#87 - All Aboard the Stablecoin Hype Train

Stablecoins will matter, but only where the need is clear and distribution is taken care of. They won’t matter where they are marginal improvements.

Illustrated by Mary Mogoi

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Introduction

Societies operate on standards of average performance. They sustain themselves by practicing the familiar. But they progress through leaders with a vision of the necessary and the courage to undertake a course of action whose benefits at first reside largely in their vision - Henry Kissinger

The quote is from a book by Henry Kissinger on China. It stuck with me because it mirrors what a number of business leaders have said about leadership and in particular, the human nature to conserve energy through inertia. This inertia at scale can lead to the decay of both businesses and societies. From Kissinger, the core point I took was that it takes feats of great leadership to move the needle. In business, it takes great leaps of innovation to change society and that if anything, these leaps are few and far between.

In essence, there are very few transformative things in life and most innovations barely move the needle. Those that do are increasingly rapidly adopted with AI being the most recent example. AI is everywhere and everybody I know uses it. The value to everybody is clear.

The question in our case is, are Stablecoins a major breakthrough like AI or a solution looking for a problem? This is a point that the CEO of Airwallex Jack Zhang made recently around Crypto. In a tweetstorm, he questioned the real life use cases of Crypto and Stablecoins, particularly in the global north.

Crypto is an area I had never been able to understand. I still don’t see a single use case yet on how crypto is helping anything in the last 15 years. Even (if) stablecoin is less volatile, I don’t see how it will help B2B transactions unless it’s related to the very exotic currencies and the liquidity is so small anyway. Unlike AI, the use case is real and everyone, we all use some sort of AI tools everyday. Stablecoin, how many people are using it? I still remember I was like an idiot in 2021 as everyone was talking about crypto and the market went crazy on it. @a16z even posted a white paper about the web3 future. I still don’t see that future. I see a real use case that @stripe might offer stablecoin wallet infrastructure through the Bridge acquisition to consumers in Latam or Africa countries .. but that’s a regulatory arbitrage.

He then went on to share this chart, showing Stablecoin volume tied to real economic activity e.g. trade and remittances. Whilst the source of the figures are not known, the numbers rhyme with a report by Artemis that showed that real world volumes i.e. not DeFi trading were roughly US$ 72 billion annualised.

In response to Jack’s tweet, very many arguments for Stablecoins were given. These included;

1. Regulatory clarity will drive Stablecoin adoption amongst TradFi players;

2. Merchant adoption will be driven by players like Stripe which recently acquired Bridge;

3. Large merchants will issue their own Stablecoins and the likes of Amazon and Walmart are already exploring the space;

4. Stablecoins are valuable for Treasury management;

5. Cross-Border Payments for trade and payroll will be the killer use cases;

6. Circle’s IPO reflects institutional demand and is a proof point on its own;

7. Agentic AI and programmability will drive stablecoin adoption.

Interestingly Fincra’s CEO Wole Ayodele tweeted “You’re spot-on”. I tend to agree with most of what Jack says and I wanted to put these thoughts down so as to test my logic.

In this week’s article, we’ll go through most of these arguments one by one and develop a comprehensive understanding of the role Stablecoins will play, where to play and as an investor, how to allocate your capital. We make the argument that Stablecoins are primarily a global-south breakthrough with little value in the global north. At most, they help in niche use cases at the moment.

The article will be structured as follows;

1. We’ll start by reviewing the origin of Stablecoins and why Tether is the biggest player in the space;

2. Define what Stablecoins are - as a sort of global Eurodollar and why in this case, regulations are not a game changer for those that have adopted it;

3. Review the arguments given for stablecoins globally;

4. Conclude by highlighting where the value lies;

A Walk Down Stable Lane

This article from Arthur Hayes was incredible, despite the flowery language, it gives great historical context for how Tether became a dominant stablecoin and why the business case for issuing your own Stablecoins unless you’re Meta is not strong. I’ll summarise it and give additional context so as to build a comprehensive view of how the Stablecoin ecosystem emerged.

