Original Title: Assume The Position

Original Author: Arthur Hayes, Crypto Trader Digest

Original Translation: Bitpush

(The views expressed here are solely those of the author and should not be taken as the basis for investment decisions, nor should they be interpreted as recommendations or advice to engage in trading or investing.)

Given that Circle CEO Jeremy Allaire seems to have no choice but to assume the position under the "direction" (layered with sarcasm here, implying a lack of independence and control by Coinbase) of Coinbase CEO Brian Armstrong, I hope this article serves those trading in any publicly listed assets tied to "stablecoins" by helping you avoid the significant risks and losses when promoters push worthless assets onto unsuspecting retail investors. With that as a preamble, I will begin discussing the past, present, and future of the stablecoin market.

In the realm of capital markets, professional cryptocurrency traders are unique in certain ways. To survive and thrive in this space, they must have an in-depth understanding of how money flows through the global fiat banking system. In comparison, stock investors or forex speculators are not required to understand how stocks or currencies are settled or transferred, as the brokerages they use handle this in the background without them needing to worry about it.

Initially, purchasing your first bitcoin was far from simple; identifying the optimal and safest approach wasn’t immediately clear. For most people, the first step (at least when I began exploring crypto in 2013) was to buy Bitcoin by directly sending a fiat bank wire to another person or meeting them in person to pay with physical cash. From there, you would upgrade to trading on a platform offering bilateral markets, where you could trade larger volumes of Bitcoin at lower fees. However, depositing your fiat currency on these platforms was — and in many cases still is — neither straightforward nor easy. Many platforms lacked strong banking relationships or operated in regulatory gray areas within the countries they were based in, which meant you couldn’t wire funds to them directly. Platforms devised workarounds, such as encouraging users to send fiat money directly to local agents, who would in turn issue cash vouchers on the platform's behalf. Alternatively, they might set up adjacent businesses that appeared to be unrelated to crypto to the bank account managers, thereby obtaining an account and directing users to transfer funds there instead.

Scammers capitalized on this friction and exploited it in various ways to steal fiat money. A trading platform could outright misrepresent the whereabouts of your money and then one day just vanish — poof — taking your hard-earned funds with it. And if you relied on third-party intermediaries to transfer fiat into or out of the crypto capital markets, these intermediaries might abscond with your money at any moment as well.

Due to the risks involved in transferring fiat money within the cryptocurrency capital markets, traders must have a detailed understanding of and trust in the cash flow operations of their trading counterparts. As funds flow through the banking systems of Hong Kong, Mainland China, and Taiwan (which I collectively refer to as Greater China), I learned how to manage global payments effectively.

Understanding how funds move within Greater China has helped me grasp how the leading Mandarin-speaking regions and international trading platforms (such as Bitfinex) conduct their business. This is crucial because all true innovations in cryptocurrency capital markets originate from Greater China. This holds especially true for stablecoins. Why this matter is significant will become apparent, so keep reading. The greatest success story among Western cryptocurrency trading platforms belongs to Coinbase, which launched in 2012. However, Coinbase’s innovation lay in securing and maintaining banking relationships in one of the most hostile markets toward financial innovation—Pax Americana (the American Empire). Beyond that, Coinbase is simply a very expensive cryptocurrency brokerage account, and that was all it took to make its early shareholders billionaires.

The reason I’m writing yet another lengthy piece on stablecoins is the massive success of Circle’s IPO. To be clear, Circle is vastly overvalued, but its price will continue to climb. This IPO marks the beginning of this round of stablecoin mania, not its end. After a stablecoin issuer goes public in some market (most likely in the U.S.), the bubble will burst. That issuer will use financial engineering, leverage, and dazzling theatrics to separate gullible investors from tens of billions in capital. As always, most people surrendering their valuable capital won’t understand the history of stablecoins and cryptocurrency payments, why the ecosystem evolved as it did, or what it means for which issuers will succeed. A very charismatic, seemingly reliable figure will take the stage, spew all sorts of nonsense, wave his (most likely male) arms around, and convince you to believe that the leveraged junk he’s peddling is about to dominate a multi-trillion-dollar stablecoin Total Addressable Market (TAM).

