Author: Robbie Petersen, Delphi Digital Researcher
Compiled by: Luffy, Foresight News
The total supply of stablecoins is steadily increasing, and this total masks a more noteworthy detail. Although cryptocurrency trading volumes remain below historical highs, the number of active addresses using stablecoins for transactions continues to rise. This discrepancy indicates that stablecoins are not merely acting as lubricants for the speculative machinery of cryptocurrency trading but are finally delivering on their core promise: to become the foundation of a new digital financial system.
Source: Artemis, The Tie
Perhaps more importantly, there are some clear signs that large-scale adoption may not necessarily come from emerging startups but from companies that already have established distribution channels. In just the last three months, four major fintech companies have officially announced their entry into the stablecoin space: Robinhood and Revolut are launching their own stablecoins; Stripe recently acquired Bridge to facilitate faster and cheaper global payments; and despite harming their own interests, Visa is helping banks launch stablecoins.
This marks a new paradigm shift: the adoption of stablecoins is no longer reliant on purely ideological assumptions. Instead, by providing fintech companies with a simple proposition of lower costs, higher profits, and new revenue streams, stablecoins find themselves innately aligned with the most reliable forces in capitalism: the relentless pursuit of profit. Therefore, as market-leading fintech companies utilize stablecoins to enhance profit margins and/or expand their payment stacks, we will inevitably see their other competitors emulate and join the stablecoin battlefield. As I emphasized in the ‘Stablecoin Manifesto,’ game theory indicates that the adoption of stablecoins is not optional but a necessary bet for fintech companies to maintain their market position.
Stablecoin 2.0: Yield-sharing Stablecoins
Intuitively, the most obvious beneficiaries of these structural advantages are the issuers of stablecoins. The reason is simple: considering the monetary network effects, stablecoins are essentially a winner-takes-all game. Today, these network effects are primarily reflected in three aspects:
Liquidity: USDT and USDC are the most liquid stablecoins in the cryptocurrency market, and using some emerging stablecoins means traders have to bear more slippage.
Payments: USDT has become an increasingly common payment method in emerging economies, and its network effect as a digital exchange medium is arguably the strongest.
‘Denomination Effect’: Almost all major trading pairs on CEX and DEX are priced in USDT or USDC.
In simple terms, the more people use USDT (Tether), the more convenient it becomes to use USDT, which in turn leads more people to use USDT. The result is that Tether increases its market share while enhancing its profitability.
While the network effects of Tether are nearly impossible to fundamentally break, a new emerging stablecoin model seems best suited to challenge Tether's existing model: yield-sharing stablecoins. Importantly, this model is positioned favorably in the stablecoin paradigm increasingly adopted by fintech companies. To understand why, it is necessary to grasp some prerequisites.
Today, the stablecoin ecosystem typically contains two main participants: (1) stablecoin issuers (e.g., Tether and Circle) and (2) stablecoin distributors (i.e., applications).
Currently, stablecoin issuers generate value of over $10 billion annually, exceeding the total revenue of all blockchains. However, this represents a significant structural inefficiency: the value generated within the stablecoin stack is fundamentally downstream with distributors. In other words, without exchanges, DeFi applications, payment applications, and wallets that integrate USDT, USDT would have no utility and thus generate no value. Nevertheless, the ‘distributors’ currently do not receive corresponding economic benefits.
This has led to the rise of a new batch of stablecoins: yield-sharing stablecoins. By redistributing the economic benefits traditionally captured by stablecoin issuers to the applications that bring users to the collective network, this model disrupts the existing system (the USDT model). In other words, yield-sharing stablecoins allow applications to effectively share in the profits from their own distribution channels.
In terms of scale, this could represent a meaningful source of revenue, potentially becoming the main income source for large applications. Therefore, as profit margins continue to compress, we may enter a world where the primary business model of crypto applications evolves into effectively selling ‘stablecoin issuance as a service’ (SDaaS). Intuitively, this makes sense because today, stablecoin issuers capture more value than the total of blockchains and applications combined, and the portion of value applications receive from this could far exceed other sources.
Despite numerous attempts to break Tether's monopoly, I believe the yield-sharing stablecoin model is the right direction, for two reasons:
Distribution is everything: While previous attempts to issue yield-bearing stablecoins initially sought support from end users, yield-sharing stablecoins target participants who already have users: distributors. This indicates that the yield-sharing model is the first to intrinsically combine the incentive mechanisms of both distributors and issuers.
