Author: Rob Hadick, Partner at Dragonfly; Translated by 0xjs@Golden Finance
I've received a lot of questions about the direction of the stablecoin market and which parts will yield the greatest value, so I am sharing some unfiltered thoughts here.
Specifically, I view the market from several angles — more than most frameworks I’ve seen (though not as complex as very good frameworks like the Artemis market map).
Because payments are inherently complex and nuanced. Understanding who is doing what and holding what is very important, especially for investors who seem to often overlook the nuances.
These categories are: (1) Settlement channels, (2) Stablecoin issuers, (3) Liquidity providers, (4) Value transfer/currency services, (5) Aggregated API/Messaging, (6) Merchant gateways, and (7) Stablecoin-driven applications.
You might ask: why are there so many categories, especially when I haven't even introduced core infrastructures like wallets or third-party compliance? This is because each area has its own defensive 'moat' and different ways to acquire value. Of course, there is overlap between providers, but it is crucial to understand the distinctions of each part of the stack.
Here are my thoughts:
1. Settlement channels:
These are all about network effects — think about deep liquidity, low fees, fast settlement times, reliable uptime, and inherent compliance and privacy. They are likely to form a winner-takes-all market. I am very skeptical that a universal blockchain can achieve the scale and standards of major payment networks. I expect that the scalability of universal chains or second layers can play a role, but the focus is that we need purpose-built solutions. The winners here will be very valuable and may focus on stablecoins/payments.
2. Stablecoin issuers:
Currently, issuers (like Circle and Tether) are clearly the winners as they benefit from massive network effects and high interest rates. But looking ahead, if they continue to act like asset managers instead of payment companies, they will find themselves in trouble. They need to invest in fast, reliable infrastructure, high compliance standards, cheap minting/redemption processes, integration with central banks and core banking, and overall liquidity improvements (like what @withAUSD is doing). 'Stablecoin as a service' platforms (like Paxos) will spawn countless competitors, but I still believe that neutral, non-bank and fintech issued stablecoins will prevail because the competitive landscape does not allow closed systems to trade with each other (and benefit others) without credible neutral third-party intervention. Issuers already hold significant value, and some will continue to thrive, but they need to evolve beyond simple issuance.
3. Liquidity providers (LP):
Now, these are typically over-the-counter or exchange businesses, either large, successful cryptocurrency companies or smaller companies that struggle to compete well in terms of broad cryptocurrency capabilities and have thus shifted to focus on stablecoin operations. This space feels extremely commoditized, with very little pricing power — the moat entirely revolves around acquiring cheap capital, uptime, and deep liquidity/large currency pairs. This means that over time, large companies should dominate providers focusing on stablecoins. I do not think that LPs focusing on stablecoins can create strong and lasting advantages.
4. Value transfer/currency services (the 'PSP' of stablecoins):
Sometimes referred to as 'stablecoin aggregation' platforms, such as @stablecoin and @conduitpay, these companies win and establish moats when they have proprietary tracks and establish direct relationships with banks instead of using third-party providers. Their 'moat' comes from bank relationships and capabilities, flexibility in handling different forms of payments, global reach, liquidity, uptime, and top-notch compliance. Many claim to do this, but very few have truly proprietary infrastructure. The winners here will enjoy moderate pricing power, forming regional duopolies or oligopolies, and complementing traditional PSPs to become very large enterprises.
5. Aggregated API/Messaging platforms:
These participants often say that what they do is the same as PSPs, but they are merely packaging or aggregating APIs. They do not bear compliance or operational risks themselves — they should be viewed more as a market for PSPs and LPs. They can currently charge high fees, but eventually, they will be squeezed (perhaps completely disintermediated) because they do not handle the 'hard' parts of payment processing or infrastructure building. They call themselves 'the Plaid of stablecoins,' forgetting that blockchain has already addressed many of the original pain points that Plaid solved for traditional banks/payments. Unless they get closer to the end customer and take on more of the stack, they will struggle to maintain profitability and business.
6. Merchant gateways/entry points:
These help merchants and businesses accept stablecoins or cryptocurrencies. They sometimes overlap with PSPs but mainly provide simple development tools while aggregating third-party compliance and payment infrastructure and packaging it into user-friendly interfaces. They want to win like Stripe — by excelling in ease of integration and then scaling horizontally. However, unlike the early days of Stripe, developer-friendly payment options are now ubiquitous, and distribution is king. Mature payment participants should be able to easily collaborate with orchestration companies to add stablecoin options, which makes it difficult for gateways that only support cryptocurrencies to carve out a niche. While companies like Moonpay or Transak have historically enjoyed significant pricing power, I do not believe this will continue. In B2B, there may still be some winners who add unique software features to manage large sums or large-scale use of stablecoins, but B2C may be a losing category. Overall, I think this sub-market faces a tough fight.
7. Stablecoin-driven fintech and applications:
Now, establishing a 'new bank' or 'fintech' driven by stablecoins is easier than ever, making this space a fierce competition. Who can win will depend on distribution, GTM capabilities, and differentiated product awareness — just like ordinary fintech. However, when well-known brands like Nubank, Robinhood, and Revolut can easily add stablecoin features, it becomes difficult for startups to stand out, especially in developed markets. In emerging markets, there may be more opportunities to offer unique products (like @Zarpay, for example), but if your differentiation is merely stablecoin-driven finance, developed markets are likely a losing proposition. Overall, I expect the failure rate here to be very high, and there are still challenges for crypto/stablecoin consumer startups in this category. However, business-focused companies may have more opportunities to carve out niche markets.
Of course, extreme and overlapping cases are not covered here. But as an investor who has spent a lot of time in this space, this framework helps guide our thinking.
