Author: Arthur Hayes, founder of BitMEX; Translated by: AIMan@ Jinse Finance
While Circle CEO Jeremy Allaire has had to take over the role at the behest of Coinbase CEO Brian Armstrong, I hope that for those of you who trade anything “stablecoin” related in the public stock market, this post will prevent you from rapidly swelling up due to promoters shoving shit up the asses of clueless gamblers. It is with this opening statement that I will begin to explore the past, present, and future of the stablecoin market.
Professional cryptocurrency traders are somewhat unique in the capital markets because they must have a deep understanding of how money moves through the global fiat banking system if they are to survive and thrive. Stock investors or forex traders, on the other hand, do not need to understand how stocks and/or currencies are settled and transferred. Instead, they must rely on the services of a broker, who quietly provides this service in the background.
First, buying your first Bitcoin isn’t easy; it’s unclear which options are best and safest. Most people’s first step, at least when I started getting into crypto in 2013, was to buy Bitcoin from someone else via direct bank wire or cash payment. After that, you can gradually transition to trading on exchanges that offer two-sided markets, where you can trade larger amounts of Bitcoin with lower fees. But getting your fiat currency into an exchange isn’t easy. Many exchanges lack solid partnerships with banks or are in a regulatory gray area in their countries, which means you can’t wire funds directly to the exchange. Exchanges come up with workarounds, such as directing users to transfer fiat directly to local agents who issue cash vouchers on the exchange, or setting up an affiliated business that appears to the bank account opening staff to have nothing to do with crypto to obtain an account and direct users to transfer funds to that business.
Scammers take advantage of this friction and steal fiat in a variety of ways. The exchange itself may lie about where the funds are going, and then one day…poof—the website disappears along with your hard-earned fiat. If fiat is transferred in and out of the crypto capital markets through third-party intermediaries, these people can abscond with the funds at any time.
Because there are risks in transferring fiat money in crypto capital markets, traders must understand and trust the cash flow operations of their counterparties in detail. I received a crash course in global payments as funds moved within the banking systems of Hong Kong, mainland China, and Taiwan (I refer to the region as Greater China).
Understanding how money flows in Greater China helps me understand how the business of major Chinese and international exchanges, such as Bitfinex, works. This is critical because all the real innovation in the crypto capital markets is happening in Greater China . This is even more true for stablecoins. Read on and you’ll understand why this is so important. The most successful example of a crypto exchange in the West is Coinbase, which was founded in 2012. However, Coinbase’s innovation was that it established and maintained a banking relationship in one of the most hostile markets to financial innovation: Pax Americana. Otherwise, Coinbase would have been little more than an overpriced crypto brokerage account , which was all it needed to propel its early shareholders to billionaire status.
The reason I’m writing another article about stablecoins is because of the huge success of the Circle IPO. To be clear, Circle is grossly overvalued, but its price will continue to rise. This listing marks the beginning of this round of stablecoin craze, not the end. The bubble will burst after a stablecoin issuer goes public on the public markets (most likely in the United States) and uses financial engineering, leverage, and superb showmanship to siphon tens of billions of dollars of capital away from fools. As usual, most of the people willing to give up precious capital don’t understand the history of stablecoins and cryptocurrency payments, why the ecosystem has evolved the way it has, and what it means for which issuers will succeed or fail. A highly charismatic and charismatic figure will take the stage, spout all kinds of nonsense, wave his (most likely male) hands, and explain to you why this leveraged shit he’s selling is about to corner the trillion-dollar stablecoin total addressable market (TAM).
If you stop reading here, the only question you need to ask yourself when evaluating an investment in a stablecoin issuer is: How will they distribute their product? In order to achieve distribution at scale, that is, to be able to reach millions of users at an affordable price, issuers must rely on channels such as cryptocurrency exchanges, Web2 social media giants, or traditional banks. Without distribution channels, they have no chance of success. If you can't easily verify that the issuer has the right to promote the product through one or more channels, then walk away!
