exchanges need to use USDT to solve practical problems.
Everyone in Greater China faces the same dilemma. Banks are closing accounts of traders and exchanges. In addition, Asians are eager to obtain US dollars because their national currencies are prone to shock depreciation, inflation is high, and domestic bank deposits have low interest rates. For most Chinese, it is difficult or even impossible to obtain trading opportunities in the US dollar and US financial markets. Therefore, Tether, a digital version of the US dollar that anyone with an internet connection can use, is extremely attractive.
The Bitfinex/Tether team took advantage of this. Jean-Louis van der Velde, CEO of Bitfinex since 2013, used to work for a Chinese automaker. He understands Greater China and is committed to making USDT the go-to USD bank account for Chinese crypto enthusiasts. Bitfinex, while never having an executive of Chinese descent, has built tremendous trust between Tether and the Chinese crypto trading community. So you can rest assured that the Chinese trust Tether. And throughout the Global South, where overseas Chinese are finding it hard, as the citizens of the Empire are finding out in this doomed trade war, banks in the Global South are provided by Tether.
Just because Tether initially only had one large exchange as a distributor does not ensure its success. The market structure has changed so much that trading altcoins against the dollar is only possible with USDT. Let's go back to 2017, at the peak of the ICO craze, Tether really solidified its product-market fit.
August 2015 was a very important month because the People's Bank of China (PBOC) conducted a shock devaluation of the RMB against the US dollar, and ETH, the native currency of the Ethereum network, began trading. The macro and micro levels developed in sync. It was legendary and ultimately drove the bull run from then to December 2017. Bitcoin soared from $135 to $20,000; ETH soared from $0.33 to $1,410.
When money is printed, macroeconomics is always favorable. Because Chinese traders are marginal buyers of all cryptocurrencies, and cryptocurrencies at the time only meant Bitcoin. If they were uneasy about the RMB, Bitcoin would soar. At least it was at the time.
The shock devaluation by the PBOC exacerbated capital flight. Give me dollars, cryptocurrencies, gold, foreign real estate, etc. By August 2015, the price of Bitcoin had fallen from its all-time high of $1,300 before the collapse of Mt. Gox in February 2014 to a low of $135 on Bitfinex earlier that month, when Zhao Dong, China’s largest OTC Bitcoin trader, received the largest margin call in history on Bitfinex, a 6,000-BTC margin call. The narrative of Chinese capital flight sparked a surge in the price of Bitcoin; from August to October 2015, BTC/USD more than tripled.
The little things are always the most interesting. The proliferation of altcoins really began after the launch of the Ethereum mainnet and its native currency, Ether, on July 30, 2015. Poloniex was the first exchange to allow trading of Ether, and it was this foresight that made them the industry leader in 2017. Funny enough, Circle nearly went bankrupt when they bought Poloniex at the height of the ICO market. Years later, they sold the exchange to Justin Sun at a huge loss.
Poloniex and other Chinese exchanges took advantage of the nascent altcoin market by launching crypto-only trading platforms. Unlike Bitfinex, these platforms don’t need to interface with the fiat banking system. You can only deposit and withdraw cryptocurrencies and trade them with other cryptocurrencies. But this is not the best solution, as traders instinctively want to trade altcoin/USD pairs. Without the ability to accept fiat deposits and withdrawals, how can exchanges like Poloniex and Yunbi (which was the largest ICO platform in China until it was shut down by the People’s Bank of China in the fall of 2017) offer these trading pairs? Here comes USDT!
After the Ethereum mainnet is launched, USDT can be circulated on the network using ERC-20 standard smart contracts. Any exchange that supports Ethereum can also easily support USDT. Therefore, pure crypto trading platforms can offer altcoin/USDT trading pairs to meet market demand. This also means that digital dollars can flow seamlessly between mainstream exchanges such as Bifinex, OKCoin, Huobi, Bitcoin China (where capital enters the ecosystem) and more fun and speculative platforms such as Poloniex and Yunbi (where the vulgar play).