Over 10 years ago, demand for Bitcoin started gaining traction particularly in Asia. Given tight capital controls particularly in mainland China, people found Bitcoin to be a synthetic dollar that enabled easier capital mobility. This was aided by growth in Chinese Bitcoin mining. Naturally, exchanges emerged both online and off-line to enable wider participation in the crypto economy. Speaking in 2013, Linke Yang of BTC China stated that “The main reason Bitcoin has become big in China is because Chinese people are savers, and more people are seeing Bitcoin as a way to store and invest their money”. Back then, exchanges in Hong Kong, Taiwan and Mainland China worked with local banks and therefore if you wanted to buy crypto, you could deposit money into the exchange’s account and receive crypto in return.

From Arthur Hayes;

At the same time in Mainland China (aka “China”) the big three exchanges, OKCoin, Huobi, and BTC China, all had multiple bank accounts at the large state-owned banks. Physically travelling to Shenzhen (from Hong Kong) by bus took 45 minutes, and armed with my passport and basic Chinese language skills, I opened a variety of local bank accounts. By having banking relationships as a trader in China and Hong Kong you had access to all the liquidity globally. I also felt confident knowing my fiat wouldn't go missing. Conversely, I lived in fear every time I sent a wire to certain Eastern European domiciled exchanges because I didn’t have trust in their banking rails.

But as crypto’s profile rose, banks started closing accounts. Every day you had to check the operational status of each bank<>exchange relationship. This was very detrimental to my profits as a trader, the slower money moved between exchanges, the less money I could make conducting arbitrage.

The additional context was that Asian currencies were prone to either random devaluations so as to maintain export competitiveness or low deposit rates as a form of financial repression. Coupled with strict capital controls, demand for dollars as a hedge to your local currency was high. What then if you could have access to a dollar 24/7 on the blockchain that enabled;

1. Instant on/off ramps into other cryptocurrencies;

2. A hedge to your local currency?

Interestingly, such a product existed. Tether traces its history back to 2014 when Brock Pierce, Reeve Collins, and Craig Sellars unveiled Realcoin, a dollar backed token issued on the Omni layer of Bitcoin designed to give traders a price stable asset on chain; the first tokens went live in October 2014, and by November the project had rebranded to Tether, entered private beta with dollar, euro, and yen versions, and incorporated Tether Holdings Limited in the British Virgin Islands, still circulating well under fifty million dollars in supply and operating independently of Bitfinex at that stage.

Arthur Hayes adds;

The team at Tether in collaboration with the original founders of Bitfinex created such a product. In 2015 Bitfinex allowed Tether USD to be used on its platform... Tether would allow certain entities to wire them USD in a bank account, and in return Tether would mint USDT. USDT could be sent to Bitfinex and purchase crypto… why was this exciting that just one random exchange offered this product? Stablecoins, just like all payments systems, only become valuable when large numbers of economically significant participants become nodes in the network. With regards to Tether, apart from Bitfinex, crypto traders and other large exchanges needed to use USDT for it to solve any real problems.

Around this time, something else was happening. In August, 2015, the Peoples Bank of China devalued its currency by 3% against the US Dollars. Coincidentally, Ether, the native cryptocurrency of Ethereum also started trading. The two events were connected because as per Arthur Hayes, the marginal buyer of crypto became more and more Chinese as the imperative to stash money away from the yuan increased. Chinese investors wanted anything but the yuan. This led to an increase in dodgy coins and crypto only trading platforms where there were no on/off ramps. Given that cryptocurrencies were so volatile, people needed a trading currency that was stable. Tether got its second wind and continued to gather momentum. At this point, USDT was trading on the Ethereum network as well and soon, on all other main blockchains. The industry needed it, the exchanges needed it, it was a match made in heaven.

From 2015 to 2017 Tether achieved product-market fit and created a moat against future competitors. Due to the trust the Chinese trading community placed in Tether, USDT became accepted across all the major trading venues. At this point it wasn’t used for payments, but it was the most efficient way to move digital dollars in, out, and within the crypto capital markets.

From this, a number of things are clear;

1. Lack of access to dollars was the main driver of Stablecoin demand;

2. This lack of access was in emerging markets where capital controls played a big role;

3. The crypto industry needed a stable currency that acted like the dollar - the exchanges needed Tether and Tether needed the exchanges;

4. This created a natural distribution advantage - if the ecosystem is used to USDT and the large buyers (Chinese) are used to USDT, what value does an alternative stablecoin have? Switching is pointless;

5. Tether was made for the emerging world.

USDT (Tether) is now the dominant global stablecoin and for its users, what matters is its availability and ubiquity - discussions around what backs it or its reserves is a non-issue, it’s Lindy. This is rather intuitive, M-Pesa users don’t even think about the money in their wallet losing its peg to the shilling or a run on M-Pesa. It simply works.