Hopefully, my readers won’t waste their money in this way because they read this article and are able to think critically about the stablecoin investment opportunity that lies before them. This article will discuss the evolution of stablecoin distribution. First, I will discuss why and how Tether developed in Greater China, which laid the foundation for their conquest of stablecoin payments in the global south. Then, I will discuss the boom in Initial Coin Offerings (ICOs) and how this created a true product-market fit for Tether. I will move on to discuss the first attempts by Web2 social media giants to enter the stablecoin space. Finally, I will talk about how traditional banks will get involved. Again, because I know X makes an article longer than a few hundred characters hard to read, if a stablecoin issuer or technology provider can’t distribute through cryptocurrency exchanges, Web2 social media giants, or traditional banks, then they have no business.
Crypto Banking in Greater China
Currently, successful stablecoin issuers Tether, Circle, and Ethena all have the ability to distribute their products through large cryptocurrency exchanges. I will focus on the development of Tether and briefly introduce Circle to illustrate that it is almost impossible for any new entrant to replicate their success.
At first, cryptocurrency trading was overlooked. For example, from 2014 until the late 2010s, Bitfinex was the largest global exchange outside of China. At the time, Bitfinex was owned by a Hong Kong operating company that had multiple local bank accounts. This was great for an arbitrage trader like me living in Hong Kong because I could wire funds to the exchange almost instantly. There was a street across from my apartment in Sai Ying Pun where almost all the local banks were located. I would shuttle between banks with cash to reduce fees and collection time. This was very important because it allowed me to turn over funds once a day during the weekdays.
Meanwhile, in mainland China, the three largest exchanges, OKCoin, Huobi, and Bitcoin China, all opened multiple bank accounts at large state-owned banks. It took me 45 minutes to get to Shenzhen by bus, and with my passport and basic Chinese skills, I opened multiple local bank accounts. As a trader, I have access to all the liquidity in the world by having connections with banks in mainland China and Hong Kong. I am also sure that my fiat currency will not be lost. In contrast, every time I send money to certain Eastern European exchanges, I feel fear because I don't trust their banking system.
But as cryptocurrencies grew in popularity, banks started closing accounts. You had to check the health of each bank-exchange relationship every day. This was very detrimental to my profits as a trader; the slower money moved between exchanges, the less money I made from arbitrage. But what if you could move electronic dollars on a blockchain, rather than through traditional banking channels? Then the dollar, which was and is the lifeblood of the crypto capital markets, could flow between exchanges 24/7 for almost free.
The Tether team worked with the founders of Bitfinex to develop such a product. In 2015, Bitfinex allowed the use of Tether USD on its platform. At the time, Tether used the Omni protocol as a layer on the Bitcoin blockchain for sending Tether USD (USDT) between addresses. This was a prototype smart contract layer built on top of Bitcoin.
Tether allows certain entities to wire USD to a bank account, and in return, Tether mints USDT. USDT can be sent to Bitfinex to buy cryptocurrencies. Holy shit, why is there so much excitement about only one exchange offering this product?
Stablecoins, like all payment systems, only become valuable when a large number of participants with economic influence become network nodes. In the case of Tether, in addition to Bitfinex, cryptocurrency traders and other large exchanges need to use USDT to solve practical problems.
All of Greater China faces the same dilemma. Banks are closing accounts of traders and exchanges. Moreover, Asians are eager to get dollars because their national currencies are prone to shock devaluations, inflation is high, and domestic bank deposit rates are low. For most Chinese, access to dollars and trading opportunities in U.S. financial markets is difficult or even impossible. Therefore, Tether, a digital version of the dollar that is available to anyone with an internet connection, is extremely attractive.
