The future landscape of the stablecoin sector

Author: Yue Xiaoyu Source: X, @yuexiaoyu111

First of all, in the future of the stablecoin sector, there will be a "Battle of the Hundreds of Coins." After fierce competition, USDT will still be the leader of offshore stablecoins, and USDC will remain the leader of compliant stablecoins. However, there will be a large number of mid-tier stablecoins left behind.

These stablecoins at the waist and tail mainly fall into two categories: compliant stablecoins created by Web2 companies and decentralized stablecoins created by Web3 companies.

1. Still optimistic about the stablecoins created by Web2 companies.

In different countries and regions, as well as in different business scenarios, there will also be many local leaders like "local tyrants", such as the Hong Kong dollar stablecoin and the JD stablecoin in the e-commerce sector.

These are areas that USDC and USDT may not reach, and stablecoins in these specific scenarios can integrate more deeply with local businesses or their own operations.

Of course, from a political perspective, various countries and regions implement local fiat stablecoins to prevent capital outflow and to avoid being siphoned by the US dollar, using compliant means to keep funds circulating within their own financial systems.

In fact, you can refer to the current landscape of exchanges: besides a few absolute leading 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 will delve into altcoins and niche trading pairs, which means binding them to different business scenarios;
• Secondly, deeply cultivate niche countries or regions, that is, capture segmented markets;

Therefore, even with leading pressures, stablecoins in the mid and tail sections still have room to survive.

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

The current stablecoin bill in the United States has 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 very strong demand for "yield stablecoins" in the market. For example, if you are a business or a large holder with a substantial reserve of funds, you actually hope to obtain stable returns while ensuring safety.

If exchanged for USDT/USDC, there are no returns from just holding it, but Tether and Circle have taken the dollars they obtained at no cost to invest and have pocketed the profits, which is why this presents an opportunity for interest-bearing stablecoins.

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

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

With perpetual contracts, a project holding 1 ETH can "short" (sell) the same value of ETH in the perpetual contract market. As a result, regardless of the fluctuations in ETH's price, the total value remains largely 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.

Summary

The stablecoin market is very much like an iceberg:

• Compliant stablecoins are just the tip of the iceberg, with USDC taking the largest share, and it's expected to grow even larger in the future, but there will also be many regional compliant stablecoins.
• Offshore stablecoins are the part below sea level, with USDT taking up the majority, much larger than the part above sea level.
• However, at deeper levels, where USDC and USDT cannot reach, there will be a large number of stablecoins, including stablecoins for segmented business scenarios, decentralized interest-bearing stablecoins, and so on.