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Stablecoins have evolved from being a payment tool in the cryptocurrency market to a crucial component for global fund transfers, savings, and yield management. However, they still face challenges such as regulation and dependence on the banking system.
Introduction
When we talk about "money," what comes to mind? Cash? Dollars? Price tags in supermarkets? Or taxes? In these contexts, money essentially serves as a conventional unit of measure for the value of various different and heterogeneous goods and services.
Initially, money took the form of shells and salt, then evolved into copper, silver, and gold coins, and eventually to today's dollars/fiat currencies. Focusing on the dollar (and modern fiat currencies, which are government-issued and not backed by physical assets), it has gone through several developmental stages. In the U.S., the initial dollar bills (bank-issued notes) were private. At that time, individual banks could freely print money, a model somewhat similar to Hong Kong's HKD system. However, due to numerous issues with this model, the government eventually intervened, took over the issuance of the dollar, and legally tied the dollar to gold.
1. A Brief History of the Dollar
The dollar (and modern fiat currencies) has gone through several developmental stages:
1871: Western Union completed the first telegraphic transfer, enabling fund transfers without physically moving large amounts of paper currency. This innovation significantly enhanced the efficiency of the financial system by eliminating the physical constraints of money circulation.
1913: The Federal Reserve System was established, beginning to regulate the issuance of the dollar and monetary policy.
1971: Nixon terminated the gold standard, and the dollar became a free-floating currency no longer tied to gold.
1950: The first credit card was introduced, ushering in the era of non-cash payments.
1973: The SWIFT payment network was established, making dollar transactions faster and more global.
1983: The first digital bank account was set up at Stanford Federal Credit Union, initiating the digitization of banking.
1999: PayPal was born, enabling pure digital payments without a bank account.
2014: Tether launched the first dollar-backed stablecoin (USDT), laying the foundation for today's stablecoin market.
2. Why Are Stablecoins So Popular?
Despite the rapid growth of stablecoins, there is relatively limited content on why they are so popular. Tens of millions of users are replacing the traditional financial system with stablecoins, but the true driving factors are little understood. Additionally, research on the platforms and projects supporting the stablecoin ecosystem and different user groups is even scarcer. Therefore, this article will delve into why stablecoins are so widespread, who the main players in the stablecoin space are, and which user groups are driving this trend, analyzing how stablecoins are gradually becoming the next stage in the evolution of money.
3. Stablecoins vs. Bank Transfers: Two Stories in One City
Stablecoins are essentially tokens backed by fiat currencies (such as the dollar or euro).
Stablecoins vs. Bank Transfers
Many readers of this article may come from developed countries in North America, Europe, or Asia, where financial systems are relatively efficient, smooth, and stable. In the U.S., there are PayPal and Zelle; in Europe, SEPA; and in Asia, numerous fintech companies, most notably Alipay and WeChat Pay.
In these regions, people are accustomed to depositing money in banks without worrying about their balances disappearing the next day or facing hyperinflation. Small transfers can usually be completed quickly, and even large fund movements, though they may take longer, are not unbearably slow. Additionally, most businesses mandate that customers use the local banking system because it is considered safer and more convenient.
However, the reality is vastly different in other parts of the world.
In Argentina, bank deposits have been repeatedly confiscated by the government, and the local currency is one of the worst-performing in history.
In Nigeria, the official exchange rate is severely disconnected from the black market rate, making it extremely difficult to move funds in and out of the country—a situation ironically also applicable to Argentina.
In the Middle East, bank accounts can be arbitrarily frozen by the government, leading many ordinary people (especially those without political connections) to be wary of depositing most of their liquid assets in banks and instead choosing alternative means of storing funds.
Not only is holding funds risky, but transferring and remitting money is often even more challenging. SWIFT (Society for Worldwide Interbank Financial Telecommunication) cross-border transfers are expensive, cumbersome, and in these countries, most people do not have bank accounts for the aforementioned reasons.
As for alternatives like Western Union, while they can complete cross-border remittances, they typically charge exorbitant fees (you can check their fee calculator). What's worse, they often settle transactions at the official exchange rate, which is usually much higher than the actual market rate, resulting in significant "hidden" costs for users.
Stablecoins: A New Financial System or a Thing of the Past?