The Bitfinex/Tether team capitalized on this. Jean-Louis van der Velde, Bitfinex CEO since 2013, worked for a Chinese automaker. He knows Greater China and has worked to establish USDT as the go-to USD bank account for Chinese crypto enthusiasts. Bitfinex, while never having an executive of Chinese descent, has built tremendous trust between Tether and the Chinese crypto trading community. So you can rest assured that the Chinese trust Tether. And throughout the Global South, where overseas Chinese are having a tough time just as the citizens of the Empire are finding out in this doomed trade war, banks in the Global South are provided by Tether.
Just because Tether initially had only one large exchange as a distributor, it did not ensure its success. The market structure has changed so much that trading Altcoin against the dollar is only possible using USDT. Let’s go back to 2017, at the peak of the ICO craze, when Tether really solidified its product-market fit.
IC0 treasure craze
August 2015 was a very important month, as the People’s Bank of China (PBOC) conducted a shock devaluation of the RMB against the US dollar, and ETH, the native currency of the Ethereum network, began trading. The macro and micro levels developed in sync. This was legendary and ultimately drove the bull run from then to December 2017. Bitcoin soared from $135 to $20,000; ETH soared from $0.33 to $1,410.
When money is printed, it's always good for the macro economy. Because Chinese traders are the marginal buyers of all cryptocurrencies, which at the time was just Bitcoin. If they get nervous about the yuan, Bitcoin will soar. At least that was the case at the time.
The shock devaluation by the People’s Bank of China exacerbated capital flight. Give me dollars, cryptocurrencies, gold, foreign real estate, etc. By August 2015, the price of Bitcoin had fallen from its all-time high of $1,300 before the collapse of Mt. Gox in February 2014 to a low of $135 on Bitfinex earlier that month, when Zhao Dong, China’s largest over-the-counter Bitcoin trader, suffered the largest margin call in history on Bitfinex, a 6,000-BTC margin call. The argument of Chinese capital flight triggered a surge in the price of Bitcoin; from August to October 2015, Bitcoin/USD more than tripled.
The funniest things are always in the small. The proliferation of Altcoin really began after the launch of the Ethereum mainnet and its native currency, Ether, on July 30, 2015. Poloniex was the first exchange to allow Ether trading, and it was this foresight that made them the industry leader in 2017. Funny enough, Circle almost went bankrupt when they acquired Poloniex at the peak of the ICO market. Years later, they sold the exchange to His Royal Highness Justin Sun at a huge loss.
Poloniex and other Chinese exchanges have seized on the emerging Altcoin market by launching crypto-only trading platforms. Unlike Bitfinex, these platforms don’t need to interface with the fiat banking system. You can only deposit and withdraw cryptocurrencies and trade them with other cryptocurrencies. But this is not the best solution, as traders instinctively want to trade Altcoin/USD pairs. Without the ability to accept fiat deposits and withdrawals, how can exchanges like Poloniex and Yunbi (which was the largest ICO platform in China until the People’s Bank of China stopped it in the fall of 2017) offer these trading pairs? USDT is here!
After the Ethereum mainnet is launched, USDT can be circulated on the network using ERC-20 standard smart contracts. Any exchange that supports Ethereum can also easily support USDT. Therefore, pure cryptocurrency trading platforms can provide Altcoin/USDT trading pairs to meet market demand. This also means that digital dollars can flow seamlessly between mainstream exchanges such as Bifinex, OKCoin, Huobi, Bitcoin China (capital enters the ecosystem) and more interesting and speculative platforms such as Poloniex and Yunbi (vulgar people play here).
The ICO craze gave birth to what would become the giant Binance. A few years ago, CZ resigned as CTO due to a personal dispute with OKCoin CEO Star Xu. CZ left and founded Binance with the goal of becoming the world's largest shit coin exchange. Binance has no bank account, and to this day, I don't know if you can deposit fiat directly into Binance without going through a payment processor. Binance used USDT as its bank transfer channel and quickly became the preferred platform for trading shit coin, and the rest is history.