If you stop reading here, know that the only question you need to ask yourself when evaluating an investment in a stablecoin issuer is this: How will they distribute their product? To achieve large-scale distribution—by which I mean reaching millions of users at an acceptable cost—issuers must leverage the pipelines of cryptocurrency trading platforms, Web2 social media giants, or traditional banks. If they lack distribution channels, there’s no chance of success. If you cannot easily verify whether the issuer has authorization to push their product through one or more of these channels, run for the hills!

I hope my readers won’t burn their capital this way. By reading this article, they’ll be able to critically evaluate the stablecoin investment opportunities presented to them. This piece will explore the evolution of stablecoin distribution. First, I’ll discuss how and why Tether grew in Greater China, laying the groundwork for its conquest of stablecoin payments in the Global South. Then, I’ll delve into how the ICO boom created real product-market fit for Tether. After that, I’ll examine how Web2 social media giants attempted to enter the stablecoin game. Finally, I’ll briefly touch on how traditional banks will play a role. To reiterate, since I know that X (formerly Twitter) has made it difficult to engage with prose longer than a few hundred characters, if a stablecoin issuer or technology provider does not have a distribution channel through cryptocurrency trading platforms, Web2 social media giants, or traditional banks, they shouldn’t be in this business.

Cryptocurrency Banking in Greater China

Currently, successful stablecoin issuers such as Tether, Circle, and Ethena possess the capability to distribute their products through large cryptocurrency exchanges. I will focus on discussing the evolution of Tether, with a brief mention of Circle, to illustrate why it is nearly impossible for any new entrants to replicate their success.

In the early days, cryptocurrency trading was often overlooked. For instance, from 2014 to the late 2010s, Bitfinex held the crown as the largest global trading platform outside mainland China. At that time, Bitfinex was owned by a Hong Kong-based operational company that held various local bank accounts. This was fantastic for arbitrage traders like me living in Hong Kong, as I could almost instantly wire funds to the exchange. Directly across the street from my apartment in Sai Ying Pun was a cluster of local banks. I would physically walk between the banks, moving cash to reduce fees and minimize the time it took to receive funds. This was critical because it allowed me to turn over my capital once every weekday.

Meanwhile, on the mainland, the big three trading platforms—OKCoin, Huobi, and BTC China—each held multiple bank accounts with major state-owned banks. A bus ride to Shenzhen took only 45 minutes, and armed with my passport and basic Chinese language skills, I was able to open various local bank accounts. As a trader operating both in mainland China and Hong Kong, having banking relationships meant access to all of the global liquidity. I also had confidence that my fiat currency wouldn't disappear. By contrast, every time I wired funds to certain exchanges registered in Eastern Europe, I lived in fear because I didn't trust their banking corridors.

However, as cryptocurrency became more mainstream, banks began shutting down accounts. Every day, you had to monitor the operational status of each bank<>exchange relationship. This negatively impacted my trading profits, as the slower the funds moved between exchanges, the less I could earn through arbitrage. But what if you could transfer electronic dollars on a crypto blockchain rather than through traditional banking channels? Then dollars—the lifeblood of cryptocurrency capital markets both then and now—could move between exchanges nearly for free and on a 24/7 basis.

The Tether team partnered with Bitfinex’s original founders to create such a product. In 2015, Bitfinex enabled the use of Tether USD on its platform. At that time, Tether utilized the Omni protocol as a layer built on top of the Bitcoin blockchain, allowing Tether USD (USDT) to be sent between addresses. This was an early smart contract layer built on Bitcoin.

Tether allows certain entities to wire transfer U.S. dollars to its bank accounts, and in return, Tether mints USDT. USDT can then be sent to Bitfinex and used to purchase cryptocurrencies. Holy cow, that's freaking insane—why does it sound so exciting when some random trading platform offers this product?

Stablecoins, like all payment systems, only become valuable when a significant number of economically meaningful participants become nodes in the network. For Tether, this means that beyond Bitfinex, cryptocurrency traders and other major trading platforms need to use USDT to solve any real-world problems.

Everyone in Greater China faces the same predicament. Banks are shutting down the accounts of traders and trading platforms. On top of that, Asians want access to U.S. dollars because their local currencies are prone to sharp devaluations, high inflation, and low domestic bank deposit rates. For most Chinese citizens, gaining access to U.S. dollars and U.S. financial markets is extremely difficult, if not impossible. Therefore, Tether’s offering of a digital equivalent to the dollar—accessible to anyone with internet—has tremendous appeal.