Stablecoins allow people to hold funds outside of the local financial system because they are essentially global, relying on blockchain for transfers rather than local bank servers. This characteristic stems from their historical background—cryptocurrency exchanges faced challenges in opening bank accounts, processing large-scale deposits and withdrawals, and transferring funds across trading platforms.
One of the most famous cases is Japan. Due to the cumbersome bureaucratic system and strict capital controls of the Japanese banking system, there has long been an arbitrage gap between global cryptocurrency prices and local Japanese prices.
In 2017, Binance announced in its whitepaper that its trading platform would only support stablecoin-cryptocurrency trading pairs to accelerate settlement speeds. This move directly drove market trading volumes towards stablecoin pairs. In 2019, Binance launched USDT perpetual contracts, allowing users to margin trade with USDT instead of BTC, further solidifying the dominant position of stablecoins. Today, stablecoins have become a recognized base asset in the cryptocurrency market, and this acceptance is gradually expanding to applications beyond cryptocurrency.
4. Stablecoins vs. Fintech: Speed, Innovation, and Solutions to Global Financial Problems
If we look at transaction speed, innovative design, and the ability to solve global financial problems, stablecoins have significant differences from fintech (financial technology).
So far, the main contribution of fintech has been to optimize and beautify existing payment infrastructure rather than completely change its underlying architecture. Essentially, they just add a layer of "paint" on top of the traditional financial system but do not address its inherent inefficiencies and complexities. In contrast, stablecoins represent the most significant change in the global financial system in 50 years.
Fast, Reliable, and Transparent: Stablecoin transfers are much faster than traditional banking systems and are verifiable on-chain, making fund flows more efficient.
Low-Cost Remittances: Compared to traditional payment methods like bank wires or Western Union, stablecoins virtually eliminate high fees (though this also means losing some of the protections provided by the traditional financial system).
Competitors to Cash and Payment Processors: Stablecoins can not only replace cash but also compete with payment processors like Western Union, being safer and more durable than cash.
Not Easily Damaged or Stolen: Unlike cash, which can disappear due to floods, fires, or theft, stablecoins cannot be lost and can be exchanged for local currency at any time.
Low Transaction Fees: The cost of transferring stablecoins depends on the blockchain network but is usually less than $2 and a fixed fee, far below the transaction fees of traditional payment systems like Western Union (typically ranging from 0.65% to over 4%).
All of this indicates that stablecoins not only dominate the cryptocurrency space but are also challenging the foundations of the traditional financial system.
Stablecoins: A New Financial System or a Thing of the Past?
Once stablecoins are widely accepted and mature, they will inevitably fill the gaps in the global financial system not covered by traditional financial institutions. As stablecoins continue to gain popularity, financial services and complex products around them are also rapidly growing.
For example, @MountainUSDM has already introduced RWA (Real-World Assets) yields on multiple platforms in Argentina, while @ethena_labs allows users to profit from delta-neutral trades without relying on traditional banking systems or trading platform custody.
Today, the use of stablecoins has gone far beyond simple payment processing or hedging. More and more people are using stablecoins to earn yields and even for local payments. As this trend develops, stablecoins are gradually becoming an important part of global financial planning and are even being included in corporate balance sheets.
It is worth noting that many users of stablecoins do not even realize they are using cryptocurrency technology—this is a significant breakthrough in product innovation around stablecoins in recent years. Companies continuously optimize user experiences, making the use of stablecoins more seamless and intuitive, further driving their global adoption.
5. Companies Driving the Adoption of Stablecoins
The main stablecoin projects start with the companies that issue these stablecoins. These include:
@Circle, the issuer of USDC
@Tether_to, the issuer of USDT
@SkyEcosystem, the issuer of DAI/USDS
PYUSD, jointly launched by @PayPal and @Paxos
Of course, there are many other stablecoins not mentioned here, but these are the main stablecoins used for payment purposes. These companies typically have bank accounts, receive traditional bank wires, and convert these funds into stablecoins for users.
1) The Funding Model of Stablecoins
Stablecoin issuers hold the funds deposited by users and charge extremely low fees (usually 1-10 basis points). Users can transfer these assets at any time, while the issuers earn interest on the funds in their bank accounts (i.e., "floating yield" or "yield" in DeFi terminology).