From 2015 to 2017, Tether achieved product-market fit and built a moat against future competitors. Due to the trust of the Chinese trading community in Tether, USDT was gradually accepted by all mainstream trading platforms. At that time, USDT was not used for payment, but it was the most efficient way to transfer digital dollars in and out of the cryptocurrency capital market and within it.
By the late 2010s, exchanges were having great difficulty maintaining bank accounts. Taiwan became the de facto crypto banking hub for all large non-Western exchanges, which control most of the global cryptocurrency trading liquidity. This was because some Taiwanese banks allowed exchanges to open USD accounts and somehow maintained correspondent banking relationships with large US money center banks such as Wells Fargo. However, this arrangement began to unravel as correspondent banks demanded that these Taiwanese banks expel all cryptocurrency customers or lose access to global USD markets. As a result, by the late 2010s, USDT became the only way for USD to flow at scale in the cryptocurrency capital markets. This solidified its position as the dominant stablecoin.
Many Western players have raised funds and created Tether competitors using crypto payments as a selling point. The only company that has survived at scale is Circle's USDC. However, Circle is at a distinct disadvantage as it is a US company based in Boston (duh!) with no connection to the core of cryptocurrency trading and use in Greater China. Circle's unspoken message is: China = scary; US = safe. This message is ironic because Tether has never had a Chinese executive, yet it has always been associated with the Northeast Asian market and now the Global South.
Social media giants want in
The stablecoin craze has been around for a long time. In 2019, Facebook (now called Meta) decided to launch its own stablecoin, Libra. The appeal of Libra is that Facebook can provide US dollar bank accounts to global users except China through Instagram and Whatsapp. Here is an article I wrote about Libra in June 2019:
The event horizon has passed. Facebook is entering the digital asset industry with Libra. Before I start my analysis, let me be clear: Libra is neither decentralized nor censorship-resistant. Libra is not a cryptocurrency. Libra will destroy all stablecoins, but who cares? I don’t feel bad for projects that somehow believe there is value in some unheard-of sponsor creating a blockchain-based fiat market fund.
Libra could put commercial banks and central banks in a difficult position. It could reduce their role to a regulated digital fiat currency warehouse. And that is exactly what these institutions should be expected to do in the digital age.
Stablecoins from Libra and other Web2 social media companies should have stolen the show. They have the most customers and nearly complete information about their preferences and behaviors.
Finally, US politicians are taking action to protect traditional banks from real competition in payments and foreign exchange. Here’s what I said at the time:
I have no love for the foolish comments and actions of U.S. Representative Maxine Waters on the U.S. House Financial Services Committee. But her and other government officials’ concerns are not based on altruism for their subordinates, but rather on the disruption of the financial services industry that has enriched them and kept them in power. The fact that government officials were so quick to sound the alarm about Libra speaks to the potential positive value of the project for human society.
That was in the past, but now the Trump administration will allow competition in financial markets. Trump 2.0 has no love for the banks that de-banked his entire family during the administration of US President Biden. As a result, social media companies are restarting projects to embed stablecoin technology natively into their platforms.
This is good news for shareholders of social media companies. These companies can completely cannibalize traditional banking systems, payment and foreign exchange revenue sources. However, it is bad news for any entrepreneur who wants to create a new stablecoin, because social media companies will build everything needed to support their stablecoin business on their own. Investors in emerging stablecoin issuers must be careful to see if their promoters claim to be working with or distributing through any social media companies.
Other tech companies have also jumped on the stablecoin bandwagon. Social media platform X, Airbnb, and Google are all in preliminary discussions about integrating stablecoins into their business operations. In May, Fortune reported that Mark Zuckerberg’s Meta (which has tried blockchain technology in the past but failed) is in talks with cryptocurrency companies to introduce stablecoin payment solutions.