The IC0 craze gave birth to Binance, which later became a giant. A few years ago, Zhao Changpeng resigned as CTO due to a personal dispute with OKCoin CEO Mingxing Xu. Zhao left and founded Binance with the goal of becoming the world's largest shitcoin exchange. Binance has no bank account, and to this day, I don't know if it is possible to deposit fiat currency directly into Binance without going through a payment processor. Binance used USDT as its bank transfer channel and quickly became the preferred platform for trading shitcoins, and the rest of the story is history.
Between 2015 and 2017, Tether achieved product-market fit and built a moat against future competitors. Due to the trust of the Chinese trading community in Tether, USDT gradually became accepted by all major trading platforms. At the time, USDT was not yet used for payments, but it was the most efficient way to transfer digital dollars in and out of and within the cryptocurrency capital market.
By the late 2010s, exchanges were having great difficulty maintaining bank accounts. Taiwan became the de facto crypto banking hub for all large non-Western exchanges, which controlled most of the global cryptocurrency trading liquidity. This was because some Taiwanese banks allowed exchanges to open USD accounts and somehow maintained correspondent banking relationships with large US money center banks such as Wells Fargo. However, this arrangement began to unravel as the correspondent banks demanded that these Taiwanese banks expel all cryptocurrency customers or lose access to global USD markets. As a result, by the late 2010s, USDT was the only way for U.S. dollars to flow at scale in crypto capital markets. This solidified its position as the dominant stablecoin. Many Western players raised money by selling crypto payments and created competitors to Tether. The only one that survived at scale was Circle’s USDC. However, Circle’s disadvantage was obvious, as it was a US company based in Boston (duh!) with no connection to the core of cryptocurrency trading and use in Greater China. Circle’s unspoken message was: China = scary; America = safe. This message was ironic, as Tether has never had a Chinese executive, yet it has always been associated with the Northeast Asian market and now the Global South.
The stablecoin craze has been around for a long time. In 2019, Facebook (now Meta) decided to launch its own stablecoin, Libra. The appeal of Libra is that Facebook can provide dollar bank accounts to users around the world, except in China, through Instagram and Whatsapp. Here is what I wrote about Libra in June 2019:
The event horizon has passed. Facebook has begun its foray into the digital asset industry with Libra. Before I start my analysis, let me be clear: Libra is neither decentralized nor censorship-resistant. Libra is not a cryptocurrency. Libra will destroy all stablecoins, but who cares? I don't feel sorry for projects that somehow believe that there is value in some unheard-of sponsor creating a blockchain-based fiat market fund.
Libra could put commercial banks and central banks in a difficult position. It could reduce their role to a regulated digital fiat currency warehouse. And this is exactly what these institutions should encounter in the digital age.
Libra and other stablecoins from Web2 social media companies should have stolen the show. They have the most customers and have nearly complete information about their preferences and behavior.
Finally, the US political class is taking action to protect traditional banks from real competition in payments and foreign exchange. Here’s what I said at the time:
I have no love for the foolish comments and actions of US Representative Maxine Waters on the US House Financial Services Committee. But her and other government officials’ concerns are not based on altruism for their subordinates, but rather on fears of disruption in the financial services industry that has enriched them and kept them in office. That government officials were so quick to sound the alarm about Libra speaks to the potential positive value of the project for human society.
That was in the past, but now the Trump administration will allow competition in financial markets. Trump 2.0 has no love for the banks that de-banked his entire family during US President Biden’s administration. As a result, social media companies are re-starting projects to embed stablecoin technology natively into their platforms. This is great news for shareholders of social media companies. These companies can completely cannibalize traditional banking systems, payments, and foreign exchange revenue streams. However, this is bad news for any entrepreneur looking to create a new stablecoin, as social media companies will build everything needed to support their stablecoin operations on their own. Investors in emerging stablecoin issuers must be careful to see if their promoters claim to be working with or distributing through any social media companies. Other tech companies are also jumping on the stablecoin bandwagon. Social media platform X, Airbnb, and Google are all in preliminary discussions about integrating stablecoins into their business operations. In May, Fortune reported that Mark Zuckerberg’s Meta (which has tried blockchain technology in the past, but failed) is in talks with cryptocurrency companies to introduce a stablecoin payment solution.