Trading companies play an important role in this process, handling large-scale conversions between fiat and stablecoins (on/off ramps). As more and more trading platforms begin to crack down on users who only use stablecoins for deposits and withdrawals without paying trading fees, the role of trading companies in this market becomes increasingly crucial.
Trading companies often offer better prices than local trading platforms, further enhancing the efficiency and competitiveness of stablecoins.
Since all major trading companies are fiercely competing in this market, they continuously optimize liquidity and services, making stablecoin trading smoother.
Stablecoin issuers earn interest rather than charging users high fees, which is the core of their business model.
It is worth mentioning that @SkyEcosystem (formerly Maker) has a different model.
SkyEcosystem uses a hybrid model, with its stablecoin USDS backed by a variety of collateral assets (including other currency reserves).
Users can deposit these collateral assets and borrow USDS at a predetermined interest rate.
They can choose to deposit in the "savings rate module" (similar to a risk-free rate) or borrow USDS on platforms like @MorphoLabs and @Aave, or simply hold USDS.
This model allows users to choose safer yield options or take on higher risks for higher returns.
2) Stablecoin User Growth: Not Directly Consumer-Facing
Currently, most major stablecoin issuers do not directly target ordinary consumers but provide stablecoin support indirectly through different financial service companies. This model is similar to MasterCard—it partners with banks but does not directly interface with end-users.
You may rarely hear names like @LemonCash, @Bitso, @Buenbit, @Belo, and @Rippio in the crypto community (CT), but they play important roles in the stablecoin trading market. For example:
Just the above few Argentine trading platforms alone have over 20 million KYC-verified users, almost half of Coinbase's user base, while Argentina's population is only 1/7 that of the U.S.
Lemon Cash had a trading volume of $5 billion in 2023, a large part of which was stablecoin-stablecoin trades or ARS (Argentine Peso)-stablecoin trades.
These platforms serve as the entry point for most non-peer-to-peer stablecoin trades and also hold a significant amount of crypto trading volume and stablecoin deposits. However, except for Rippio, most platforms do not have their own order books but rely on order routing systems to complete trades.
This model is very similar to Robinhood—Robinhood is not a real trading platform but routes pricing through liquidity providers (Market Makers). I call these platforms "Retail Venues" because their focus is on optimizing user experience and retail products, not on building their own trading platform infrastructure.
Robinhood's API does not allow high-frequency traders or market makers to use it because its target users are not professional traders but ordinary investors.
Similarly, BuenBit and Lemon do not attract market makers to reside on their platforms; their main target users are ordinary consumers, not professional trading companies or high-frequency traders.
Under this model, stablecoins are entering the global financial system in a low-cost, high-efficiency manner, not only impacting the crypto market but also changing the landscape of traditional payments and remittances.
Stablecoins: A New Financial System or a Thing of the Past?
Next, let's look at the blockchains where stablecoins actually operate, i.e., where stablecoin transfers, trades, and balance records are stored. Currently, the main chains for stablecoin transactions include:
@justinsuntron's @trondao (Tron)
@binance's Binance Smart Chain (BSC)
@solana (Solana)
@0xPolygon (Polygon)
The primary use of these chains is value transfer and does not necessarily involve DeFi interactions or yield generation.
Although Ethereum still leads in TVL (Total Value Locked), its high transaction costs make it unattractive for most stablecoin transactions. Data shows:
92% of USDT transactions occur on the Tron chain.
About 96% of transactions on the Tron network are related to stablecoins.
In comparison, on Ethereum, stablecoin transactions still account for a high percentage but only 70%.
Additionally, some new blockchains are trying to handle stablecoin transactions efficiently and at low cost, with LaChain being notable among them.
LaChain is operated by a consortium composed of Ripio, Num Finance, SenseiNode, Cedalio, Buenbit, and FoxBit, primarily targeting users and platforms in Latin America.
This also indicates that as the stablecoin market continues to mature, the ecosystem is becoming more complex and diversified.
6. The Evolution of Stablecoin Payments: From Cross-Border Remittances to Local Payments
Stablecoins have become a primary tool for cross-border remittances, but now they are increasingly being used for local payments.
This involves cryptocurrency payment gateways and payment portals, namely:
Exchanging stablecoins for fiat currency, or
Allowing merchants to directly accept stablecoin payments denominated in fiat currency.
