Author: Rob Hadick ＞|＜
Compiled by: Shenchao TechFlow
Recently, many have asked me about the future direction of the stablecoin market and which parts of the value chain in this ecosystem might accumulate the most value. To that end, I am sharing some unvarnished personal insights here.
In my analysis, I divide the market into several categories—more detailed than most frameworks I've seen (though not as comprehensive and complex as @artemis__xyz's market map, it is indeed excellent)—because payment systems are inherently filled with complexities and nuances. For investors, understanding each role's responsibilities and value attribution is crucial, as they often overlook these key details. I have categorized the stablecoin market into the following seven categories:
(1) Settlement Rails
(2) Stablecoin Issuers
(3) Liquidity Providers
(4) Value Transfer and Money Services
(5) Aggregated APIs/Messaging
(6) Merchant Gateways
(7) Stablecoin-powered applications
You might wonder: why categorize so many types? Especially since I haven't even discussed core infrastructure (like wallets or third-party compliance services)? The reason is that each area has its unique 'moat' and different ways to capture value. Although there is some overlap between certain service providers, understanding the differences in each part is crucial.
Here are some of my thoughts on the value distribution across categories:
1. Settlement Rails:
The core competitiveness of settlement networks lies in network effects— including deep liquidity, low transaction costs, fast settlement times, reliable online services, and built-in compliance and privacy protection. These factors make it likely that settlement networks will form a 'winner-takes-all' market structure. I am skeptical about whether general-purpose blockchains can meet the scale and standards of major payment networks. While general chains' scalability or layer 2 solutions may be effective in certain scenarios, the key is that we need solutions specifically built for payments. In the future, winners in this field will be highly valuable and are likely to focus on stablecoins or payments.
2. Stablecoin Issuers:
Currently, stablecoin issuers (like @circle and @tether_to) are the prominent winners in the market, benefiting from strong network effects and the current high-interest rate environment. However, looking ahead, if they continue to operate like asset management companies rather than evolving like payment companies, their growth will face bottlenecks. Issuers need to invest more resources in the following areas: fast and reliable payment infrastructure, high-standard compliance processes, low-cost minting and redemption mechanisms, seamless integration with central banks and core banking systems, and stronger liquidity support (similar to @withAUSD's approach). While 'stablecoin as a service' platforms (like @paxos) may spawn numerous competitors, I still believe that neutral non-bank or fintech-issued stablecoins will emerge as the major winners, as market competition will not allow closed systems to operate independently without a credible neutral party. Stablecoin issuers have already accumulated significant value, and some leading players will continue to maintain an advantage in the future, but they need to go beyond merely being issuers.
3. Liquidity Providers (LPs):
Liquidity providers are currently mainly composed of over-the-counter (OTC) platforms or exchanges. They are either large, successful crypto enterprises or some smaller ones that underperform in the broader crypto market and shift their focus to stablecoin business. However, competition in this field is very intense, with very low pricing power, and their moat mainly lies in acquiring cheap capital, service stability, and the ability to support deep liquidity and multiple trading pairs. Therefore, over time, large players may dominate the market, while liquidity providers focusing on stablecoins may struggle to establish a lasting competitive advantage.
4. Value Transfer/Money Services (Stablecoin's 'PSPs')
This category is sometimes referred to as 'stablecoin orchestration' platforms, such as @stablecoin and @conduitpay. They build competitive barriers and win the market by mastering proprietary settlement networks and direct cooperation with banks (rather than relying on third-party service providers). The 'moat' of these platforms lies in deep cooperation with banks, flexibility in processing various payment forms, global coverage capabilities, liquidity assurance, system stability, and strict compliance standards. Although many companies claim to possess these capabilities, in reality, only a few truly have proprietary infrastructure. In this field, winners will gain some pricing power, forming regional duopolies or oligopolies, and grow into large enterprises by supplementing traditional payment service providers (PSPs).
5. Aggregated APIs/Messaging Platforms
These platforms often claim to offer similar services as PSPs, but in reality, they are just wrapping or aggregating APIs. Unlike PSPs, they do not directly take on compliance or operational risks, but rather serve as a marketplace platform for PSPs and liquidity providers (LPs). Currently, these platforms can profit by charging high fees, but over time, they may face pressure or even be replaced, as they do not solve the core challenges in payment flows or infrastructure. Although some platforms liken themselves to 'Plaid for the stablecoin space,' they overlook that blockchain technology has already addressed many of the pain points that Plaid solves for traditional banks and payment systems. If these platforms cannot extend closer to end customers and take on more of the service stack, they will struggle to maintain margins and long-term competitiveness.
6. Merchant Gateways/Payment Portals
Merchant gateways primarily help businesses and merchants accept stablecoin or cryptocurrency payments. While they sometimes overlap with PSPs' functions, they typically focus more on providing tools that are easy for developers to use while integrating third-party compliance and payment infrastructure, packaging them into user-friendly interfaces. These platforms aim to stand out by simplifying developer integration, similar to the path taken by Stripe. However, unlike early Stripe, developer-friendly payment options are now quite common, and market distribution capabilities have become the key to success or failure. Traditional payment companies can easily collaborate with orchestration platforms to add stablecoin payment options, making it difficult for gateways that focus solely on cryptocurrency to gain a market advantage. While companies like Moonpay and Transak once profited from high pricing, this advantage may be hard to sustain. In the B2B sector, some platforms might achieve success by providing unique enterprise-level features (like large-scale fund management), but the outlook in the B2C sector is less optimistic. Overall, this field faces significant challenges.
7. Stablecoin-driven fintech and applications
Today, creating a 'new type of bank' or 'fintech' based on stablecoins is easier than ever, making competition in this field exceptionally fierce. Who wins will depend on distribution capabilities, market strategy, and differentiated product design—similar to traditional fintech industries. However, for well-known brands like Nubank, Robinhood, and Revolut, adding stablecoin features is relatively simple, making it difficult for startups to stand out in developed markets. In emerging markets, there may be more opportunities to launch unique products (e.g., @Zarpay_app), but if your differentiation is merely based on stablecoin financial services, you are likely to face failure in developed markets. Overall, I expect a very high failure rate in this field, and consumer-focused startups centered on cryptocurrency/stablecoins will face significant challenges. However, business models aimed at enterprises may still find their niche.
Of course, there are also some edge cases and overlapping areas that have not been covered here. But this framework helps us as investors better understand the opportunities in the stablecoin market. Feel free to share your thoughts. If you are interested in the above, or are a startup seeking funding, please feel free to contact me.