——Source: Fortune
Traditional Bank Extinction Event
Whether banks like it or not, they will no longer be able to continue to earn billions of dollars in revenue each year by holding and transferring digital fiat currencies, nor will they be able to earn the same fees by conducting foreign exchange transactions. I recently talked to a board member of a large bank about stablecoins, and they said "we are screwed". They believe that stablecoins are unstoppable and use the Nigerian case as an example. I don't know the extent of USDT penetration in Nigeria, but they told me that even after the Nigerian Central Bank tried very seriously to ban cryptocurrencies, a third of Nigeria's GDP was still settled in USDT.
They go on to point out that because adoption is bottom-up rather than top-down, regulators are powerless to stop it. By the time regulators notice and try to take action, it is too late because adoption has already become widespread among the population.
Even though every large traditional bank has people like them in senior positions, the banking organism does not want to change because it means the death of many cells (i.e. employees). Tether has less than 100 employees, but has been able to scale using blockchain technology to perform key functions for the entire global banking system. In contrast, JP Morgan, the world's best-run commercial bank, has more than 300,000 employees.
Banks are facing a critical moment – adapt or perish. However, their efforts to streamline their bloated workforces and provide the products needed by the global digital economy are further complicated by how many people must be hired to perform certain functions. Take my experience at BitMEX, when I was trying to open an office in Tokyo and obtain a license to trade cryptocurrencies. The management team considered whether they should open a local office and obtain a license to conduct some limited types of cryptocurrency trading in addition to the core derivatives business. The cost of complying with regulations was an issue because you couldn’t use technology to meet the requirements. The regulator stipulated that for each compliance and operational function listed, you had to hire a person with the appropriate level of experience. I don’t remember the exact number, but I think it would have taken about 60 people to perform all the required functions, each making at least $80,000 per year, totaling $4.8 million per year. All of this work could have been automated for less than $100,000 per year in SaaS vendor fees. I would also add that this would have resulted in fewer mistakes than hiring people who are prone to making mistakes. Oh… and in Japan, you can’t fire anyone unless you close the entire office. Oops!
The problem worldwide is that banking regulation is nothing more than a job scheme for an overeducated populace. Their education is full of bullshit, not what really matters. They are just high paid guys punching the clock. As much as bank executives would like to cut 99% of their workforce and increase productivity, as the regulated institutions, they can't do that.
Stablecoins will eventually be adopted in limited forms in traditional banks. They will be running two systems at once: the old slow and expensive one and the new fast and cheap one. The extent to which they are actually allowed to adopt stablecoins will be determined by the prudential regulators in each office. Remember, JPMorgan is not a single institution, but rather its branches in each country are regulated differently. Data and people are often not shared across branches, which hinders technology-driven rationalization across the company. Good luck, asshole bankers, regulation protects you from Web2 but will kill your survival in Web3.
These banks will certainly not work with third parties for the technical development or distribution of stablecoins. They will do all of this on their own. In fact, regulators may explicitly prohibit this. Therefore, the bank distribution channel is closed to entrepreneurs who build their own stablecoin technology. I don’t care how many proofs of concept an issuer claims to be working on for a traditional bank. They will never lead to full bank adoption. So if you are an investor, if a promoter of a stablecoin issuer claims that they will work with a traditional bank to bring their product to market, run.
Now that you understand the difficulties new entrants face in achieving scale in stablecoin issuance, let’s explore why they would attempt the impossible. Because being a stablecoin issuer is incredibly lucrative.
US dollar interest rate trend
The profitability of a stablecoin issuer is determined by the amount of its net interest income (NIM). The issuer's cost basis is the fees paid to holders, and the income comes from the return on cash investments in Treasury bills (such as Tether and Circle) or arbitrage in some cryptocurrency markets, such as cash holding transactions (such as Ethena). The most profitable issuer, Tether, does not pay any fees to USDT holders or depositors, but earns all NIM based on the yield level of Treasury bills (T-bill).