For example, a merchant can "accept" crypto payments, but in reality, the cryptocurrency is immediately converted to dollars and then settled into the merchant's bank account. Of course, merchants can also directly accept stablecoin payments.
However, since stablecoin redemption still involves some friction (either in terms of time or fee costs), there are many companies in the market dedicated to optimizing this process, offering solutions ranging from simple and efficient to complex and comprehensive.
Pomelo (https://www.pomelogroup.com/): A platform supporting cryptocurrency debit card payments, enabling users to spend stablecoins directly.
@zcabrams's Bridge: Provides convenient conversions between stablecoins, different chains, and fiat currencies, significantly reducing friction costs for merchants and payment platforms.
@stripe even acquired Bridge to enhance the efficiency of its own payment system.
Currently, payment gateways like Bridge are mainly used in scenarios where merchants have not yet directly accepted USDC or USDT. They help users complete conversions first and then charge a fee.
As stablecoin payments become more popular and their lower costs compared to traditional bank cards and banking systems become more apparent, the usage of stablecoin-stablecoin trades will continue to rise. In the future, more and more merchants will directly accept stablecoin payments to optimize unit economics and drive the construction of a post-banking payment system with stablecoins.
7. The Financialization of Stablecoins: How to Make Stablecoins "Yield"
In addition to payments and remittances, more and more companies are exploring how to put stablecoins to use to improve their asset utilization rates, for example:
Lemon Cash: Offers @aave deposit functions, allowing users to deposit funds to earn yields.
@MountainUSDM's USDM: Allows stablecoin holders to earn yields and has been integrated into multiple Latin American trading platforms and payment services.
Many trading platforms and retail financial platforms view stablecoin yields as a stable source of income, hoping to use it to balance income fluctuations caused by market cycles.
Traditional trading platforms heavily rely on trading fees, which leads to a surge in income during bull markets but a dramatic drop by several orders of magnitude during bear markets.
By offering stablecoin deposit yields and related services, these platforms can obtain more stable income and reduce the impact of market volatility on their profitability.
8. The Future of Stablecoins?
Stablecoins: A New Financial System or a Thing of the Past?
Non-crypto uses of stablecoins: Expansion of international transfers and payments
The main non-crypto application of stablecoins is international transfers, and they are increasingly being used for payments. However, as the infrastructure for stablecoins continues to improve and become more widespread, they may also be used for savings, especially in developing countries, where this trend is already beginning to emerge.
A few weeks ago, @tarunchitra told me a story: In Georgia, a convenience store owner would accept deposits of Georgian Lari (GEL) from customers, convert it into USDT to earn interest, and record customer balances in a simple paper ledger, taking a cut from the interest. Notably, Georgia's banking system is relatively healthy, but this alternative financial model still developed there.
In Argentina, according to the Financial Times (FT), the total amount of U.S. dollars held by citizens outside the traditional financial system is estimated to exceed $200 billion. If even half of these funds enter the on-chain or crypto ecosystem, the DeFi market size would double, and the total market cap of stablecoins would increase by about 50%—and this is just the potential of one country. Similar situations exist in China, Indonesia, Nigeria, South Africa, and India, where the informal economy is large or there is a certain degree of distrust in the banking system.
As the use of stablecoins grows, so do their potential use cases.
Credit lending: Currently, stablecoins are mainly used for fully collateralized credit lending, which is extremely rare in the global credit market. However, with new tools launched by institutions like Coinbase, KYC verification data may be used in the future to expand credit markets and potentially introduce negative credit record mechanisms (i.e., non-repayment will affect credit scores).
Yield distribution: Stablecoin issuers are gradually allowing yields to be "passed through" to holders, for example:
USDC offers an annualized yield of 4.7%.
Ethena's USDe has a dynamic yield, usually exceeding 10%.
Cross-fiat transactions: Currently, many trades are conducted through a "double conversion" method— for example,
a transaction first converts local currency to dollar stablecoins and then
converts to the target currency (such as Argentine Peso or Nigerian Naira).
This approach means users have to pay fees twice, but as blockchain technology matures, future conversions may directly target the stablecoin of the destination currency to reduce costs.
As more capital flows into stablecoins, the variety of on-chain financial products will further enrich, making the use of cryptocurrencies in daily life more mainstream.