Quantity determines power: Historically, the only way for applications to gain the economic benefits of stablecoins was to launch their own independent stablecoin. However, this approach comes at a cost. Since other applications have no incentive to integrate your stablecoin, its utility diminishes to being limited to their respective applications. Therefore, it is unlikely to compete on scale with the network effects of USDT. Instead, by creating a stablecoin that incentivizes many distribution-capable applications to integrate simultaneously, yield-sharing stablecoins can leverage the collective network effects of the entire ‘distributor’ ecosystem.
In short, yield-sharing stablecoins have all the advantages of USDT (composability across applications and network effects) and have the additional advantage of incentivizing participants with distribution channels to integrate and share profits with the application layer.
Currently, there are three leaders in the yield-sharing stablecoin space:
Paxos's USDG: Paxos announced the launch of USDG this November, which is regulated by the upcoming stablecoin framework from the Monetary Authority of Singapore, and it has already secured heavyweight partners including Robinhood, Kraken, Anchorage, Bullish, and Galaxy Digital.
‘M’ of M^0: The team consists of former senior members from MakerDAO and Circle, and the vision of M^0 is to serve as a simple, trusted, neutral settlement layer that allows any financial institution to mint and redeem the yield-sharing stablecoin ‘M’. However, one distinction of ‘M’ from other yield-sharing stablecoins is that ‘M’ can also be used as a ‘raw material’ for other stablecoins, such as USDN (the yield-sharing stablecoin from Noble). Additionally, M^0 adopts a unique custodial solution consisting of a decentralized network of independent validators and a dual-token governance system, offering higher trusted neutrality and transparency compared to other models. You can read more about M^0 in my post.
Agora's AUSD: Similar to USDG and ‘M’, Agora's AUSD also shares profits with applications and market makers that integrate AUSD. Agora has also received strategic support from numerous market makers and applications, including Wintermute, Galaxy, Consensys, and Kraken Ventures. This is noteworthy because it aligns incentives with these stakeholders from the outset. Today, AUSD has a total supply of $50 million.
By 2025, I expect these stablecoin issuers to gain increasing attention as distributors collaborate and guide users towards stablecoins that benefit them. Additionally, we should see market makers (who play a crucial role in ensuring stablecoins maintain sufficient liquidity) show a preference for these stablecoins, as they can also gain certain economic benefits when holding these stablecoin inventories.
While ‘M’ and AUSD currently rank 33rd and 36th by stablecoin supply, respectively, and USDG has not yet launched, I expect that by the end of 2025, at least one of these stablecoins will enter the top 10. Additionally, by the end of the year, I anticipate the overall market share of yield-sharing stablecoins will rise from 0.06% to over 5% (approximately 83 times), as large fintech companies with distribution capabilities will bring the next wave of stablecoin adoption.
Stablecoins are poised for takeoff
While the adoption curve of Eurodollars is often used as a historical analogy for stablecoins, this analogy is somewhat simplistic. Stablecoins are not Eurodollars; they are digitalized by nature, can be used globally, allow for instant cross-border settlement, can be utilized by AI agents, and are influenced by massive network effects. Most importantly, existing fintech companies and enterprises have a clear incentive to adopt them because stablecoins align with every business's goal: to make more money.
Therefore, to say that the adoption of stablecoins will follow the trajectory of Eurodollar adoption overlooks a fundamental issue. I believe the only commonality between stablecoins and Eurodollars is that they will continue to emerge as a bottom-up phenomenon that cannot be controlled by any institution or government that sees the technology as contrary to their interests. However, unlike Eurodollars, the adoption of stablecoins will not occur slowly over 30-60 years. It starts slowly and then rapidly reaches escape velocity with network effects.
A regulatory framework is being established. Fintech companies like Robinhood and Revolut are launching their own stablecoins, and Stripe seems to be exploring stablecoins for more payment stack options. Most importantly, even though it may eat into their profits, existing companies like PayPal and Visa are still exploring stablecoins because they worry that if they don't, their competitors will.
While it remains unclear whether 2025 will mark a turning point in the history of stablecoin development, it is evident that we are approaching this turning point.