Source: Visa On-Chain Analytics

The diagram shows Tether’s dominance in the broader Stablecoin ecosystem as a percentage of total Stablecoin volumes.

Another interesting point to note is that Tether didn’t achieve any significant traction until it got distribution. Similarly, Circle started in 2013 and only went live 5 years later by partnering with Coinbase. This says a lot about where the underlying value is in stablecoins.

Reviewing the Arguments for Stablecoins;

Regulatory clarity will drive Stablecoin adoption amongst TradFi players;

Passed by the U.S. Senate in June 2025, the GENIUS Act gives stablecoins a unified federal rulebook. It requires every coin to hold one-to-one reserves in cash or short-term Treasuries, mandates monthly disclosures and annual audits, and guarantees redemption at par. A dual-licence regime lets both banks and qualified non-banks issue coins, while strict AML rules—and a ban on large tech firms or politically exposed persons without clear oversight, guard the system. In essence, the GENIUS Act is seen as marking a turning point, positioning stablecoins not as speculative instruments, but as a potentially trusted part of everyday payment infrastructure.

One of the outcomes of this should be many players issuing their own stablecoins, marketing them to customers and thereby driving broader adoption. For banks, there’s a bit of game-theory in how they’ll react. If you sit by and do nothing then if stablecoins are adopted, you’ll see your balance sheet moving from stable retail deposits to high risk wholesale deposits. The mechanics are that individuals will buy stablecoins by emptying their current accounts and transferring this money to issuers who are holding wholesale deposits. This would be costly for the big banks and therefore, it would make sense for them to issue their own coins. This way, they retain control of the deposits albeit in a different form.

Nonetheless, the big elephant in the room is; What’s the incentive for a 39 year old father of three in Louisiana to shift his money from federally insured deposits to stablecoins?. Why does it matter that his money is now in blockchain dollars as opposed to regular fiat? Stablecoins on their own have little value, as Arthur Hayes, the magic is in distribution and a corresponding market failure. Some examples may suffice;

1. M-Pesa issued a stablecoin that was parked at CBA - it was distributed via a country wide agent network and responded to the market failure of banks not being ubiquitous. Listen to the first 15 minutes of this podcast to understand the M-Pesa Stablecoin story from someone who was at the heart of creating electronic money close to 20 years ago.

2. Tether issued a stablecoin - this was distributed through Bitfinex at first and other exchanges later on and it responded to the market failure of people in Greater China not being able to easily access dollars;

In markets where financial inclusion is 90%+ and importantly over 30 bank branches per 100,000 people, what market failure are bank issued stablecoins responding to?

Source: World Bank Data

The bigger issue for me is “why should regulatory clarity be the key unlock?”. My view is that often customer demand and adoption precedes regulatory clarity. This has been true for most industries including a lot of the credit card regulations that emerged in the 70s and 80s. AI is the best example, people are not waiting for AI regulation for them to use it. When something has utility, people don’t wait for rules, rules come later once the market has been understood.

Merchant adoption will be driven by players like Stripe which recently acquired Bridge;

The Stablecoin space has received a lot of validation in the recent months. Visa partnered with Bridge to launch a Visa card that works on your stablecoin balances. Mastercard partnered with Moonpay to enable the same and Shopify is partnering with USDC and Stripe on a Stablecoin project. The ultimate goal is to create real utility for stablecoin users and make them fungible with either the money in your bank or your wallet. From Visa’s perspective, they see “stablecoins improving the efficiency and utility of back-end financial and money movement infrastructure”. Large players like Visa making such statements definitely creates momentum in the space. However, some issues still emerge.

1. Visa has settled US$ 225m over a roughly two year period in stablecoin volumes through its partners. For a network that does US$ 14 billion in annual volumes, this is a drop in the ocean. One can argue that its early days and its premature to focus on the US$ 225m figure, however, Visa has supported US$ 95 billion in crypto purchases through partners like Coinbase and Crypto.com. What this shows is that the direction of flow signals that people see more utility in buying crypto than in spending stablecoins. Ultimately, a stablecoin is a digital dollar on a blockchain - I don’t see why someone in the global north who has access to fiat dollars would convert them to stablecoins just to spend them through their card.
   