The Bitfinex/Tether team capitalized on this trend. Jean-Louis van der Velde, Bitfinex's CEO since 2013, previously worked at a Chinese car manufacturer. He understands Greater China and worked to position USDT as the "crypto-minded Chinese person's preferred dollar-denominated bank account." While Bitfinex has never had a Chinese executive, it has built enormous trust between Tether and the Chinese cryptocurrency trading community. As a result, you can be certain that the Chinese trust Tether. Globally, in the Global South, overseas Chinese hold significant sway, as observed during the unfortunate trade war. As such, Tether essentially became the banking system for the Global South.

Simply having a large trading platform act as its founding distributor wasn’t enough to guarantee Tether’s success. The market structure evolved to the point where trading altcoins against USD became feasible only through USDT. Fast forward to 2017, during the peak of the ICO frenzy, Tether truly secured its product-market fit.

ICO Baby

August 2015 was a pivotal month: the People’s Bank of China (PBOC) issued a sharp devaluation of the yuan against the dollar, and Ether (the native currency of the Ethereum network) began trading. A macro and micro tectonic shift occurred simultaneously. This was the stuff of legends and ultimately drove the bull market from that point until December 2017. Bitcoin skyrocketed from $135 to $20,000; Ether soared from $0.33 to $1,410. When money printing kicks in, the macro environment always cheers it on. Chinese traders, being the marginal buyers of all cryptocurrencies (which back then mostly meant Bitcoin), played a crucial role. If they sensed instability in the yuan, Bitcoin would skyrocket. At least, that’s how the story went back then.

The shock devaluation by the People's Bank of China intensified capital flight. Screw the RMB—give me dollars, cryptocurrencies, gold, foreign real estate, and so on. By August 2015, Bitcoin had plummeted from its all-time high of $1,300 before the Mt. Gox bankruptcy in February 2014 to as low as $135 on Bitfinex earlier that month. This plunge coincided with China’s largest OTC Bitcoin trader, Zhao Dong, experiencing the biggest-ever margin call on Bitfinex, amounting to a staggering 6,000 BTC. Rumors of Chinese capital flight fueled a rally; from August to October 2015, BTCUSD more than doubled.

The micro always has the most fun. The surge in altcoins truly began with the Ethereum mainnet going live on July 30, 2015, along with its native token, ether. Poloniex was the first trading platform to allow ether trading, a visionary move that propelled it to a starring role in 2017. Amusingly, Circle bought Poloniex at the peak of the ICO boom and nearly went under. Years later, they sold the platform at a massive loss to the esteemed His Majesty Justin Sun.

Poloniex and other Chinese exchanges capitalized on the emerging altcoin market by building crypto-only trading platforms. Unlike Bitfinex, these platforms didn’t engage with fiat banking systems. You could only deposit and withdraw cryptocurrencies to trade other cryptocurrencies. However, this setup wasn’t ideal because traders instinctively wanted to trade altcoins against the US dollar. Without fiat deposit and withdrawal capabilities, how could exchanges like Poloniex and Yunbi (formerly China’s largest ICO platform before being shut down by the People's Bank of China in the fall of 2017) offer such trading pairs? Enter USDT!

With the Ethereum mainnet live, USDT could now move across the network using the ERC-20 standard smart contract. Any trading platform supporting Ethereum could easily support USDT. Thus, crypto-only trading platforms were able to offer altcoin/USDT pairs to cater to market demand. This also enabled digital dollars to flow seamlessly between major exchanges (e.g., Bitfinex, OKCoin, Huobi, BTC China) — the gateways for capital entering the ecosystem — and more speculative venues (e.g., Poloniex and Yunbi) — where gamblers did their thing.

The ICO frenzy gave birth to the behemoth that became Binance. CZ (Changpeng Zhao), after a personal dispute with CEO Star Xu, quit his role as CTO of OKCoin in a fit of rage. Following his departure, CZ founded Binance, aiming to be the world’s largest altcoin trading platform. Binance had no bank accounts, and even to this day, I’m not sure if you can directly deposit fiat into Binance without going through certain payment processors. Binance leveraged USDT as its banking conduit, quickly establishing itself as the go-to venue for trading altcoins, and the rest is history.

