Deep Dive 1: Stablecoins
The most significant trend in crypto that most people aren't paying attention to
They aren’t flashy, they aren’t sexy, and they aren’t easy to speculate on — but stablecoins are shaping up to be the unsung heroes of the crypto industry. They are the answer to every condescending skeptic and luddite; the response you can give whenever anyone asks you “but what can you actually do with crypto?”
In today’s Deep Dive, we’ll look into what makes stablecoins so great, why they are rapidly increasing in attention and adoption, which big players are entering the market, and finally we’ll try and find some ways we can speculate on them. We’re only human, after all, and if there’s money to be made by betting on the stablecoin sector — why not try and capitalize?
Quick sidenote — this is the first Deep Dive since launching my premium subscription model. I plan to do these roughly once a month on whatever topic seems most relevant and interesting. I’ve decided not to paywall this one, to give everyone an idea of the type of content these Deep Dives will contain. Hope you enjoy, and if you do, please consider subscribing — there’s a 20% discount on premium right now.
What are stablecoins and why are they so great?
I presume you know what stablecoins are, but just in case you’re new around these here parts, a quick primer.
Stablecoins are a type of cryptocurrency designed to maintain a stable value relative to a traditional fiat currency, most commonly the U.S. Dollar. They combine the price stability of traditional currencies (price instability has long been a criticism of traditional crypto coins) with the benefits of blockchain technology: decentralization, programmability, transparency, censorship resistance, and fast + cheap global settlements.
People are always clamoring on about “product market fit” and “when will crypto solve real problems in the world?” — here are a few ways stablecoins can do exactly that:
By significantly reducing the costs involved with transferring money across the globe. Domestic transfers are fast and cheap, but international transfers are still slow and expensive due to the fees involved with using centralized third parties and dealing with foreign currency exchange rates. By settling in stablecoins on a blockchain, both speed and costs are reduced by well over 100x. Transfers can be done in seconds and for a fraction of a cent.
Stablecoins provide a safe haven for people and companies to park their wealth. This is especially appropriate for those living in countries with a local currency that is going through extreme levels of inflation. For example, Argentina in 2023 had an annual inflation rate of 211%, meaning that anyone who held money in the bank experienced an enormous drop in the buying power of their funds. By instead being able to hold their funds in stablecoins pegged to the USD (or any other less-volatile currency or asset), they would not be subject so such significant inflation.
An extension of this is keeping funds safe from government overreach. While many of us might feel safe with our funds in a bank account in most western democracies, history is rife with examples of authoritarian governments siezing (or freezing) the assets of private citizens or companies. Holding funds in traditional crypto assets such as Bitcoin can help here, but there is still significant volatility involved — if you want stability, then stablecoins are your best bet. Note that many stablecoins still have significant elements of centralization (ie USDC and USDT), though there are others which are much more decentralized (ie DAI).
I could go on. The benefits are innumerable. But these few should arm you well enough the next time someone deigns to question you on the use-cases of crypto.
Why are stablecoins rapidly increasing in attention and adoption?
While the last few months have seen the crypto market struggling, with an ongoing debate about whether we’re in a bull market or not1, the total stablecoin market cap has been up only — increasing from ~$200bn at the start of the year to ~$234bn today:
This increase is in part because of the aforementioned reasons — stablecoins have found product market fit and solve real problems. But it is also because there are an increasing amount of stablecoin issuers. Why so many issuers, and why now? Well for starters, the business model for stablecoins is phenomenal.
In 2024, Tether (the company behind the most dominant stablecoin USDT), reported a profit exceeding $13 billion2. And this is with ~100 employees. How? Simple. Their entire business model is that they issue USDT tokens in exchange for U.S. Dollars, which they then invest, and keep the yield.
Basically people give them billions of dollars to hold for safe keeping, they earn 4-5% yield on it, and keep it all. Pretty ridiculous profit margin.
Part of their investments includes U.S. Treasuries, which they’re the 7th largest buyer of in the world:
Yes, Tether buys more U.S. Treasuries than Canada, Norway, Hong Kong, Germany, South Korea, India, China, and every other country in the world except for six. Absolute insanity. So it makes sense that others want to try and get in on some of that action, and chip away at USDT’s dominance in the market.
The other reason for all of the stablecoin attention right now is that the U.S. government has signalled a strong desire to back stablecoins. Treasury Secretary Scott Bessent said the following at the White House Crypto Summit:
We are going to keep the U.S. the dominant reserve currency in the world, and we’re going to use stablecoins to do that.3
This is an extension of what President Trump had already mentioned in one of his Executive Orders:
(ii) promoting and protecting the sovereignty of the United States dollar, including through actions to promote the development and growth of lawful and legitimate dollar-backed stablecoins worldwide;4
This all makes sense. It is in America’s best interests to have the world settle payments in U.S. Dollars or USD equivalent stablecoins.
Additionally, a recent survey conducted by Coinbase an EY-Parthenon where they surveyed 352 institutional investors indicated that a whopping 84% were already utilizing or expressed an interest in utilizing stablecoins:
Interest in stablecoins and tokenized assets is also increasing. Seeking yield, transactional convenience, and an efficient means to facilitate foreign exchange, 84% of institutions are either already utilizing or expressing interest in utilizing stablecoins.5
And lastly, as a result of all of this, a draft of the STABLE Act of 20256 was introduced in the house of representatives, designed to create regulatory clarity around the creation and operation of stablecoins. The regulation seems sensible — I’ll save you reading the 72 page Bill (I didn’t either) by linking to this tweet sharing the key takeaways.
