The Stablecoin Competition Is On. Who Will Be the Winners and Losers?

The stablecoin market is entering a new competitive phase, driven by the desire for distribution ownership and yield, leading to an unbundling of services before an eventual re-bundling around a few major brands or an abstracted 'USD' user experience.

• Stablecoin issuance is unbundling as companies seek to own customer economics and distribution.

• Tether maintains a strong market position due to brand recognition, especially in the global south.

• Circle is pursuing a strategy of diversification and yield-sharing to compete in the regulated B2B payments market.

The stablecoin landscape is evolving rapidly, with a 'stablecoin race' emerging as more entities seek to issue their own tokens to control economics and customer experiences. While existing players like Tether and Circle have established positions, new regulations and a focus on yield are driving an 'unbundling' phase. Eventually, the market is expected to coalesce around a few dominant stablecoins, possibly through abstraction for the end-user or consolidation of service providers, as the current proliferation of tokens is creating a poor user experience.

Stablecoin Market Competition

• 00:02:21 The stablecoin market is experiencing a significant race, with intermediaries increasingly wanting to issue their own stablecoins to own customer relationships and control economic distribution. This 'unbundling' phase, likened to the mid-2010s fintech market, is driven by the desire to keep economics in-house rather than ceding them to stablecoin issuers. This trend will likely continue for the next couple of years, with major consumer applications and tech companies potentially issuing their own stablecoins.

• 00:04:48 The current 'unbundling' of stablecoins is predicted to eventually lead to a 're-bundling' phase, where the excessive number of tokens becomes a poor user experience. This could result in either a clearinghouse model with shared liquidity across many issuers, or a coalescing around five to seven major brands and service providers, with other tokens becoming more closed-loop. The optimal outcome is seen as a few dominant, interchangeable stablecoins, with the technical work of abstracting tickers making them commodities that compete for yield.

• 00:14:53 In the stablecoin competition, Tether holds a significant advantage due to strong brand recognition in the global south, where 'Tether' is synonymous with stablecoin for peer-to-peer transactions. Unlike sophisticated users who seek yield from new offerings like PYUSD, the majority of global users prioritize familiarity and trust over minor yield differences. This brand loyalty is difficult to break, although large applications owning distribution, such as New Bank using Circle USDC, could theoretically displace Tether by seamlessly swapping users into different tokens on the backend.

• 00:36:59 Circle's position in the stablecoin market is more precarious than Tether's, despite being seen as a regulated, business-friendly option in the US. They face intense competition in the B2B payments market from new entrants and potential offerings from traditional banks like JP Morgan. Circle's strategy involves scaling rapidly and diversifying beyond just issuing stablecoins, launching initiatives like ARK and the Circle Payment Network to become competitive with payment giants like Stripe and Bridge. This approach involves sharing a significant portion of their yield with partners, contrasting sharply with Tether's model.