From 2015 to 2017, Tether achieved product-market fit and built a moat to fend off future competitors. Due to the Chinese trading community's trust in Tether, USDT was accepted across all major trading venues. At this point, it wasn't being used for payments, but it was the most efficient way to move digital dollars both within the cryptocurrency capital markets and between them and external markets.

By the late 2010s, trading platforms found it increasingly difficult to maintain bank accounts. Taiwan became the de facto crypto banking hub for all the largest non-Western trading platforms, controlling the lion’s share of global crypto trading liquidity. This was because several Taiwanese banks allowed these platforms to open USD accounts and somehow maintained correspondent banking relationships with major U.S. money-center banks like Wells Fargo. However, as these correspondent banks demanded Taiwanese banks purge all crypto customers or lose access to the global dollar network, this arrangement began to crumble. As a result, by the late 2010s, USDT became the only viable avenue for large-scale dollar transfers in the cryptocurrency capital markets. This cemented its position as the dominant stablecoin.

Western players, many of whom had raised funds on the narrative of crypto payments, scrambled to create competitors to Tether. The only one to survive at scale was Circle's USDC. However, Circle was at a clear disadvantage because it was a U.S.-based company headquartered in Boston (ugh!), disconnected from the core of cryptocurrency trading and usage—Greater China. The unspoken message from Circle was, and arguably still is: China = scary; U.S. = safe. This message is laughable because Tether has never had ethnically Chinese executives, yet it always has been—and still is—associated with Northeast Asian markets, and now increasingly with the Global South.

Social Media Wants In

The stablecoin frenzy is nothing new. In 2019, Facebook (now Meta) decided it was time to launch its own stablecoin: Libra. The appeal was clear—Facebook, through Instagram and WhatsApp, could offer a dollar banking account to the entire world outside of China. Here’s what I wrote about Libra back in June 2019:

The event horizon has passed. With Libra, Facebook has entered the digital asset industry. Before I dive into my analysis, let’s get one thing straight: Libra is neither decentralized nor censorship-resistant. Libra is not a cryptocurrency. Libra will destroy all stablecoins, but who the hell cares. I won’t shed a single tear for the projects that, for some reason, attributed value to fiat money market funds created by obscure sponsors and deployed on blockchains.

Libra might lead to the decline of commercial and central banks. It could reduce their utility to nothing more than regulated digital fiat currency warehouses—a role they arguably deserve in the digital age. Stablecoins offered by Libra and other Web2 social media companies could have stolen the show. They have the largest customer bases and almost complete access to users' preferences and behavioral data.

Eventually, U.S. political institutions stepped in to protect traditional banks from real competition in payments and foreign exchange markets. At the time, I said this: I have little sympathy for U.S. Congresswoman Maxine Waters and her idiotic statements and behavior in the House Financial Services Committee. But the alarm raised by her and other government officials was not rooted in altruistic concerns for their constituents. Instead, it stemmed from their fear of the disruption of the financial services industry—a sector that lines their pockets and secures their positions. The government's rush to condemn Libra revealed that the project contained some inherent potential for positive societal impacts.

That was then. But now, the Trump administration is poised to allow competition in financial markets. Trump's 2.0 administration holds a grudge against the banks that de-platformed his entire family business during President Biden's tenure. As a result, social media companies are reviving plans to natively embed stablecoin technology within their platforms.

This is great news for social media company shareholders. These firms could completely absorb traditional banking, payments, and forex revenue streams. However, it's a bad sign for any entrepreneurs looking to create new stablecoins, as social media companies will likely build everything internally to support their stablecoin endeavors. Investors in new stablecoin issuers should be wary of promoters boasting about partnerships with social media companies or distribution through their platforms.