— Source: Fortune
Whether banks like it or not, they will no longer be able to continue to earn billions of dollars in revenue each year by holding and transferring digital fiat currencies, nor will they be able to earn the same fees by trading foreign exchange.I recently spoke to a board member of a large bank about stablecoins, and they said “we’re screwed”. They believe that stablecoins are unstoppable and use the example of Nigeria. I don’t know the extent of USDT penetration in Nigeria, but they told me that even after the Nigerian central bank tried very seriously to ban cryptocurrencies, a third of Nigeria’s GDP was still settled in USDT.
They went on to point out that because adoption is bottom-up rather than top-down, regulators are powerless to stop it. By the time regulators take notice and try to act, it’s too late because adoption has already become widespread among the population.
Even though every large traditional bank has people like them in senior positions, the banking organism doesn’t want to change because it would mean the death of many cells (aka employees). With less than 100 employees, Tether has been able to scale using blockchain technology to perform key functions for the entire global banking system. By comparison, JP Morgan, the world’s best-run commercial bank, has more than 300,000 employees.
Banks are facing a critical moment — adapt or die. However, their efforts to streamline their bloated workforces and provide the products needed by the global digital economy are further complicated by the limits on how many people must be hired to perform certain functions. Take my experience at BitMEX, as I tried to open an office in Tokyo and obtain a license to trade cryptocurrencies. The management team considered whether they should open a local office and obtain a license to conduct some limited types of cryptocurrency trading in addition to the core derivatives business. The cost of complying with regulations was an issue because you couldn't leverage technology to meet the requirements. The regulators stipulated that for each compliance and operational function listed, you had to hire a person with the appropriate level of experience. I don't remember the exact number, but I think it would take about 60 people to do all the required functions, each making at least $80,000 per year, totaling $4.8 million per year. All of this work could have been automated for less than $100,000 per year to pay a SaaS vendor. I would also add that there would be fewer mistakes than hiring people who are prone to making mistakes. Oh... and in Japan, you can't fire anyone without closing the entire office. Oops!
The problem worldwide is that banking regulation is nothing more than a job-supplier for an overeducated populace. Their education is filled with bullshit, not what really matters. They are just high-paid guys punching time clocks. As much as bank executives would like to cut 99% of their staff and increase productivity, as regulated institutions, they can't do it.
Stablecoins will eventually be adopted in limited forms among traditional banks.
They will be running two systems at once: the old slow and expensive one and the new fast and cheap one. The extent to which they are actually allowed to adopt stablecoins will be determined by the prudential regulators in each office. Remember, JPMorgan is not a single institution, but rather its branches in each country are regulated differently. Data and personnel are often not shared across branches, which hinders technology-driven rationalization across the company. Good luck, asshole bankers, regulation protects you from Web2 but will kill you in Web3.
These banks will certainly not work with third parties on the technical development or distribution of stablecoins. They will do it all themselves. In fact, regulators may explicitly prohibit this. Therefore, the bank distribution channel is closed to entrepreneurs who build their own stablecoin technology. I don’t care how many proofs of concept an issuer claims to be running for a traditional bank. They will never lead to full bank adoption. So if you’re an investor, if a promoter of a stablecoin issuer claims they will partner with a traditional bank to bring their product to market, run.
Now that you understand the difficulties new entrants face in getting stablecoins to scale, let’s explore why they would even attempt the impossible. Because being a stablecoin issuer is incredibly lucrative.
The profitability of a stablecoin issuer is determined by the amount of net interest income (NIM). The issuer’s cost basis is the fees paid to holders, and the revenue comes from returns on cash investments in Treasury bills (such as Tether and Circle) or arbitrage in some cryptocurrency market, such as cash holdings trading (such as Ethena). The most profitable issuer, Tether, pays no fees to USDT holders or depositors, and earns all NIM based on the yield level of Treasury bills (T-bills).
