4/12/25

skeptical of money --chaos 20 --ar 16:9 --sref 3646998202

Note: The below represents my personal point of view, and is not an official opinion held by my employer, Tower Research, its affiliates, nor any of their private investments.

It’s hard not to look at Visa’s reported stablecoin activity page and not get excited about something. (Based on their de-duped/botted analysis, people are moving close to $700B a month around the globe via stables). I’m not yet sure what I’m supposed to be excited about, though.* A noted L/S investor once told me that having a variant view is a vector quantity - it can be variant in either direction or magnitude. A lot of the ideas in the stablecoin sector I’ve seen recently aren’t poor per se, but I don’t get a sense of variance from the broader narrative in either direction or magnitude. I’ll break down why I’m skeptical and what I think is directionally more interesting; if you have been excited by things in stablecoins or disagree with my take I’d love to know; it’s entirely possible I am not looking at this correctly.

*(To be clear, I purely mean from a venture/startup standpoint. Stables are already creating tons of bottom-line value for end users and businesses, which in theory is what we should all really care about at the end of the day.)

Why Now for Stables

There are 2 pretty clear “why now” reasons for why developers, entrepreneurs, and investors should be excited by stables. I think one is much better than the other. The first obvious reason is structurally higher interest rates which have led to stable issuers like Tether generating $13B in Net Income last year. Effectively the money Tether, Circle, and other issuers are generating is because customers are paying for the privilege to hold dollars (usually since it is a superior base currency than their local one). This behavior fulfills one of the core utilities of money, which is as a Store-of-Value. I think this is the more inferior of “why now”s that exist.

I’d argue that over the last 5 years stables have unlocked another core utility of money. Large L1s like Solana and performant L2s like Base or Arbitrum have allowed us to bring down block-processing time and transaction cost, enabling stables to also be used as a Means-of-Exchange. This is (imo) the far more fertile and exciting terrain to explore.

Store-of-Value business models (crypto or not) are inferior because their revenue is usually exogenously determined. A crypto stablecoin issuer’s key income driver is interest rates. A TradFi bank has to lend long and borrow short. By contrast, Means-of-Exchange business models (crypto or not) are endogenously determined, and therefore better aligned with their value creation. A payment network or processor benefits the more volume they enable, and they can directly build features to improve those inputs.

So Why the Skepticism?

To be fair, the handful of pitches I’ve seen in the last few months have tapped into the MoE aspect of stables. The common archetypes of companies I’ve seen have been consumer remittance products or treasury management for international enterprises. On initial analysis, both of these make sense. Within consumer remittances, transfer fees can reach 4-5% depending on the particular international corridor. Treasury/controller functions often express frustration with the operational and legal hassle of extricating their money from one location to another. (What capital controls exist in country ABC? How long will I have to wait to settle?)

The above areas seem like viable places for stables to help, but I still think a couple of problems remain unaddressed.

• CAC: So many consumer remittance corridors are so well-saturated that the marginal price improvement you get on instantaneous money movement could be eaten up by the cost of acquiring customers. Western Union, a larger remittance company, spends over 1/3 of its revenue on agent commissions. How will stablecoin providers finance that type of acquisition if they are offering <1% fees? This market feels a lot like the neobank market of the last 10-15 years; blockchains are a cool technical feature, but not materially changing the key driver of the business.
• Capital Controls: The other big issue I see is that regardless of the technology you use, many of the nations with highest flows from the US have some form of capital controls. Many of the stablecoin entrepreneurs I speak to sheepishly admit that they are largely operating in a regulatory grey market for currency swaps. The claim I’ve heard a few times now is that as crypto and stablecoin adoption grows in countries like Turkey, Brazil, etc. it will become too politically risky for the governments to heavily restrict. Retail gold purchases in India have been so high culturally that it’s hard to imagine government action to curtail it just to minimize the risk of using it as a loophole to get around capital controls - many of the people building in stablecoins are operating under the (potentially reasonable) assumption that a similar cultural phenomenon might occur in crypto.

There’s clearly value to be built in the above categories, but I’m not fully processing why that opportunity is mispriced by venture investors or entrepreneurs. The above opportunities and risks are enjoyed equally by the new players and the old.