Stablecoins have evolved from being a payment tool in the cryptocurrency market to a crucial component for global fund transfers, savings, and yield management. However, they still face challenges such as regulation and dependence on the banking system.
Introduction
When we talk about "money," what comes to mind? Cash? Dollars? Price tags in supermarkets? Or taxes? In these contexts, money essentially serves as a conventional unit of measure for the value of various different and heterogeneous goods and services.
Initially, money took the form of shells and salt, then evolved into copper, silver, and gold coins, and eventually to today's dollars/fiat currencies. Focusing on the dollar (and modern fiat currencies, which are government-issued and not backed by physical assets), it has gone through several developmental stages. In the U.S., the initial dollar bills (bank-issued notes) were private. At that time, individual banks could freely print money, a model somewhat similar to Hong Kong's HKD system. However, due to numerous issues with this model, the government eventually intervened, took over the issuance of the dollar, and legally tied the dollar to gold.
1. A Brief History of the Dollar
The dollar (and modern fiat currencies) has gone through several developmental stages:
1871: Western Union completed the first telegraphic transfer, enabling fund transfers without physically moving large amounts of paper currency. This innovation significantly enhanced the efficiency of the financial system by eliminating the physical constraints of money circulation.
1913: The Federal Reserve System was established, beginning to regulate the issuance of the dollar and monetary policy.
1971: Nixon terminated the gold standard, and the dollar became a free-floating currency no longer tied to gold.
1950: The first credit card was introduced, ushering in the era of non-cash payments.
1973: The SWIFT payment network was established, making dollar transactions faster and more global.
1983: The first digital bank account was set up at Stanford Federal Credit Union, initiating the digitization of banking.
1999: PayPal was born, enabling pure digital payments without a bank account.
2014: Tether launched the first dollar-backed stablecoin (USDT), laying the foundation for today's stablecoin market.
2. Why Are Stablecoins So Popular?
Despite the rapid growth of stablecoins, there is relatively limited content on why they are so popular. Tens of millions of users are replacing the traditional financial system with stablecoins, but the true driving factors are little understood. Additionally, research on the platforms and projects supporting the stablecoin ecosystem and different user groups is even scarcer. Therefore, this article will delve into why stablecoins are so widespread, who the main players in the stablecoin space are, and which user groups are driving this trend, analyzing how stablecoins are gradually becoming the next stage in the evolution of money.
3. Stablecoins vs. Bank Transfers: Two Stories in One City
Stablecoins are essentially tokens backed by fiat currencies (such as the dollar or euro).
Stablecoins vs. Bank Transfers
Many readers of this article may come from developed countries in North America, Europe, or Asia, where financial systems are relatively efficient, smooth, and stable. In the U.S., there are PayPal and Zelle; in Europe, SEPA; and in Asia, numerous fintech companies, most notably Alipay and WeChat Pay.
In these regions, people are accustomed to depositing money in banks without worrying about their balances disappearing the next day or facing hyperinflation. Small transfers can usually be completed quickly, and even large fund movements, though they may take longer, are not unbearably slow. Additionally, most businesses mandate that customers use the local banking system because it is considered safer and more convenient.
However, the reality is vastly different in other parts of the world.
In Argentina, bank deposits have been repeatedly confiscated by the government, and the local currency is one of the worst-performing in history.
In Nigeria, the official exchange rate is severely disconnected from the black market rate, making it extremely difficult to move funds in and out of the country—a situation ironically also applicable to Argentina.
In the Middle East, bank accounts can be arbitrarily frozen by the government, leading many ordinary people (especially those without political connections) to be wary of depositing most of their liquid assets in banks and instead choosing alternative means of storing funds.
Not only is holding funds risky, but transferring and remitting money is often even more challenging. SWIFT (Society for Worldwide Interbank Financial Telecommunication) cross-border transfers are expensive, cumbersome, and in these countries, most people do not have bank accounts for the aforementioned reasons.
As for alternatives like Western Union, while they can complete cross-border remittances, they typically charge exorbitant fees (you can check their fee calculator). What's worse, they often settle transactions at the official exchange rate, which is usually much higher than the actual market rate, resulting in significant "hidden" costs for users.
Stablecoins: A New Financial System or a Thing of the Past?