Tether is able to keep all of its net interest income (NIM) because it has the strongest network effect and its customers have no choice but to hold a USD bank account. Potential customers will not choose another USD stablecoin other than USDT because USDT is accepted throughout the southern hemisphere. A personal example is how I pay for my Argentinian ski season. I spend a few weeks each year skiing in the Argentinian countryside. When I first went to Argentina in 2018, paying was a hassle if the merchant didn’t accept foreign credit cards. But in 2023, USDT has replaced USDT because my guide, driver, and chef all accept USDT payments. This is great because even if I wanted to pay in pesos, I couldn’t; bank ATMs can only withdraw up to $30 worth of pesos per transaction and charge a 30% fee. Long live Tether, damn criminal. It’s great for my employees to be able to receive digital dollars stored on a cryptocurrency exchange or mobile wallet and easily use them to purchase goods and services at home and abroad.
Tether's profitability is the best advertisement for social media companies and banks to create stablecoins. The two giants do not have to pay deposit fees because they already have a solid distribution network, which means they can get all the net income (NIM). Therefore, this can become a huge source of profit for them.
Tether's annual earnings far exceed this chart's estimates. This chart assumes that all reserve assets are invested in 12-month Treasury bills. Its purpose is to show that Tether's earnings are highly correlated with US interest rates. You can see that Tether's earnings jumped significantly between 2021 and 2022 as the Federal Reserve raised rates at the fastest pace since the early 1980s.
Here’s a table I published in my article “Dust on Crust Part Deux” that uses data from 2023 to prove that Tether is the most profitable bank per capita in the world.
Unless your stablecoin is owned by a captive exchange, social media company, or traditional bank, issuing a stablecoin can be very expensive. Bitfinex and Tether were founded by the same people. Bitfinex has millions of customers, so Tether has millions of customers from the beginning. Tether doesn't have to pay issuance fees because it is partially owned by Bitfinex and all Altcoin are traded against USDT.
Circle, and any other stablecoin that comes after it, will have to pay for distribution through exchanges in some way. Social media companies and banks will never work with a third party to build and operate their stablecoins; therefore, cryptocurrency exchanges are the only option. Crypto exchanges can build their own stablecoins, as Binance tried to do with BUSD, but ultimately many exchanges decided that building a payment network was too difficult and distracted from their core business. Exchanges require equity in the issuer or a portion of the issuer’s net proceeds (NIM) to trade their stablecoin. But even so, it’s likely that all crypto/USD trading pairs will be pegged to USDT, which means Tether will continue to dominate. That’s why Circle had to rope in Coinbase to compete. Coinbase is the only major exchange not in Tether’s orbit, as Coinbase’s customers are primarily American and Western European. Tether was slammed by Western media as some kind of foreign-made scam until U.S. Commerce Secretary Howard Lutnik took a liking to Tether and banked it through his firm, Cantor Fitzgerald. Coinbase’s existence depends on its favor with U.S. politicians, so it had to find an alternative. Jeremy Allaire then took over the position and accepted the trade for Brian Armstrong.
The deal is that Circle will pay Coinbase 50% of its net interest income in exchange for the distribution of USDC across the Coinbase network. Yachtzee!!
The situation for new stablecoin issuers is dire. There is a lack of open distribution channels. All major crypto exchanges either own or partner with existing issuers Tether, Circle, and Ethena. Social media companies and banks will build their own solutions. Therefore, new issuers must pass on a lot of net income (NIM) to depositors to pull them away from other stablecoins with higher adoption. Ultimately, this is why investors will lose everything on almost every publicly listed stablecoin issuer or technology provider at the end of the cycle. But this won't stop the party; let's dig deeper into why investors' judgment is blinded by the huge profit potential of stablecoins.
Stablecoin narrative
There are three business models for creating crypto wealth besides holding Bitcoin and other shit coin. They are mining, operating exchanges, and issuing stablecoins. In my case, my wealth comes from my holdings in BitMEX (a derivatives exchange), while Maelstrom (my family office)'s largest holding and largest absolute source of return is Ethena, the stablecoin issuer of the USDE. In 2024, Ethena went from nothing to the third largest stablecoin in less than a year.