Other tech companies are also joining the stablecoin trend. Social media giant X, Airbnb, and Google are all reportedly in early discussions about integrating stablecoins into their business operations. In May, Fortune reported that Mark Zuckerberg's Meta—previously unsuccessful in its blockchain ventures—has been in talks with cryptocurrency companies about introducing stablecoins for payments. – Source: Fortune

My piece, "Libra: Zuck Me Gently": https://blog.bitmex.com/libra-zuck-me-gently/

An Extinction-Level Event for Traditional Banks

Whether banks like it or not, they will no longer be able to continue earning billions of dollars annually for simply holding and transferring digital fiat currency, nor will they be able to charge the same fees when conducting foreign exchange transactions. I recently spoke to a board member of a major bank about stablecoins, and they bluntly said, "We’re screwed." They believe stablecoins are unstoppable, pointing to Nigeria as proof. I was previously unaware of USDT's penetration in the country, but they informed me that one-third of Nigeria's GDP operates via USDT—even as the central bank aggressively attempts to ban cryptocurrency.

They continued to point out that since adoption is bottom-up rather than top-down, regulators are powerless to stop it. By the time regulators notice and attempt to take action, it’s already too late because adoption has become widespread among the general public.

Even though there are people like them in senior positions at every major traditional bank, the banking organism doesn’t want to change, as this would mean the death of many of its "cells"—namely, its employees. Tether employs fewer than 100 people, yet is able to leverage blockchain technology to perform the critical functions of the entire global banking system. By comparison, consider JPMorgan, the world’s best-run commercial bank, which employs a little over 300,000 people.

Banks are at a critical juncture—adapt or die. But what complicates their efforts to streamline bloated workforces and provide the products the global economy needs are prescriptive regulatory requirements regarding the number of people that must be employed to perform certain functions. For example, my experience at BitMEX when attempting to open a Tokyo office and obtain a cryptocurrency trading license. The management team debated whether to open a local office and acquire the license to conduct a limited set of crypto trading activities outside of our core derivatives business. The cost of regulatory compliance was the issue because you simply cannot use technology to meet the requirements. Regulators stipulated that for each listed compliance and operational function, you had to hire one person with the appropriate level of experience. I don’t remember the exact figure, but I believe it required around 60 people annually, each earning at least $80,000, totaling $4.8 million a year to perform all prescribed functions. All that work could have been automated for under $100,000 annually through a SaaS provider. And let me add that the errors made this way would have been far fewer than hiring error-prone humans. Oh… and you can’t fire anyone in Japan unless you shut down the entire office. Ouch!

Banking regulations are effectively a job-creation program for over-educated populations, and this is a global issue. They are over-educated in nonsense, rather than in what truly matters. They are just expensive box-tickers. Although banking executives would love to cut headcount by 99% and thereby boost productivity, as regulated entities, they are unable to do so.

Stablecoins will eventually be adopted by traditional banks, but only in a limited form. They will run two parallel systems: the old, slow, and expensive system, and the new, fast, and cheap one. How much they are allowed to truly embrace stablecoins will be dictated by prudential regulators on an office-by-office basis. Remember, JPMorgan is not a single organism but a collection of country-specific instances, each under distinct regulatory oversight. Data and personnel often cannot be shared across instances, hindering firm-wide tech-driven rationalization. Good luck, you bastard bankers; regulation may have shielded you from Web2 disruptions, but it will ensure your demise under Web3.

These banks will definitely not collaborate with third parties on technology development or the distribution of stablecoins. All of this will be completed internally. In fact, regulators might explicitly prohibit such partnerships. Therefore, for entrepreneurs looking to build their own stablecoin technologies, this distribution channel is effectively closed. I don’t care how many Proofs of Concept a particular issuer claims to be conducting with established banks—they will never lead to industry-wide adoption by banks. So, if you’re an investor and a stablecoin issuer promoter claims they will partner with traditional banks to bring their product to market, run for the hills.

Now that you understand the challenges new entrants face in achieving large-scale distribution for their stablecoins, let’s discuss why they’re attempting this impossible task anyway: because being a stablecoin issuer is extremely lucrative.

The USD Interest Rate Game

The profitability of stablecoin issuers depends on the amount of available Net Interest Margin (NIM). The issuer’s cost base consists of the fees paid to holders, while revenue comes from returns on cash investments in sovereign debt such as treasury bills (like Tether and Circle) or some form of cryptocurrency market arbitrage (like basis trades on spot holdings, as done by Ethena). The most profitable issuer, Tether, pays nothing to USDT holders or depositors and earns the entire NIM based on short-term T-bill yield levels.

