The future of stablecoins

Author: Yue Xiaoyu Source: X, @yuexiaoyu111

First, there will be a "hundred-coin war" in the stablecoin track in the future. After fierce competition, USDT is still the leader of offshore stablecoins, and USDC is still the leader of compliant stablecoins, but a large number of mid- and tail-end stablecoins will remain.

These mid- and tail-end stablecoins are mainly divided into two categories: compliant stablecoins made by Web2 companies and decentralized stablecoins made by Web3 companies.

1. Still optimistic about stablecoins made by Web2 companies

In different countries and regions, and in different business scenarios, there will be many local leaders like "local snakes", such as Hong Kong's Hong Kong dollar stablecoin, JD stablecoin in the e-commerce field, etc.

These are places that USDC and USDT may not reach, and these stablecoins for segmented scenarios can be more deeply integrated with local enterprises or their own businesses.

Of course, from a political perspective, in order to prevent capital outflow and siphoning by the US dollar, various countries and regions must promote stablecoins of local legal currencies and use compliant means to keep funds in their own financial systems.

In fact, you can refer to the existing exchange landscape: in addition to a few absolute leading exchanges, there are also a bunch of mid- and low-end exchanges.

How do these mid- and low-end exchanges survive?

The core adopts two strategies:

• The first is to deeply cultivate altcoins and niche trading pairs, that is, to bind different business scenarios;

• The second is to deeply cultivate niche countries or regions, that is, to capture niche markets;

Then, even if there is a squeeze from the leading companies, the mid-tail stablecoins still have room for survival.

2. Still optimistic about the decentralized stablecoins made by Web3 companies

The current stablecoin bill in the United States has a provision that stablecoin companies are not allowed to pay interest to users.

Hong Kong's stablecoin draft for comments also has the same provision.

The purpose of this rule is to make stablecoins a payment tool, rather than a so-called investment income to compete with bank deposits.

However, there is a very strong demand for "interest-bearing stablecoins" in the market. For example, if you are an enterprise or a large household with a large amount of reserve funds, you still hope to obtain stable income under the premise of ensuring safety.

If it is converted into USDT/USDC and left there, there will be no income, but Tether and Circle, the two companies, took the US dollars obtained at no cost and took the income, so this is also an opportunity for interest-bearing stablecoins.

Only the decentralized stablecoins made by Web3 companies can bypass compliance restrictions in disguise to a certain extent, package some CeFi and DeFi financial products into stablecoins, and provide users with stable income or even high income.

The most typical example is the "neutral strategy stablecoin" that has emerged in this cycle, such as Ethena's USDe, Bitcoin's BitFi, and so on.

With the help of perpetual contracts, a project holds 1 ETH and "shorts" (sells) the same value of ETH in the perpetual contract market. As a result, regardless of whether ETH rises or falls, the total value remains basically unchanged, achieving "neutrality", and the project can also give the income from the funding rate to users holding stablecoins.

Once security is guaranteed and there is stable income, the appeal of these decentralized stablecoins is still very strong.

To sum up

the stablecoin market is very much like an iceberg:

• Compliant stablecoins are the part above the sea level, of which USDC occupies the majority, and will become larger and larger in the future, but there will also be many regional compliant stablecoins;

• Offshore stablecoins are the part below the sea level, of which USDT occupies the majority, which is much larger than the part above the sea level;

• But in deeper positions, that is, where USDC and USDT cannot reach, there will be a large number of stablecoins, including segmented business scenario stablecoins, decentralized interest-bearing stablecoins, and so on.