   

2. Globally major payment networks have emerged such as Visa, M-Pesa, Alipay, Pix and UPI. Whilst they approach payments enablement from different perspectives, some core characteristics emerge;

   1. They are all centralised;

   2. They handle governance, particularly dispute management and resolution centrally;

   3. They use brand or decree as trust anchors;

   4. All act as payment networks that connect merchants and buyers. This creates a network effect where increasing buyer adoption makes the network more attractive to merchants. The network effect then creates very high switching costs;

Ultimately, merchant payments in many parts of the world are solved through these centralised networks. For Stablecoins particularly in the global north to eat into these volumes, there has to be a 10x improvement on the existing systems from a consumer experience perspective. The question then becomes, what 10x improvement do Stablecoins offer viz, traditional card networks?.

In 2021, there was talk of how Open Banking and particularly Account to Account transfers would revolutionise merchant payments. I wrote an Article on Visa called “The Giant That Never Sleeps”. In the article, I noted that;

All of its (Visa’s) marketing efforts are targeted towards the customers knowing fully well that as customers grow, merchants have little choice but to accept Visa payments albeit begrudgingly. This is worth considering especially as Open Banking payments are being marketed as cheaper given that they will reduce the costs to merchants. The issue of course is that this doesn’t impact the consumer at all. In fact, a shift to open banking could reduce the cashbacks on offer from card based payments. This is the magic of a multi-sided network, once embedded, it’s almost impossible to dislodge. You have to offer a 10x better value proposition to all sides of the platform.

Interestingly, Account 2 Account payments are now being revived but under the Visa umbrella and of-course, Visa will have to take its cut to drive adoption.

Large merchants will issue their own Stablecoins;

Walmart and Amazon are exploring issuing their own Stablecoins given the regulatory clarity that’s being created by the Genius Act. For these mega-merchants, interchange fees at scale are a non-trivial cost. In fact, a study by the Merchants Payments Coalition showed that swipe fees in the US totalled US$ 224 billion in 2023. One can imagine that given how big Walmart is with sales of over US$ 600 billion, then reducing swipe fees by half or taking them down to zero would lead to billions flowing down towards their bottom line. These players could potentially offer discounts based on the adoption of their internal Stablecoins. For the large players, it may be worth a shot. Nonetheless some issues emerge;

1. A Forbes Report citing a Fed Survey done in 2022 showed that Credit cards accounted for 31% of all merchant payments. The point here is two-fold;

   1. First, payments are being supported by credit rather than cash in the bank showing that a Stablecoin won’t shift this volume;

   2. People may not want to lose out on the points that accrue based on these card programs and whatever savings that the major merchants offer may be eaten up by the discounts that are needed to shift consumers away from cards;

2. There will be significant complexity in enabling the interoperability of the stablecoins issued by the likes of Amazon and Walmart with the rest of the economy. I’d only be incentivised to keep a walmart coin if I knew that I could use it elsewhere. Enabling this utility takes Walmart into the realm of a full-service Fintech, at which point it’s competing with every other wallet of Fintech in the market. The question then becomes, what’s the competitive advantage? As a customer, why am I going through all this hassle?

In short, I see why the likes of Walmart and Amazon may want to issue their own stablecoins. I just don’t see how consumers will see utility in keeping Walmart Coins vis-a-vis the money that’s currently in their bank account.

Treasury Management

One of the emerging use cases for Stablecoins is in treasury management. Specifically, this involves the ability to move money across the world in real time. Companies like SpaceX are already relying on Stabelcoins, repatriating funds from markets such as Africa and Latam. It’s a use-case that Stripe is keen on tapping into and validates their acquisition of both Privy and Bridge. In Nigeria, large airlines are shifting money from the country to their HQ using Stables. In a recent discussion with a CEO of one of Africa’s largest B2B payments companies for an up-coming podcast, he highlighted the utility they’re getting from Stablecoins particularly in treasury management. This is specifically useful for transactions during the weekends or outside normal banking hours.

The treasury use case is real but I see it bifurcating into a global north vs global south story.