Stablecoins allow people to hold funds outside of the local financial system because they are essentially global, relying on blockchain for transfers rather than local bank servers. This characteristic stems from their historical background—cryptocurrency exchanges faced challenges in opening bank accounts, processing large-scale deposits and withdrawals, and transferring funds across trading platforms.
One of the most famous cases is Japan. Due to the cumbersome bureaucratic system and strict capital controls of the Japanese banking system, there has long been an arbitrage gap between global cryptocurrency prices and local Japanese prices.
In 2017, Binance announced in its whitepaper that its trading platform would only support stablecoin-cryptocurrency trading pairs to accelerate settlement speeds. This move directly drove market trading volumes towards stablecoin pairs. In 2019, Binance launched USDT perpetual contracts, allowing users to margin trade with USDT instead of BTC, further solidifying the dominant position of stablecoins. Today, stablecoins have become a recognized base asset in the cryptocurrency market, and this acceptance is gradually expanding to applications beyond cryptocurrency.
4. Stablecoins vs. Fintech: Speed, Innovation, and Solutions to Global Financial Problems
If we look at transaction speed, innovative design, and the ability to solve global financial problems, stablecoins have significant differences from fintech (financial technology).
So far, the main contribution of fintech has been to optimize and beautify existing payment infrastructure rather than completely change its underlying architecture. Essentially, they just add a layer of "paint" on top of the traditional financial system but do not address its inherent inefficiencies and complexities. In contrast, stablecoins represent the most significant change in the global financial system in 50 years.
Fast, Reliable, and Transparent: Stablecoin transfers are much faster than traditional banking systems and are verifiable on-chain, making fund flows more efficient.
Low-Cost Remittances: Compared to traditional payment methods like bank wires or Western Union, stablecoins virtually eliminate high fees (though this also means losing some of the protections provided by the traditional financial system).
Competitors to Cash and Payment Processors: Stablecoins can not only replace cash but also compete with payment processors like Western Union, being safer and more durable than cash.
Not Easily Damaged or Stolen: Unlike cash, which can disappear due to floods, fires, or theft, stablecoins cannot be lost and can be exchanged for local currency at any time.
Low Transaction Fees: The cost of transferring stablecoins depends on the blockchain network but is usually less than $2 and a fixed fee, far below the transaction fees of traditional payment systems like Western Union (typically ranging from 0.65% to over 4%).
All of this indicates that stablecoins not only dominate the cryptocurrency space but are also challenging the foundations of the traditional financial system.
Stablecoins: A New Financial System or a Thing of the Past?
Once stablecoins are widely accepted and mature, they will inevitably fill the gaps in the global financial system not covered by traditional financial institutions. As stablecoins continue to gain popularity, financial services and complex products around them are also rapidly growing.
For example, @MountainUSDM has already introduced RWA (Real-World Assets) yields on multiple platforms in Argentina, while @ethena_labs allows users to profit from delta-neutral trades without relying on traditional banking systems or trading platform custody.
Today, the use of stablecoins has gone far beyond simple payment processing or hedging. More and more people are using stablecoins to earn yields and even for local payments. As this trend develops, stablecoins are gradually becoming an important part of global financial planning and are even being included in corporate balance sheets.
It is worth noting that many users of stablecoins do not even realize they are using cryptocurrency technology—this is a significant breakthrough in product innovation around stablecoins in recent years. Companies continuously optimize user experiences, making the use of stablecoins more seamless and intuitive, further driving their global adoption.
5. Companies Driving the Adoption of Stablecoins
The main stablecoin projects start with the companies that issue these stablecoins. These include:
@Circle, the issuer of USDC
@Tether_to, the issuer of USDT
@SkyEcosystem, the issuer of DAI/USDS
PYUSD, jointly launched by @PayPal and @Paxos
Of course, there are many other stablecoins not mentioned here, but these are the main stablecoins used for payment purposes. These companies typically have bank accounts, receive traditional bank wires, and convert these funds into stablecoins for users.
1) The Funding Model of Stablecoins
Stablecoin issuers hold the funds deposited by users and charge extremely low fees (usually 1-10 basis points). Users can transfer these assets at any time, while the issuers earn interest on the funds in their bank accounts (i.e., "floating yield" or "yield" in DeFi terminology).