Any company that might have been reluctant to get involved with stablecoins due to regulatory concerns now has no excuse, and indeed, many are either already involved or are signalling an interest to get involved:
PayPal has launched it’s own stablecoin, $PYUSD.7
Stripe recently acquired Bridge for $1.1bn, to “aggressively move into the stablecoin market”.8
The U.S. state Wyoming is planning to launch a stablecoin this year.9
World Liberty Financial (the Trump family’s crypto project) is planning to launch stablecoin $USD1.10
The Bank of America has said they will launch their own stablecoin once US lawmakers make it legal to do so (presumably looking for more regulatory clarity, which is in the works).11
With the floodgates opened and so many institutions getting involved with the stablecoin game, the momentum seems unlikely to slow down any time soon. The cat is out of the bag and it wants some of them dollar dollar bills yall.
So… how can we plebs get exposure to stablecoins and invest in the sector?
Another trillion dollar question, and one that many sharp traders currently have front of mind:
While there might not be a great way to invest in them (you can’t go out and buy shares in Tether, or Circle, etc), there are still some decent options.
First up you could buy Coinbase stock (COIN). Coinbase has a strong partnership with Circle, the company behind USDC, which is the second largest stablecoin by marketshare sitting at ~25.7%. Coinbase directly receives revenue in the form of interest income from USDC reserves.12
Even if the total market share of USDC drops (which it is likely to do as more competitors enter the market), if the total marketcap for stablecoins hits the trillions (which it is projected to), the revenue generated for Coinbase will be substantial. This should reflect in the stock price. Obviously this is an indirect and imperfect way to get stablecoin exposure, but it’s a way.
Another way to invest is by getting exposure to DeFi platforms that utilize stablecoins, either by buying existing tokens or by using upcoming protocols hoping to get an airdrop:
Ethena’s stablecoin USDe is a synthetic dollar with internet native yield, which is a fancy way of saying they’re a stablecoin that’s not 100% backed by USD equivalent holdings. Instead they’re backed with crypto assets and corresponding short futures positions.13 USDe has the third largest market share, sitting at 2.2% (this just goes to show how dominant USDT and USDC are, with a combined 87.5% market share).
Ethena’s native token ENA is the way to get exposure here. It is down ~80% from it’s all time high, currently sitting at $0.35, which presents a decent risk/reward opportunity if the market recovers + stablecoins continue in the direction they’re headed.MKR / SKY, the two ways of getting exposure to the stablecoins DAI and USDS respectively. They are the 4th and 5th largest stablecoins by market share. MKR is the token behind MakerDAO, which recently rebranded/upgraded to Sky — hence the multiple tokens involved here. More stablecoin demand is likely going to be good for these protocols.
As for stablecoins without tokens yet, this tweet lists a bunch of them, and with a name like poopman, you just know they’re legit:
Lastly, there is a new blockchain that is generating a lot of hype, Plasma. It is aiming to be a blockchain purpose-built for stablecoins. They raised $24m in their Seed + Series A rounds and have some very heavy hitters backing them, not least of all Tether (of USDT fame).
Plasma release their documentation just a few days ago, and here are some of the benefits:Unfortunately there doesn’t appear to be any way to get exposure to Plasma just yet. We can hope for some sort of ICO that allows everyday investors access, or wait for them to launch and buy on the open market. Depending on the FDV it launches at, it could be a very strong play. I’ll definitely be watching it.
The above are just a few methods to bet on stablecoins. If you want to do some more research, here are a few tweets that I found helpful with many more options.
This is just the tip of the iceberg, albeit it’s a pretty average iceberg — they haven’t made it easy for us to get exposure to stablecoin adoption. Or have they?
Discerning readers will have noticed one glaring omission from my investment angles: betting on the crypto industry writ large.
The simple option? Literally just buy Bitcoin.
The slightly more nuanced but still simple option? Buy the native tokens of the networks that stablecoins are issued and traded on.
Currently, Ethereum and Tron hold the lion’s share of stablecoins. Could it be as easy as buying ETH and TRX? Perhaps. With Plasma launching, there will no doubt be some sort of exodus of USDT from all other chains to it, so there is some risk there.
But if the overall stablecoin marketcap is to continue in this direction, and Ethereum and Tron remain even moderately similarly dominant, it doesn’t seem like a stretch that their native tokens will also perform well.
TRX is the non consensus play — most people aren’t really paying attention to it.
ETH is also a bit of a non consensus play — it is the token everyone loves to hate at the moment.
Perhaps that’s what makes these both good options. Or perhaps I simply wanted to find yet another way to try and pump my heavy and fledgling ETH bags. Perhaps it’s both. Perhaps I’ll stop saying perhaps… or perhaps I won’t.
There’s a lot of perhaps to ponder, but at least one thing seems all but certain: stablecoin adoption is on a runaway train with no signs of slowing down, and it’s garnering the attention of the largest companies and governments of the world. Ignore what is happening with stablecoins at your own peril.
Alright that’s a wrap! Hopefully you enjoyed this deep dive and it provided some food for thought. If nothing else, hopefully you are at least slightly better equipped to deal with any crypto skeptics that lob charged questions at you, and can reply with confidence and examples saying yes, crypto is, finally, solving real world problems.
And who knows.
Perhaps they’ll actually listen.
I actually tackled this very question a few weeks ago here:
Letter 56: Is The Bull Market Over?
The question on everyone's mind lately seems to be whether the bull market is over or not. It is, quite literally, the trillion dollar question. I obviously can't tell you what's going to happen with any real certainty (and you should ignore and run from anyone who proclaims to be able to), but I can give you my best guess and, more importantly, explain how I try to think about questions like this.
Tron undervalued