1. Projects such as Kinexys by JP Morgan, Ant Group’s experiments with HSBC and Deutsche Bank around blockchain based treasury payments all validate this. Large companies like Ant Group see value in blockchain based treasury management. This approach is being powered by tokenised dollars and I expect it to gain momentum particularly for large enterprises such as Alphabet, Netflix and Microsoft that are keen to drive efficiency gains. I expect the large banks to dominate this because they have the relationships, insights and consumer trust to pull this off. JP Morgan for instance has launched JPMD, a deposit token on the Base blockchain. This is intended to offer 24/7 value movement around deposits and Real World Assets. My view is that their core market will be large corporations and not retail consumers.

2. In the global south particularly Africa and Latam, I don’t expect that the market is big enough for it to warrant the JPMD’s of this world to participate. Stablecoins such as USDT will continue to dominate for treasury management and there will be value in someone providing orchestration, particularly the biggest risk for large corporations, sending money to the wrong wallet. Creating a SWIFT like experience where you can even recall money will be a big unlock.

Cross-Border Payments - Trade and Payroll

I’ve written before about the Stablecoin opportunity in Cross-Border payments. There’s no point in rehashing the whole article but the point is simply, emerging markets lack dollar liquidity and face delays in SWIFT-based cross-border payments due to heavy compliance checks. Stablecoins have emerged to solve this problem and the volumes speak for themselves. I know of businesses that are doing north of US$ 500m a month in volumes in the continent and the growth is dizzying. USDT is the key stablecoin being used on the TRON blockchain due to its lower fees and speed. The market is growing. Similarly for remittances and payroll based products.

When I look at Stripe’s activity, I tend to agree with Jack of Airwallex, it makes sense for Stripe given that they’re targeting to grow the internet’s GDP. Stablecoins therefore enable them to increase their TAM and offer its services in most of the world. It’s a pragmatic effort and it makes sense. Stripe makes billions in annual revenues and has many more in its balance sheet from its strategic fund-raising over the years, spending a couple of billion to acquire solid stablecoin capabilities makes sense.

Other Arguments

1. Circle’s IPO success proves that the market is ready for Stablecoins. The issue with this is that short-term stock market swings shouldn’t aid your thinking about a market. What matters in the long-term is Circle’s commercial success which may actually suffer if everyone can issue a Stablecoin;

2. Agentic AI will drive demand for Stablecoins - There’s some truth in this argument. Essentially, machine to machine commerce is better done by true internet money. Moreover, as billing moves into more niche systems such as paying per AI call or outcome-based pricing then programmatic money may prove valuable. There are two ways to look at this;

   1. Perplexity’s Agent commerce is being powered by virtual cards powered by incumbents such as Mastercard. This shows that existing systems can power agentic commerce. If you think about it, if you can assign virtual cards to Payable’s ledgers for supply-chain finance, you can assign them to an agent.

   2. There’s real potential in use cases where atomic payments that are programmatic in nature e.g. outcome based pricing for specific API calls. It’s an interesting area. However, the question is, where will the value accrue? In issuing the stablecoin or in orchestration? This potentially validates Stripe’s moves in Stablecoins.

Summing it all up

The story of Tether and its subsequent rise to dominance in the stablecoin market tells you all you need to know about Stables and Fintech in general. Success almost always hinges on solving a key market failure and building distribution to address this market failure at scale. When you look at the stablecoin industry, the first question to ask yourself is “where’s the market failure?”. If there’s none, don’t bother, consumers don’t move en masse due to slightly better ways of doing something. Moreover, if something was a significant improvement over the status quo, the proof would be in the numbers not what commentators on social media are saying.

In sum, I generally agree with the core argument that Jack of Airwallex says. Nonetheless, despite him arguing that the global south is too small, I think he misses a key point here. The global south is growing and the actual volumes are much bigger than most people understand. Existing numbers reflect existing market constraints, when you unblock those constraints, then the numbers will skyrocket. As an example, I was speaking to an executive in the B2B payments space and he mentioned to me that despite the high volumes they’re doing on a monthly basis, they turn away 95% of the customer applications they receive due to compliance. He added that not all of these 95% are bad, in fact probably only half of this figure is bad, but the bar set by their global compliance requirements are too onerous. The Stablecoin market is big, but it’s a global south story. Like Tether, those that lean into this reality will do well. Tether has focused most of its investment and marketing in the global south because they realise, this is where the actual demand is.