Over the last few weeks, the wider crypto market might be languishing in what might be described as an apathy phase. During this time, speculation has hit multi-year lows. This has exposed where true lasting, sustainable demand for crypto lies. The most valuable usecase remains as an alternate store-of-value, with BTC & ETH leading. It’s fair to conclude there’s a baseline demand of several hundreds of billion for this usecase.

The other multi-billion dollar usecase is stablecoins, and there are two market leaders - USDT and USDC. In terms of infrastructure, there are also two dominant chains - Ethereum and Tron. But as speculation has waned, one combination has come to the fore - Tron and USDT.

Of course, this isn’t a temporary phenomenon, Tron has only grown in stature through the bear market over the last couple of years, and I’ve written about the matter multiple times over this time. This is real, lasting demand. To give you some perspective, Tron settles $10B on average in USDT every day, which is comparable to USDC+USDT on Ethereum. Of course, Ethereum L1 has ETH and thousands of other tokens, but stablecoins are the dominant force. Then there are other forms of economic activity like DEX volumes, NFT sales etc. However, these are minority usecases, DEX volumes are typically 1/10th stablecoins, while NFTs are completely negligible at 1/1000th. Overall, just by its USDT volumes, Tron is easily the second most economically active chain, Ethereum and Tron basically in a league of their own. For some more perspective, Tron has more economic activity than all other not-Ethereum L1s combined. Now, I have talked about the idea of “passive economic activity” before, basically including just considering holding and lock up in smart contracts not economic activity, ain which case Bitcoin enters the fray and Ethereum pulls farther ahead of Tron. But generally, the point is, Tron is now one of the three big chains, and everything else is very far behind.

Crypto is driven largely by narratives, but no one wants to talk about Tron. It’s understandably embarrassing - Justin Sun is rather unsavoury character, and Tron is very centralized. In many ways, Tron goes against the ethos of what most consider to be crypto. Yet, it’s one of the two most valuable usecases of crypto, and easily the most valuable when it comes to consumer adoption. Nothing else even comes close. Nevertheless, I imagine there’s a general desire to better compete with Tron and USDT, so how can that be done?

The first thought that’ll come to most crypto people is decentralized stablecoin. However, after nearly a decade of trying, they remain a small niche. They simple aren’t scalable. As they say, the customer is king, and we have to listen to what stablecoin users actually want. They simply don’t care about decentralization, all they want is a reliable stablecoin provider that’s easily accessible on the CEXs and wallets of their choice, and their friends and other service providers accept as well. It’s as simple as that.

USDT, and for that matter USDC, Paxos etc. are all centralized. But at the same time, they are also regulated and backed by assets recognised by the US Federal Reserve and US government. There’s certainly room for similar EUR stablecoins, but it’s pretty clear USD is the global reserve currency, and especially in the countries with broken currencies where USDT has found product-market fit.

Because the stablecoin itself is defacto centralized, decentralization and economic security of a chain isn’t critical like, say, a native decentralized store-of-value like BTC or ETH. Worst case, if Tron is 51% attacked, Tether will simply freeze assets and migrate to a different chains. That said, this is a giant inconvenience, so generally a more economically secure chain with more unsubsidized full node runners and technical sustainability is certainly a bonus. The user may not care, but the CEXs, wallets and stablecoin issuers will. As such, Ethereum L2s are a pretty good option (at Stage 2 decentralization). While I scoff at conspiracy theories, Tether hasn’t been the most transparent player (though they have certainly improved a lot) and we definitely need more competition for a more robust industry.

Tron got its start as a low-fee alternative to Ethereum, for moving USDT between CEXs. Today, it’s no longer low fee - indeed Ethereum L2s are already much cheaper, even before EIP-4844 tanks fees, while validiums/optimums and some other L1s are already there (at the cost of economic and technical sustainability). Clearly, people don’t care about low fees, it’s all about network effects at this point. As a side note, during this lull, Tron burns nearly as much in USD terms as Ethereum, but because its market cap is a fraction of ETH, the TRX inflation rate is -3% while ETH is +0.3%. Truly hyperuberultrasoundmoney, but also exposes why monetary premium remains far and away the top demand driver for crypto assets and fee burns are insignificant for any asset with established monetary premium.