Trading companies play an important role in this process, handling large-scale conversions between fiat and stablecoins (on/off ramps). As more and more trading platforms begin to crack down on users who only use stablecoins for deposits and withdrawals without paying trading fees, the role of trading companies in this market becomes increasingly crucial.
Trading companies often offer better prices than local trading platforms, further enhancing the efficiency and competitiveness of stablecoins.
Since all major trading companies are fiercely competing in this market, they continuously optimize liquidity and services, making stablecoin trading smoother.
Stablecoin issuers earn interest rather than charging users high fees, which is the core of their business model.
It is worth mentioning that @SkyEcosystem (formerly Maker) has a different model.
SkyEcosystem uses a hybrid model, with its stablecoin USDS backed by a variety of collateral assets (including other currency reserves).
Users can deposit these collateral assets and borrow USDS at a predetermined interest rate.
They can choose to deposit in the "savings rate module" (similar to a risk-free rate) or borrow USDS on platforms like @MorphoLabs and @Aave, or simply hold USDS.
This model allows users to choose safer yield options or take on higher risks for higher returns.
2) Stablecoin User Growth: Not Directly Consumer-Facing
Currently, most major stablecoin issuers do not directly target ordinary consumers but provide stablecoin support indirectly through different financial service companies. This model is similar to MasterCard—it partners with banks but does not directly interface with end-users.
You may rarely hear names like @LemonCash, @Bitso, @Buenbit, @Belo, and @Rippio in the crypto community (CT), but they play important roles in the stablecoin trading market. For example:
Just the above few Argentine trading platforms alone have over 20 million KYC-verified users, almost half of Coinbase's user base, while Argentina's population is only 1/7 that of the U.S.
Lemon Cash had a trading volume of $5 billion in 2023, a large part of which was stablecoin-stablecoin trades or ARS (Argentine Peso)-stablecoin trades.
These platforms serve as the entry point for most non-peer-to-peer stablecoin trades and also hold a significant amount of crypto trading volume and stablecoin deposits. However, except for Rippio, most platforms do not have their own order books but rely on order routing systems to complete trades.
This model is very similar to Robinhood—Robinhood is not a real trading platform but routes pricing through liquidity providers (Market Makers). I call these platforms "Retail Venues" because their focus is on optimizing user experience and retail products, not on building their own trading platform infrastructure.
Robinhood's API does not allow high-frequency traders or market makers to use it because its target users are not professional traders but ordinary investors.
Similarly, BuenBit and Lemon do not attract market makers to reside on their platforms; their main target users are ordinary consumers, not professional trading companies or high-frequency traders.
Under this model, stablecoins are entering the global financial system in a low-cost, high-efficiency manner, not only impacting the crypto market but also changing the landscape of traditional payments and remittances.
Stablecoins: A New Financial System or a Thing of the Past?
Next, let's look at the blockchains where stablecoins actually operate, i.e., where stablecoin transfers, trades, and balance records are stored. Currently, the main chains for stablecoin transactions include:
@justinsuntron's @trondao (Tron)
@binance's Binance Smart Chain (BSC)
@solana (Solana)
@0xPolygon (Polygon)
The primary use of these chains is value transfer and does not necessarily involve DeFi interactions or yield generation.
Although Ethereum still leads in TVL (Total Value Locked), its high transaction costs make it unattractive for most stablecoin transactions. Data shows:
92% of USDT transactions occur on the Tron chain.
About 96% of transactions on the Tron network are related to stablecoins.
In comparison, on Ethereum, stablecoin transactions still account for a high percentage but only 70%.
Additionally, some new blockchains are trying to handle stablecoin transactions efficiently and at low cost, with LaChain being notable among them.
LaChain is operated by a consortium composed of Ripio, Num Finance, SenseiNode, Cedalio, Buenbit, and FoxBit, primarily targeting users and platforms in Latin America.
This also indicates that as the stablecoin market continues to mature, the ecosystem is becoming more complex and diversified.
6. The Evolution of Stablecoin Payments: From Cross-Border Remittances to Local Payments
Stablecoins have become a primary tool for cross-border remittances, but now they are increasingly being used for local payments.
This involves cryptocurrency payment gateways and payment portals, namely:
Exchanging stablecoins for fiat currency, or
Allowing merchants to directly accept stablecoin payments denominated in fiat currency.
