Author: Robbie Petersen, Delphi Digital researcher
Compiled by: Luffy, Foresight News
The total supply of stablecoins is steadily rising, and this total masks a more concerning detail. Despite cryptocurrency trading volumes still being below historical peaks, the number of active addresses using stablecoins for transactions continues to rise. This disparity suggests that stablecoins are not merely serving as lubricants for the speculative gears 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 indicating that large-scale adoption will not necessarily come from emerging startups, but rather from companies that already have established distribution channels. In just the past three months, four large fintech companies have officially signaled their intention to enter the stablecoin space: Robinhood and Revolut are launching their own stablecoins; Stripe recently acquired Bridge to facilitate faster, cheaper global payments; despite harming their own interests, Visa is helping banks launch stablecoins.
This marks a paradigm shift: the adoption of stablecoins is no longer dependent on purely ideological assumptions. Instead, by offering fintech companies a simple proposition of lower costs, higher profits, and new revenue streams, stablecoins find themselves intrinsically aligned with one of capitalism's most reliable forces: the relentless pursuit of profit. Therefore, as market-leading fintech companies leverage stablecoins to improve profit margins and/or expand their payment stacks, we will inevitably see their other competitors follow suit and join the stablecoin battlefield. As I emphasized in the ‘Stablecoin Manifesto’, game theory indicates that the adoption of stablecoins is not optional; it is an inevitable bet for fintech companies to maintain their market position.
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 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 to more people using USDT. The result is twofold: Tether increases its market share while enhancing its profitability.
While Tether's network effects are almost impossible to fundamentally break, there seems to be an emerging stablecoin model that is best suited to challenge Tether's existing model: yield-sharing stablecoins. Importantly, this model is positioned favorably within the paradigm of stablecoins that increasingly fintech companies are adopting. To understand why, a few prerequisites need to be understood.
Today, the stablecoin ecosystem 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 worth over $10 billion annually, exceeding the total revenue of all blockchains combined. However, this represents a significant structural inefficiency: the value generated within the stablecoin stack is fundamentally downstream to the distributors. In other words, without exchanges, DeFi applications, payment applications, and wallets integrating 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 enable applications to effectively share in the profits from their own distribution channels.
From a scale perspective, this could be a meaningful source of revenue, and it may even become the primary revenue source for large applications. Therefore, as profit margins continue to compress, we may 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 stablecoin issuers capture more value than the sum of all blockchains and applications, and the share of value applications receive could be much more than other sources.
Despite countless 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 intrinsically combine the incentive mechanisms of 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 stablecoins. However, this approach comes at a cost. 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 at 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 additional benefits that incentivize 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 in November this year, regulated by the upcoming 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, and M^0's vision is to serve as a simple, trust-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 serve as ‘raw material’ for other stablecoins, such as USDN (Noble's yield-sharing stablecoin). Additionally, M^0 adopts a unique custody solution composed of a decentralized network of independent validators and a dual-token management system, offering 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 profits with applications and market makers integrating 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. Currently, the total supply of AUSD is $50 million.
In 2025, I expect that these stablecoin issuers will be increasingly in the spotlight as distributors collaborate and direct users towards stablecoins that are advantageous to them. Additionally, we should see market makers (who play a crucial role in ensuring stablecoins maintain sufficient liquidity) show preference for these stablecoins since they can also gain certain economic benefits when holding inventories of such stablecoins.
While ‘M’ and AUSD currently rank 33rd and 36th respectively in stablecoin supply, 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. Moreover, by the end of the year, I expect the overall market share of yield-sharing stablecoins to rise from 0.06% to over 5% (about 83 times), as large fintech companies with distribution capabilities will bring about the next wave of stablecoin adoption.
Stablecoins 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 essentially digital, they can be used globally, they can settle cross-border instantly, they can be utilized by AI agents, and they 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 ignores a fundamental issue. I believe the only commonality between stablecoins and Eurodollars is that they will continue to emerge as a bottom-up phenomenon, and no institution or government that perceives the technology as contrary to their interests will be able to control them. However, unlike Eurodollars, the adoption of stablecoins will not occur slowly over 30-60 years. It begins slowly, then rapidly reaches escape velocity with the network effects and suddenly explodes.
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, although it may eat into their profits, existing companies like PayPal and Visa are still exploring stablecoins because they worry that if they do not, their competitors will.
While it is currently unclear whether 2025 will be a turning point in the history of stablecoin development, it is evident that we are approaching this turning point.