Fees, security, technical sustainability, and decentralization don’t really matter for this market, so what does? It all comes down to three things:

1. CEX and wallet integration

2. Adoption by communities and merchants to build network effects

We have discussed the Base and USDC combination as the best possible competitor to the growing Tron/USDT hegemony. A potential challenge may be to get other CEXs to integrate and actively promote this pair. Indeed, we know from Binance, BUSD and BSC just one CEX, even if a dominant one, shilling it is nowhere near enough to effectively compete. So, we really need to see an industry wide effort, perhaps even Circle leading a consortium with CEXs. I doubt it’ll happen though, gargantuan egomania runs rampant through this industry. Partnering with tradfi fintech players may also be an avenue worth exploring, although the userbases overlap isn’t that much. Another optimisation may be improving UX and building wallets with the primary/specialised usecase being transferring USDC on Base.

But let’s assume it does, and USDC and Base, or other similar competitors, are listed and easily accessible and visible across all CEXs, wallets, frontends etc. The next big challenge is bootstrapping it across communities and userbases where Tron/USDT already has a foothold. As a reminder, there are two key users of USDT - 1) Traders moving funds across CEXs, and 2) Users in countries with unstable currencies.

The 1) case is the easier one to solve, and may be the low-hanging fruit to attack first. The easiest way would be an aforementioned consortium of CEXs, and aggressively promoting USDC on Base (or whatever, I’ll keep using USDC on Base as an example, but it can be something else) as the choice for moving funds between CEXs, perhaps offering rebates and incentives.

The 2) userbase is more challenging. These people will only switch to a different solution if all ttheirfriends, family and merchants they send USDT to also do. I’m not going to suggest anything specific, but the old methods of attempting to break network effects apply. From onchain analysis, it appears that a lot of these users actually use CEXs like Binance as their wallets, rather than self-custody, so that might be an advantage in aggressive business development. But as mentioned above, Binance failed to achieve much with its BUSD on BSC initiative, so we have to get really creative. On a related note, because both 1) and 2) usecases leave similar onchain footprints, it’s hard to say which usecase is more dominant.

One final word to the “we’re so early” hopium peddlers. Even if crypto expands to find product-market fit in multiple sectors, in pure economic value terms none of them will ever be anything but negligible relative to store-of-value/economic bandwidth and stablecoins. Crypto is already in the big leagues, settling trillions of dollars annually, and the network effects are building. We’re not so early, entitlement and hopium are not guarantees, it’s time to act before what many would argue are sketchy players like Tron and USDT solidify hegemonies.

As always, I’ve used multiple sources for the data in this post - chiefly Tronscan, Coinmetrics, DefiLlama and Token Terminal.

Over the last few weeks, the wider crypto market might be languishing in what might be described as an apathy phase. During this time, speculation has hit multi-year lows. This has exposed where true lasting, sustainable demand for crypto lies. The most valuable usecase remains as an alternate store-of-value, with BTC & ETH leading. It’s fair to conclude there’s a baseline demand of several hundreds of billion for this usecase.

The other multi-billion dollar usecase is stablecoins, and there are two market leaders - USDT and USDC. In terms of infrastructure, there are also two dominant chains - Ethereum and Tron. But as speculation has waned, one combination has come to the fore - Tron and USDT.

Of course, this isn’t a temporary phenomenon, Tron has only grown in stature through the bear market over the last couple of years, and I’ve written about the matter multiple times over this time. This is real, lasting demand. To give you some perspective, Tron settles $10B on average in USDT every day, which is comparable to USDC+USDT on Ethereum. Of course, Ethereum L1 has ETH and thousands of other tokens, but stablecoins are the dominant force. Then there are other forms of economic activity like DEX volumes, NFT sales etc. However, these are minority usecases, DEX volumes are typically 1/10th stablecoins, while NFTs are completely negligible at 1/1000th. Overall, just by its USDT volumes, Tron is easily the second most economically active chain, Ethereum and Tron basically in a league of their own. For some more perspective, Tron has more economic activity than all other not-Ethereum L1s combined. Now, I have talked about the idea of “passive economic activity” before, basically including just considering holding and lock up in smart contracts not economic activity, ain which case Bitcoin enters the fray and Ethereum pulls farther ahead of Tron. But generally, the point is, Tron is now one of the three big chains, and everything else is very far behind.

Crypto is driven largely by narratives, but no one wants to talk about Tron. It’s understandably embarrassing - Justin Sun is rather unsavoury character, and Tron is very centralized. In many ways, Tron goes against the ethos of what most consider to be crypto. Yet, it’s one of the two most valuable usecases of crypto, and easily the most valuable when it comes to consumer adoption. Nothing else even comes close. Nevertheless, I imagine there’s a general desire to better compete with Tron and USDT, so how can that be done?