Tether is able to keep all of its net interest income (NIM) because it has the strongest network effect and its customers have no choice but to have a USD bank account. Potential customers will not choose another USD stablecoin other than USDT because USDT is accepted throughout the southern hemisphere. A personal example is how I pay for my ski season in Argentina. I spend a few weeks each year skiing in the Argentine countryside. When I first went to Argentina in 2018, paying was a hassle if the merchant didn’t accept foreign credit cards. But in 2023, USDT has replaced USDT because my guide, driver, and chef all accept USDT. This is great because even if I wanted to pay in pesos, I couldn’t; bank ATMs only take out $30 worth of pesos per transaction and charge a 30% fee. Long live Tether, damn criminal. It is great for my employees to be able to receive digital dollars stored on a cryptocurrency exchange or mobile wallet and easily use them to purchase goods and services at home and abroad.
Tether's profitability is the best advertisement for social media companies and banks to create stablecoins. These two giants do not have to pay deposit fees because they already have a solid distribution network, which means they can get all the net income (NIM). Therefore, this can be a huge source of profit for them.
Tether's annual profit is much higher than this chart estimates. This chart assumes that all reserve assets are invested in 12-month Treasury bonds. Its purpose is to show that Tether's earnings are highly correlated with US interest rates. You can see that Tether's earnings jumped significantly between 2021 and 2022 as the Fed raised rates at the fastest pace since the early 1980s.
Here's a table from my article "Dust on Crust Part Deux" that uses 2023 data to prove that Tether is the most profitable bank per capita in the world.
Unless your stablecoin is owned by a captive exchange, social media company, or traditional bank, issuing a stablecoin can be very expensive. Bitfinex and Tether were founded by the same people. Bitfinex has millions of customers, so Tether has millions of customers from the start. Tether doesn’t have to pay issuance fees because it’s partially owned by Bitfinex, and all altcoins trade against USDT. Circle, and any other stablecoin that comes after it, will have to pay distribution fees through exchanges in some way. Social media companies and banks will never work with a third party to build and operate their stablecoins; therefore, crypto exchanges are the only option. Crypto exchanges can build their own stablecoins, as Binance tried to do with BUSD, but ultimately many exchanges decided that building a payment network was too difficult and distracted from their core business. Exchanges require equity in the issuer or a portion of the issuer’s net proceeds (NIM) in order to trade their stablecoin. But even so, it’s likely that all crypto/USD trading pairs will be pegged to USDT, meaning Tether will continue to dominate. That’s why Circle had to rope in Coinbase to compete. Coinbase is the only major exchange not in Tether’s orbit, as Coinbase’s clients are primarily American and Western European. Tether was being slammed as some kind of foreign-made scam by the Western media until U.S. Secretary of Commerce Howard Lutnik took a fancy to Tether and banked it through his firm Cantor Fitzgerald. Coinbase, whose existence depended on its favor with U.S. politicians, had to look for an alternative. So Jeremy Allaire took over the job and took Brian Armstrong’s deal.
The deal was that Circle would pay Coinbase 50% of its net interest income in exchange for the distribution of USDC throughout the Coinbase network. Yachtzee!!
The situation for new stablecoin issuers is dire. Lack of open distribution channels. All major crypto exchanges either own or partner with existing issuers Tether, Circle, and Ethena. Social media companies and banks will build their own solutions. Therefore, new issuers must pass on a lot of net income (NIM) to depositors to pull them away from other stablecoins with higher adoption. Ultimately, this is why investors will lose everything on almost every publicly listed stablecoin issuer or technology provider at the end of the cycle. But that won't stop the party; let's dig deeper into why investors' judgment is blinded by the huge profit potential of stablecoins.
