Author: Robbie Petersen, Delphi Digital Researcher
Compiled by: Luffy, Foresight News
The total supply of stablecoins continues to rise steadily, and this total masks a more concerning detail. Although cryptocurrency trading volumes remain below historical highs, the number of active addresses trading with stablecoins continues to climb. This discrepancy suggests that stablecoins are not merely serving as lubricants for the speculative casino of cryptocurrencies, 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, some obvious signs indicate that large-scale adoption may not necessarily come from emerging startups, but from companies that already have established distribution channels. In just the past three months, four large fintech companies have formally 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 hurting their own interests, Visa is helping banks launch stablecoins.
This marks a new paradigm shift: the adoption of stablecoins no longer relies on purely ideological assumptions. Rather, by providing fintech companies with a simple proposition of lower costs, higher profits, and new revenue streams, stablecoins find themselves inherently 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 more payment stacks, we will inevitably see their other competitors imitate and join the stablecoin battlefield. As I emphasized in the ‘Stablecoin Manifesto’, game theory suggests that the adoption of stablecoins is not an option but a necessary bet for fintech companies to maintain their market positions.
Stablecoin 2.0: Yield-sharing stablecoins
Intuitively, the most obvious beneficiaries of these structural tailwinds are the stablecoin issuers. The reason is simple: considering the monetary network effects, stablecoins are essentially a winner-takes-all game. Today, these network effects manifest primarily in three areas:
Liquidity: USDT and USDC are the most liquid stablecoins in the cryptocurrency market, and using some emerging stablecoins means traders may have to bear more slippage.
Payment: USDT has become an increasingly common payment method in emerging economies; 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.
Simply put, the more people use USDT (Tether), the more convenient it becomes to use USDT, leading to even more people using USDT. The result is that Tether increases its market share while enhancing profitability.
While Tether's network effects are almost 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 favorably positioned within the increasingly adopted stablecoin paradigm by fintech companies. To understand its reasons, it is essential to grasp some prerequisites.
Today, the stablecoin ecosystem stack typically includes two main participants: (1) stablecoin issuers (e.g., Tether and Circle) and (2) stablecoin distributors (i.e., applications).
Currently, stablecoin issuers create value of over $10 billion annually, surpassing the total income of all blockchains. However, this represents a massive structural inefficiency: the value generated in the stablecoin stack fundamentally lies with downstream distributors. In other words, without exchanges, DeFi applications, payment applications, and wallets integrated with USDT, USDT would have no utility and thus no value. Nonetheless, the ‘distributors’ currently do not obtain 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 applications that bring users to the collective network, this model disrupts the existing system (USDT model). In other words, yield-sharing stablecoins enable applications to effectively share in the profits from their distribution channels.
In terms of scale, this could represent a meaningful source of income, potentially becoming the primary revenue source for large applications. Therefore, as profit margins continue to be squeezed, we might enter a world where the primary business model for crypto applications evolves into effectively selling ‘Stablecoin Issuance as a Service’ (SDaaS). Intuitively, this makes sense, as today’s stablecoin issuers extract more value than the total of blockchains and applications, with the portion of value applications receive potentially being much greater than from other sources.
Despite numerous attempts to break Tether's monopoly so far, 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 inherently combine the incentive mechanisms of both distributors and issuers.
Quantity determines power: Historically, the only way applications could gain economic benefits from stablecoins was by launching their own independent stablecoin. However, this approach is costly. Given that other applications have no incentive to integrate your stablecoin, its utility diminishes to being confined to their respective applications. Thus, it is unlikely to compete with the network effects of USDT on scale. Conversely, 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 possess all the advantages of USDT (composability and network effects across applications), along with the additional advantage of incentivizing participants with distribution channels to integrate and share yields with the application layer.
Currently, there are three leaders in the yield-sharing stablecoin field:
Paxos' USDG: Paxos announced the launch of USDG in November this year, regulated by the forthcoming stablecoin framework from the Monetary Authority of Singapore, and has already secured heavyweight partners including Robinhood, Kraken, Anchorage, Bullish, and Galaxy Digital.
M^0's ‘M’: The team consists of former senior members from MakerDAO and Circle. The vision of M^0 is to serve as a simple, trusted, and neutral settlement layer, allowing any financial institution to mint and redeem the yield-sharing stablecoin ‘M’ of M^0. However, one of the distinctions of ‘M’ from other yield-sharing stablecoins is that ‘M’ can also be used as a ‘raw material’ for other stablecoins, such as USDN (Noble's yield-sharing stablecoin). Additionally, M^0 employs a unique custodial solution, consisting of a decentralized network of independent validators and a dual-token management system, which provides higher trust 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 yields with applications and market makers that integrate AUSD. Agora has received strategic support from numerous market makers and applications, including Wintermute, Galaxy, Consensys, and Kraken Ventures. This is noteworthy as it aligns incentives with these stakeholders from the very beginning. Today, the total supply of AUSD stands at $50 million.
In 2025, I expect these stablecoin issuers to receive increasing attention as distributors collaborate and guide users to use stablecoins that favor them. Additionally, we should also see market makers (who play a crucial role in ensuring stablecoins maintain sufficient liquidity) showing a preference for these stablecoins, as they can also gain certain economic benefits when holding these stablecoin inventories.
Although ‘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 expect the overall market share of yield-sharing stablecoins to 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 growth
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 inherently digital, usable globally, capable of instant cross-border settlements, usable by AI agents, and influenced by massive network effects; most importantly, existing fintech companies and enterprises have clear incentives to adopt them, as stablecoins align with every business's goal: to make more money.
Therefore, to say that the adoption of stablecoins will develop along 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, with no institution or government that perceives the technology as contrary to their interests being able to control them. However, unlike Eurodollars, the adoption of stablecoins will not unfold slowly over 30-60 years. It starts slowly, then rapidly reaches escape velocity as network effects kick in.
Regulatory frameworks are being established. Fintech companies like Robinhood and Revolut are launching their own stablecoins, and Stripe seems to be exploring stablecoins for more payment stacks. Most importantly, although it may eat into their own profits, existing companies like PayPal and Visa are still exploring stablecoins because they fear that if they do not, their competitors will.
While it remains unclear whether 2025 will become a turning point in the history of stablecoin development, it is evident that we are approaching this turning point.
