Future landscape of the stablecoin sector: Compliance + Offshore + Decentralization

First, the stablecoin sector will see a "battle of hundreds of coins" in the future. After fierce competition, USDT will still be the leader of offshore stablecoins, while USDC will remain the leader of compliant stablecoins, but a large wave of mid-tier stablecoins will be left behind.

These waist and tail stablecoins mainly fall into two categories: Compliance stablecoins made by Web2 companies and decentralized stablecoins made by Web3 companies.

1. Still optimistic about the stablecoins made by Web2 companies

In different countries and regions, as well as in different business scenarios, there will also be many localized leaders like "local tyrants", such as Hong Kong's HKD stablecoin and JD.com's stablecoin in the e-commerce field.

These are places that USDC and USDT might not reach, and the stablecoins in these segmented scenarios can integrate more deeply with local businesses or their own operations.

Of course, from a political perspective, various countries and regions aim to prevent capital outflow and avoid being siphoned off by the US dollar, so they promote local fiat stablecoins, using compliance measures to keep funds circulating within their own financial systems.

In fact, we can refer to the current landscape of exchanges: besides a few absolute leader exchanges, there are also a bunch of mid-tier and lower-tier exchanges.

How have these tail-end exchanges survived?

The core adopts two strategies:

First, we focus on altcoins and niche trading pairs, which means binding different business scenarios.

Secondly, focus on niche countries or regions, which means capturing segmented markets;

So, even with the pressure from the leaders, there is still room for survival for the stablecoins in the mid and tail segments.

2. Still optimistic about the decentralized stablecoins created by Web3 companies

Currently, in the United States' stablecoin legislation, there is a provision that prohibits stablecoin companies from paying interest to users.

The consultation draft for stablecoins in Hong Kong has the same provisions.

The purpose of this rule is actually to hope that stablecoins can truly become a payment tool, rather than a so-called investment return that competes with bank deposits.

However, there is a strong demand for "yield-bearing stablecoins" in the market. For example, if you are a business or a large holder with substantial reserve funds, you are actually very much looking forward to obtaining stable returns while ensuring safety.

If converting to USDT/USDC and leaving it there yields no returns, but Tether and Circle, these two companies, take the cost-free obtained dollars to invest and pocket the profits, this is also an opportunity for interest-bearing stablecoins.

Only decentralized stablecoins created by Web3 companies can, to some extent, circumvent compliance restrictions, packaging some CeFi and DeFi financial products as stablecoins, providing users with stable returns or even high returns.

The most typical examples are the "neutral strategy stablecoins" that have emerged in this cycle, such as Ethena's USDe, BitFi from the Bitcoin ecosystem, and so on.

With perpetual contracts, if a project holds 1 ETH, it can "short" (sell) an equivalent value of ETH in the perpetual contract market. The result is that, regardless of ETH price fluctuations, the total value remains basically unchanged, achieving "neutrality", and the project can also provide the funding rate income to users holding stablecoins.

Once security is guaranteed and stable returns are available, the appeal of these decentralized stablecoins is still very strong.

Summarize

The stablecoin market is very much like an iceberg:

Compliance stablecoins are just the tip of the iceberg, with USDC taking the lion's share and expected to grow even larger in the future, but there will also be many regional compliance stablecoins.

Offshore stablecoins are the part below sea level, with USDT taking up a significant portion, much larger than the part above sea level.

However, in deeper positions, where USDC and USDT cannot reach, there will be a large number of stablecoins, including niche business scenario stablecoins, decentralized interest-bearing stablecoins, and so on.