In addition to holding Bitcoin and other shitcoins, there are three business models for creating crypto wealth. They are mining, operating exchanges, and issuing stablecoins. In my own case, my wealth comes from my holdings in BitMEX (a derivatives exchange), while Maelstrom (my family office)'s largest holding and largest absolute source of return is Ethena, a stablecoin issuer in the USDE. In 2024, Ethena has gone from nothing to the third largest stablecoin in less than a year.
The stablecoin narrative is unique in that it has the largest and most obvious TAM (addressable market) of the traditional finance (TradFi) figureheads. Tether has proven that an on-chain bank that simply holds people's funds and allows them to transfer them can become the most profitable financial institution per capita ever. Tether has succeeded in the face of enforcement actions from all levels of the US government. What would happen if US authorities were at least non-hostile to stablecoins and allowed them to have a certain degree of operating freedom to compete with traditional banks for deposits? The profit potential is staggering.
Now let's consider the current situation: US Treasury officials believe that the issuance scale (AUC) of stablecoins could grow to $2 trillion. They also believe that USD stablecoins can be the vanguard of advancing/maintaining USD hegemony and acting as price-insensitive buyers of US Treasuries. Wow, that’s a strong macro tailwind. To make it even more surprising, don’t forget Trump’s deep hatred for big banks because they deprived him and his family’s companies of banking services after his first term as president. He has no intention of stopping the free market from providing better, faster, and safer ways to hold and transfer digital dollars. Even his sons have joined the stablecoin bandwagon.
This is why investors are so eager for investable stablecoin projects. Before we get into how I translate this statement into capital investment opportunities, let me define the criteria for investable projects.
The issuer can be listed in some form on the US public stock market. Next, the issuer will launch a product for trading digital dollars; this is not one of those foreign things, this is “American product”. That’s it, as you can see, there are a lot of blanks to get creative with.
The most notable IPO of a stablecoin issuer is Circle. They are a US company and the second largest stablecoin issuer in the world by issuance. Circle is currently overvalued. Remember, Circle gives 50% of its interest income to Coinbase. Yet Circle's market cap is 39% of Coinbase's. Coinbase is a one-stop crypto finance shop with multiple profitable business lines and tens of millions of customers around the world. Circle is good at "talking big", and while this is a very valuable skill, they still need to improve their skills and take care of their "stepchildren".
Don't ever short Circle! If you think the Circle/Coinbase ratio is wrong, maybe you should buy Coinbase. Although Circle is overvalued, many investors will regret holding Circle in the stablecoin craze in a few years. At least they will still have some principal left.
The next wave of listings will be Circle's copycats. These stocks will trade at higher P/AUCs than Circle in relative terms. In absolute terms, their revenues will never surpass Circle’s. Promoters will tout meaningless TradFi credentials, trying to convince investors that they have the connections and capabilities to disrupt traditional banks in global USD payments by partnering with them or leveraging their distribution channels. The gimmick will work; issuers will raise huge amounts of money. For those of us who have been in the trenches for a while, it’s hilarious to watch these uniformed clowns fool the investing public into investing in their lousy companies.
After the first wave, the scale of the fraud depends entirely on the stablecoin regulation that is enacted in the US. The more freedom issuers have in what underpins the stablecoin and whether or not to pay out yields to holders, the more likely they are to use financial engineering and leverage to cover up scandals. If you assume a light or even no-touch stablecoin regulation regime, then you might see a repeat of Terra/Luna, with issuers creating some silly algorithmic stablecoin Ponzi scheme. Issuers can pay holders high returns, and those returns come from leveraging some of their assets.
As you can see, I have nothing to say about the future. There is no real future, because the distribution channels for new entrants have closed. Forget about it. Trade this stuff like a hot potato.
But don't short it. These new stocks will tear the short sellers to pieces. The macro and the micro are in sync. As former Citigroup CEO Chuck Prince said when asked if his company was involved in subprime mortgages, "When the music stops, it gets complicated in terms of liquidity. But as long as the music is playing, you have to get up and dance. We're still dancing."
I'm not sure how Maelstrom will participate in the dance, but if there's money to be made, we'll do it.
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