The stablecoin narrative is unique in that it has the largest and most obvious TAM (addressable market) among the puppets of traditional finance (TradFi). Tether has proven that an on-chain bank that simply holds people’s funds and allows them to transfer them can be the most profitable financial institution per capita ever. In the face of enforcement actions from all levels of the US government, Tether has succeeded. What would happen if US authorities were at least less hostile to stablecoins and allowed them a degree of operational freedom to compete with traditional banks for deposits? The profit potential is staggering.
Now let’s consider the current situation: US Treasury officials believe that the issuance of stablecoins (AUC) could grow to $2 trillion. They also believe that USD stablecoins can be the vanguard of advancing/maintaining USD hegemony and act as price-insensitive buyers of US Treasuries. Wow, that’s a strong macro tailwind. Even more surprising, don’t forget that Trump has a deep hatred for big banks because they deprived him and his family’s companies of banking services after his first presidency. He has no intention of stopping the free market from providing better, faster, and safer ways to hold and transfer digital dollars. Even his sons have joined the stablecoin bandwagon.
This is why investors are so eager for investable stablecoin projects. Before we get into how I translate this into capital investment opportunities, let me first define the criteria for investable projects.
The issuer could list in some form on a U.S. public stock market. Next, the issuer would launch a product for trading digital dollars; this isn’t some foreign thing, this is “American.” That’s it, and as you can see, there are a lot of blanks here to get creative.
Road to Destruction
The most notable IPO of a stablecoin issuer is Circle. They are a US company and the second largest stablecoin issuer in the world by issuance. Circle's current valuation is seriously overestimated. You have to know that Circle gives 50% of its interest income to Coinbase. However, Circle's market value is 39% of Coinbase. Coinbase is a one-stop crypto financial shop with multiple profitable business lines and tens of millions of customers worldwide. Circle is good at "talking nonsense", and although this is a very valuable skill, they still need to improve their skills and take care of their "stepchildren".
Never short Circle! If you think the Circle/Coinbase ratio is wrong, maybe you should buy Coinbase. Although Circle is overvalued, many investors will regret holding Circle in a few years looking back at the stablecoin craze. At least they will still have some principal left.
The next wave to go public will be Circle copycats. These stocks will trade at higher P/AUCs than Circle in relative terms. In absolute terms, their revenues will never surpass Circle’s. Promoters will tout meaningless TradFi credentials, trying to convince investors that they have the connections and capabilities to disrupt legacy banks in global USD payments by partnering with them or leveraging their distribution channels . The gimmick will work; issuers will raise huge sums of money. For those of us who have been in the trenches for a while, it’s hilarious to watch these uniformed clowns hoodwink the investing public into investing in their lousy companies.
After the first wave, the scale of fraud depends entirely on the stablecoin regulation that is enacted in the U.S. The more freedom issuers have in what underpins their stablecoins and whether they pay out yields to holders, the more likely they are to use financial engineering and leverage to cover up scandals. If you assume a light or even no-touch stablecoin regulation regime, then you might see a repeat of Terra/Luna, where issuers create some silly algorithmic stablecoin Ponzi scheme. Issuers can pay outsized yields to holders, and those yields come from leveraging a portion of their assets.
As you can see, I have nothing to say about the future. There is no real future because the distribution channels for new entrants have closed. Forget about it. Trade this stuff like a hot potato.
But don’t short. These new stocks will tear the short to pieces. The macro and the micro are in sync. As former Citigroup CEO Chuck Prince said when asked about his company’s involvement in subprime mortgages: “When the music stops, it gets complicated in terms of liquidity. But as long as the music is playing, you have to get up and dance. We’re still dancing.”
I’m not sure how Maelstrom will get involved with the dance, but if there’s money to be made, we’ll do it.