Tether is able to retain its full NIM because it boasts the strongest network effects, and its customers often lack alternative U.S. dollar banking options. Potential users don’t choose other USD-pegged stablecoins because USDT is universally accepted throughout the Global South. One personal example comes from how I pay during the ski season in Argentina. I spend a few weeks skiing in rural Argentina every year. When I first visited Argentina in 2018, it was a hassle to pay vendors who didn’t accept foreign credit cards. But by 2023, USDT had taken over. My guides, drivers, and chefs all accepted USDT as payment. This was fantastic because, even if I wanted to, I couldn’t pay in pesos—bank ATMs limited withdrawals to an equivalent of $30 per transaction with a 30% fee on top. What a damn scam—long live Tether! For my local staff, receiving digital dollars stored on a crypto exchange or in their mobile wallets—and then easily using them to purchase domestic or international goods and services—is truly a game-changer.

Tether’s profitability is the best advertisement for social media companies and banks considering launching their own stablecoins. Both groups don’t need to pay for deposits because they already possess rock-solid distribution networks, which means they capture the entire NIM. Therefore, this could become a massive profit center for them.

[Chart Caption: Tether's Estimated Annual Earnings (in Billions of USD) vs. Time (Years)]

Tether earns more annually than what’s estimated in this chart. The chart assumes that all AUM (Assets Under Management) are invested in 12-month short-term Treasury bills. The key takeaway is to highlight how Tether’s earnings are highly correlated with U.S. interest rates. You can see the significant jump in earnings from 2021 to 2022, which was driven by the Federal Reserve raising rates at the fastest pace since the early 1980s.

This is a table I published in the article "Dust on Crust Part Deux," showing, with 2023 data, that Tether is the most profitable bank in the world on a per capita basis.

Distributing stablecoins can be very costly unless you are affiliated with an exclusive trading platform, a social media company, or a traditional bank. The founders of Bitfinex and Tether are the same group of people. Bitfinex has millions of customers, so right out of the gate, Tether inherited millions of customers. Tether doesn’t have to pay for distribution because it is partially owned by Bitfinex, and all altcoins trade against USDT.

Circle and every other stablecoin issuer that came afterward must pay distribution fees to trading platforms in some form. Social media companies and banks would never collaborate with a third party to build and operate their stablecoin; therefore, crypto trading platforms are the only option. Crypto trading platforms can build their own stablecoins, as Binance tried with BUSD, but in the end, many trading platforms realize that building a payment network is too challenging and distracts from their core business. Trading platforms require either equity in the issuer or a share of the issuer’s NIM (Net Interest Margin) to allow trading of the stablecoin. But even in this case, all crypto/USD trading pairs will likely continue to be paired against USDT, meaning Tether will remain the market leader. This is why Circle had to cozy up to Coinbase. Coinbase is the only major trading platform not in Tether’s orbit since its customers are primarily Americans and Western Europeans. Before U.S. Commerce Secretary Howard Lutnick endorsed Tether and enabled Cantor Fitzgerald to provide banking services to it, Tether had been lambasted in Western media as some sort of foreign-made scam. Coinbase’s survival depends on favorable treatment from the U.S. political establishment, so it had to find an alternative. As a result, Jeremy Allaire assumed the position and acquiesced to Brian Armstrong’s demands. [1]

The deal is as follows: Circle pays 50% of its net interest income to Coinbase in exchange for distribution across the entire Coinbase network. Yacht acquired (Yachtzee)!!

New stablecoin issuers are in an extremely tough spot. There are no open distribution channels. All major cryptocurrency trading platforms either own issuers or are in partnerships with existing issuers like Tether, Circle, and Ethena. Social media companies and banks are developing their own solutions. As a result, a new issuer would have to hand over a significant portion of their NIM to depositors in an attempt to pry them away from the more widely adopted stablecoins. Ultimately, this is why by the end of this cycle, investors will likely lose their shirts on nearly every publicly listed stablecoin issuer or technology provider. But that won’t stop the party from going on; let’s dig into why the huge profit potential of stablecoins clouds investors’ judgment.