The first thought that’ll come to most crypto people is decentralized stablecoin. However, after nearly a decade of trying, they remain a small niche. They simple aren’t scalable. As they say, the customer is king, and we have to listen to what stablecoin users actually want. They simply don’t care about decentralization, all they want is a reliable stablecoin provider that’s easily accessible on the CEXs and wallets of their choice, and their friends and other service providers accept as well. It’s as simple as that.

USDT, and for that matter USDC, Paxos etc. are all centralized. But at the same time, they are also regulated and backed by assets recognised by the US Federal Reserve and US government. There’s certainly room for similar EUR stablecoins, but it’s pretty clear USD is the global reserve currency, and especially in the countries with broken currencies where USDT has found product-market fit.

Because the stablecoin itself is defacto centralized, decentralization and economic security of a chain isn’t critical like, say, a native decentralized store-of-value like BTC or ETH. Worst case, if Tron is 51% attacked, Tether will simply freeze assets and migrate to a different chains. That said, this is a giant inconvenience, so generally a more economically secure chain with more unsubsidized full node runners and technical sustainability is certainly a bonus. The user may not care, but the CEXs, wallets and stablecoin issuers will. As such, Ethereum L2s are a pretty good option (at Stage 2 decentralization). While I scoff at conspiracy theories, Tether hasn’t been the most transparent player (though they have certainly improved a lot) and we definitely need more competition for a more robust industry.

Tron got its start as a low-fee alternative to Ethereum, for moving USDT between CEXs. Today, it’s no longer low fee - indeed Ethereum L2s are already much cheaper, even before EIP-4844 tanks fees, while validiums/optimums and some other L1s are already there (at the cost of economic and technical sustainability). Clearly, people don’t care about low fees, it’s all about network effects at this point. As a side note, during this lull, Tron burns nearly as much in USD terms as Ethereum, but because its market cap is a fraction of ETH, the TRX inflation rate is -3% while ETH is +0.3%. Truly hyperuberultrasoundmoney, but also exposes why monetary premium remains far and away the top demand driver for crypto assets and fee burns are insignificant for any asset with established monetary premium.

Fees, security, technical sustainability, and decentralization don’t really matter for this market, so what does? It all comes down to three things:

1. CEX and wallet integration

2. Adoption by communities and merchants to build network effects

We have discussed the Base and USDC combination as the best possible competitor to the growing Tron/USDT hegemony. A potential challenge may be to get other CEXs to integrate and actively promote this pair. Indeed, we know from Binance, BUSD and BSC just one CEX, even if a dominant one, shilling it is nowhere near enough to effectively compete. So, we really need to see an industry wide effort, perhaps even Circle leading a consortium with CEXs. I doubt it’ll happen though, gargantuan egomania runs rampant through this industry. Partnering with tradfi fintech players may also be an avenue worth exploring, although the userbases overlap isn’t that much. Another optimisation may be improving UX and building wallets with the primary/specialised usecase being transferring USDC on Base.

But let’s assume it does, and USDC and Base, or other similar competitors, are listed and easily accessible and visible across all CEXs, wallets, frontends etc. The next big challenge is bootstrapping it across communities and userbases where Tron/USDT already has a foothold. As a reminder, there are two key users of USDT - 1) Traders moving funds across CEXs, and 2) Users in countries with unstable currencies.

The 1) case is the easier one to solve, and may be the low-hanging fruit to attack first. The easiest way would be an aforementioned consortium of CEXs, and aggressively promoting USDC on Base (or whatever, I’ll keep using USDC on Base as an example, but it can be something else) as the choice for moving funds between CEXs, perhaps offering rebates and incentives.

The 2) userbase is more challenging. These people will only switch to a different solution if all ttheirfriends, family and merchants they send USDT to also do. I’m not going to suggest anything specific, but the old methods of attempting to break network effects apply. From onchain analysis, it appears that a lot of these users actually use CEXs like Binance as their wallets, rather than self-custody, so that might be an advantage in aggressive business development. But as mentioned above, Binance failed to achieve much with its BUSD on BSC initiative, so we have to get really creative. On a related note, because both 1) and 2) usecases leave similar onchain footprints, it’s hard to say which usecase is more dominant.

One final word to the “we’re so early” hopium peddlers. Even if crypto expands to find product-market fit in multiple sectors, in pure economic value terms none of them will ever be anything but negligible relative to store-of-value/economic bandwidth and stablecoins. Crypto is already in the big leagues, settling trillions of dollars annually, and the network effects are building. We’re not so early, entitlement and hopium are not guarantees, it’s time to act before what many would argue are sketchy players like Tron and USDT solidify hegemonies.

As always, I’ve used multiple sources for the data in this post - chiefly Tronscan, Coinmetrics, DefiLlama and Token Terminal.