For example, a merchant can "accept" crypto payments, but in reality, the cryptocurrency is immediately converted to dollars and then settled into the merchant's bank account. Of course, merchants can also directly accept stablecoin payments.
However, since stablecoin redemption still involves some friction (either in terms of time or fee costs), there are many companies in the market dedicated to optimizing this process, offering solutions ranging from simple and efficient to complex and comprehensive.
Pomelo (https://www.pomelogroup.com/): A platform supporting cryptocurrency debit card payments, enabling users to spend stablecoins directly.
@zcabrams's Bridge: Provides convenient conversions between stablecoins, different chains, and fiat currencies, significantly reducing friction costs for merchants and payment platforms.
@stripe even acquired Bridge to enhance the efficiency of its own payment system.
Currently, payment gateways like Bridge are mainly used in scenarios where merchants have not yet directly accepted USDC or USDT. They help users complete conversions first and then charge a fee.
As stablecoin payments become more popular and their lower costs compared to traditional bank cards and banking systems become more apparent, the usage of stablecoin-stablecoin trades will continue to rise. In the future, more and more merchants will directly accept stablecoin payments to optimize unit economics and drive the construction of a post-banking payment system with stablecoins.
7. The Financialization of Stablecoins: How to Make Stablecoins "Yield"
In addition to payments and remittances, more and more companies are exploring how to put stablecoins to use to improve their asset utilization rates, for example:
Lemon Cash: Offers @aave deposit functions, allowing users to deposit funds to earn yields.
@MountainUSDM's USDM: Allows stablecoin holders to earn yields and has been integrated into multiple Latin American trading platforms and payment services.
Many trading platforms and retail financial platforms view stablecoin yields as a stable source of income, hoping to use it to balance income fluctuations caused by market cycles.
Traditional trading platforms heavily rely on trading fees, which leads to a surge in income during bull markets but a dramatic drop by several orders of magnitude during bear markets.
By offering stablecoin deposit yields and related services, these platforms can obtain more stable income and reduce the impact of market volatility on their profitability.
8. The Future of Stablecoins?
Stablecoins: A New Financial System or a Thing of the Past?
Non-crypto uses of stablecoins: Expansion of international transfers and payments
The main non-crypto application of stablecoins is international transfers, and they are increasingly being used for payments. However, as the infrastructure for stablecoins continues to improve and become more widespread, they may also be used for savings, especially in developing countries, where this trend is already beginning to emerge.
A few weeks ago, @tarunchitra told me a story: In Georgia, a convenience store owner would accept deposits of Georgian Lari (GEL) from customers, convert it into USDT to earn interest, and record customer balances in a simple paper ledger, taking a cut from the interest. Notably, Georgia's banking system is relatively healthy, but this alternative financial model still developed there.
In Argentina, according to the Financial Times (FT), the total amount of U.S. dollars held by citizens outside the traditional financial system is estimated to exceed $200 billion. If even half of these funds enter the on-chain or crypto ecosystem, the DeFi market size would double, and the total market cap of stablecoins would increase by about 50%—and this is just the potential of one country. Similar situations exist in China, Indonesia, Nigeria, South Africa, and India, where the informal economy is large or there is a certain degree of distrust in the banking system.
As the use of stablecoins grows, so do their potential use cases.
Credit lending: Currently, stablecoins are mainly used for fully collateralized credit lending, which is extremely rare in the global credit market. However, with new tools launched by institutions like Coinbase, KYC verification data may be used in the future to expand credit markets and potentially introduce negative credit record mechanisms (i.e., non-repayment will affect credit scores).
Yield distribution: Stablecoin issuers are gradually allowing yields to be "passed through" to holders, for example:
USDC offers an annualized yield of 4.7%.
Ethena's USDe has a dynamic yield, usually exceeding 10%.
Cross-fiat transactions: Currently, many trades are conducted through a "double conversion" method— for example,
a transaction first converts local currency to dollar stablecoins and then
converts to the target currency (such as Argentine Peso or Nigerian Naira).
This approach means users have to pay fees twice, but as blockchain technology matures, future conversions may directly target the stablecoin of the destination currency to reduce costs.
As more capital flows into stablecoins, the variety of on-chain financial products will further enrich, making the use of cryptocurrencies in daily life more mainstream.
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