Narrative

There are three business models responsible for generating crypto wealth beyond just holding Bitcoin and other altcoins. They are mining, running trading platforms, and issuing stablecoins. Take my example: my wealth comes from owning BitMEX (a derivatives trading platform), and the largest position and top-performing absolute-return asset in my family office, Maelstrom, is Ethena, the issuer of the USDE stablecoin. In less than a year, Ethena grew from zero to becoming the third-largest stablecoin in 2024.

The unique thing about the stablecoin narrative is that it has the largest and most obvious Total Addressable Market (TAM) for the TradFi idiots. Tether has already demonstrated that an on-chain bank that merely holds people’s money and permits effortless transfers can become the most profitable financial institution per capita ever. Tether has succeeded despite legal warfare waged by all levels of the U.S. government. Now imagine what would happen if U.S. authorities were at least non-hostile to stablecoins and allowed them a degree of operational freedom in competing for deposits with traditional banks? The profitability potential is bonkers.

Now, consider the current setup: U.S. Treasury staffers estimate that stablecoin AUC (Assets Under Custody) could grow to $2 trillion. They also see dollar-pegged stablecoins as the spearhead for advancing/maintaining dollar hegemony while also acting as buyers of U.S. government debt that are insensitive to treasury bond prices. Whoa, that’s some serious macro tailwind. As a juicy bonus, keep in mind that Trump harbors a grudge against large banks for de-platforming him and his family after his first presidential term. He has no intention of obstructing the free market from providing better, faster, and safer ways to hold and transfer digital dollars. Even his sons have jumped into the stablecoin game.

This is why investors are drooling over investable stablecoin projects. Before I delve into my predictions on how this narrative could translate into money-burning opportunities, let me first define the criteria for an investable project.

The issuer in question must be able to go public on the U.S. stock market in some form. Secondly, the issuer must offer a product for moving digital dollars—none of that foreign crap; this is ’Murica. That’s it. As you can see, there’s a lot of creative space to play with here.

The Road to Ruin

The most obvious issuer to IPO and kick off the party is Circle. They are a U.S. company and the second largest stablecoin issuer by AUC. Circle is extremely overvalued at this stage. Remember, Circle hands over 50% of its interest income to Coinbase. Yet, Circle’s market cap is 39% of Coinbase’s. Coinbase is a one-stop crypto financial shop with multiple profitable business lines and tens of millions of customers worldwide. Circle excels at fellatio—a very valuable skill, to be sure—but they still need to step up their game and take care of the step-children.

Should you short Circle? Absolutely not! Perhaps if you believe the Circle/Coinbase ratio is out of whack, you should go long on Coinbase. While Circle is overvalued, when we look back at the stablecoin frenzy years down the road, many investors will wish they had simply held Circle. At least they’ll still have some capital left.

The next wave of IPOs will feature Circle copycats. Relative to Circle, these stocks will be even more overvalued in terms of their price-to-AUC ratios. Absolutely speaking, they will never surpass Circle in revenue generation. Promoters will tout meaningless traditional finance credentials in an attempt to convince investors that they have the relationships and capability to disrupt traditional banks in the global dollar payments landscape by working with them or leveraging their distribution channels. The scams will succeed; issuers will raise an obscene amount of money. For those of us who’ve been in the trenches for some time, watching these suit-and-tie clowns dupe the public into investing in their garbage companies will be downright hilarious.

After this first wave, the scale of the scams will entirely depend on stablecoin regulatory frameworks adopted in the U.S. The more freedom issuers are granted in terms of the assets backing stablecoins and whether or not they can pay yields to holders, the more financial engineering and leverage can be used to dress up the crap. If you assume a lightly-regulated or hands-off regime for stablecoins, you might witness a revival of Terra/Luna-esque schemes, where some issuer concocts a scammy algorithmic stablecoin Ponzi. Issuers could pay high yields to holders, with those yields coming from leverage applied to certain underlying asset holdings.

As you can see, I don’t have much to say about the future. There’s no real future because the on-ramps for new participants are closed. Get this idea through your thick skull. Trade this pile of crap like it’s a hot potato. But don’t short it. These new stocks will rip the faces off of shorts. The macro and micro are in sync. As former Citibank CEO Chuck Prince famously said when asked about his company’s involvement in subprime mortgages: "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing."

I’m not sure how Maelstrom will dance, but if there’s money to be made, we’ll go make it.

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