The Trojan Horse of Crypto: Stablecoins
How stablecoins are the ultimate psyops for the mass adoption of smart contracts and tokenized assets
The tokenization of every financial asset in the world is inevitable.
While this may have been a controversial claim in years prior, the crypto industry is no longer alone in saying this. Larry Fink—Co-Founder and CEO of BlackRock—now speaks regularly to the inevitability of tokenization and the benefits it can provide to the global financial system. As the world’s largest asset manager, BlackRock’s AUM ($10.5T) is over 4x larger than the market capitalization of the entire crypto asset class ($2.5T).
In other words, a single institution who manages more capital than what the entire crypto industry is worth is telling the world that the global financial system and all of its assets will exist in a tokenized format on crypto-rails. This is a signal that cannot be ignored.
This tokenized reality is approaching faster than most realize. Blackrock’s BUIDL fund—a tokenized basket of US government securities on Ethereum Mainnet—now sits at over $460 million, quickly becoming the largest tokenized fund issued on a public blockchain in just a few months.
And yet, in a crude twist of irony, at the time when a growing number of the world’s largest financial institutions are recognizing the value of asset tokenization for capital markets and even launching tokenized financial products, the average person (retail) still largely considers crypto to be a “speculative casino” with no real world utility or value proposition to society.
And honestly, it’s not hard to blame them.
No different than next morning’s hangover after a bender, the crypto exuberance of 2021 ultimately ended with the collapse of a $40B ponzi scheme, the bankruptcy of nearly every retail-facing lending platform, and the widely-reported collapse of the FTX fraud. Tens of billions in retail capital evaporated overnight, never to be seen again.
2024 has introduced a breath of fresh air with the court-enforced launch of spot Bitcoin ETFs in the United States, the subsequent approval of spot Ether ETFs, and an election cycle where crypto is a bipartisan discussion point. And yet even so, the negative perception surrounding crypto has not worn away.
So what, if anything, can resolve the information asymmetry that exists between institutions and retail regarding asset tokenization?
Enter stablecoins.
Digital Dollars: The Intuitive Pitch For Crypto
Crypto is an extraordinarily difficult concept to succinctly explain to the masses. The industry is a patchwork of numerous fields across cryptography, distributed systems, game theory, economics, political science, and beyond. Most people do not understand how the financial system actually works (they don’t need to) and so therefore the problems that crypto aims to solve are largely foreign.
Imagine explaining what the Internet is to someone who has no concept of what a computer is.
As a result, there is no single universal explanation of crypto. Instead, what often happens is that the crypto-curious are overwhelmed with monologues about the historical failures of central banking and fiat monetary debasement, while ingesting a near-lethal dose of industry jargon that is incomprehensible to all but the already crypto-pilled.
But stablecoins…
People understand stablecoins.
Stablecoins are a powerful construct as they take a concept that people already intimately know and interact with on a daily basis (US dollars) and add a spice of something they don’t (blockchains). This not only creates a curiosity gap, but makes the core differences and benefits of crypto more immediately apparent since people have a baseline mental model to compare stablecoins against.
By sidestepping the entire existential “what even is money” question that inevitably arises when explaining crypto-native assets like Bitcoin and its derivatives, the existence of stablecoins puts forth a core point: Crypto is the superior way to represent assets.
Practically speaking, stablecoins allow anyone to transfer dollars to anyone else in the world with just an internet connection. Transactions are settled in under a second and for less than a penny in fees. No rent-seeking intermediaries, no bank accounts required, no oppressive capital controls, no multi-day settlement delays, no bullshit.
For anyone who lives in a country with a hyper-inflating local currency, has tried to make a cross-border remittance payment, or simply wants to make a financial transaction on a weekend or holiday, the benefits of stablecoins are immediately obvious.
Once you start regularly transacting dollars in the stablecoin format (digital dollars), going back to using traditional banking services feels absurdly archaic. It’s akin to going from fiber gigabit internet back to 56K dial-up.
Money should not have business hours. Stablecoins are 24/7/365.
In terms of market demand, the data speaks for itself. Stablecoins have objectively achieved product-market fit as no matter what metric you look at—monthly active users, transaction volumes, circulating supply—they’re breaching all time highs.
By way of comparison, stablecoins collectively are the 16th largest holder of US treasuries at ~$145 billion. More than Norway, Saudi Arabia, and South Korea. Being one of the largest and fastest growing purchasers of US government debt, along with the fact that stablecoins reinforce the global dominance of the dollar, present a solid case that the United States will only become more favorable to the existence and growth of stablecoins over time.
The Merging of Fintech and Stablecoins
One might think stablecoins aim to replace existing Fintech payment apps, but this couldn't be further from the truth. By launching their own stablecoins, existing Fintechs can not only benefit from the cost and speed advantages afforded by blockchain-based settlement, but also eliminate fragmentation in the payments industry.
The fact that you cannot send money from a Venmo wallet to a Cash App wallet, or other combinations of common payment apps, is simply absurd. On the other hand, stablecoins can be transferred between any two parties, regardless of the wallet software used. The user experience improvement is undeniable and will come to be expected by consumers.
Furthermore, given their open and programmable nature, stablecoins (issued by Fintechs) can be seamlessly integrated within existing DeFi protocols and onchain finance applications. This positions existing Fintechs particularly well to serve as an interface layer for consumers who wish to interact with onchain applications, such as to earn yield, while still having access to dedicated customer support.
Just like with tokenized assets, this reality is approaching faster than people realize.
Look no further than PayPal USD (PYUSD)—a $400M+ stablecoin, launched by the largest payment processor globally, that is available today across multiple public blockchains. PYUSD is already integrated across the DeFi economy, including both decentralized exchanges and lending platforms.
“PayPal USD is designed to reduce friction for in-experience payments in virtual environments, facilitate fast transfers of value to support friends and family, send remittances or conduct international payments, enable direct flows to developers and creators, and foster the continued expansion into digital assets by the largest brands in the world.” — PayPal
Beyond Fintechs like PayPal directly issuing stablecoins, we’re also seeing established payment card networks such as Visa publish comprehensive research on improving stablecoin payments and actively engage in live pilots that enable Visa card payments to be settled in Circle’s USDC.
“By leveraging stablecoins like USDC and global blockchain networks like Solana and Ethereum, we're helping to improve the speed of cross-border settlement and providing a modern option for our clients to easily send or receive funds from Visa’s treasury,” — Cuy Sheffield, Head of Crypto, Visa.
Simply put, stablecoins are here to stay. They’re becoming increasingly ingrained within the existing payments industry, thereby amplifying their utility by making it easier for consumers to spend stablecoins and for merchants to accept them.
Transitioning Finance Onchain
With the above context in mind, my advice for helping onboard someone to crypto: Get them to download a crypto mobile wallet (e.g. Coinbase Wallet), have them generate a private key, and provide some stablecoins to transact.
While the end-to-end UX of crypto today is by no means perfect, even in its current state, transacting stablecoins is a night and day difference compared to a traditional international bank wire transfer. The technical complexity will only continue to be abstracted away, making crypto’s core benefits even more apparent.
This is ultimately where the Trojan horse effect comes into play. Once someone gets first-hand experience of the tangible benefits crypto brings, they will start to demand that every aspect of finance work like stablecoins do. Globally accessible, fully transparent, minimally extractive, always online, and resistant to manipulation.
What starts as improving the way dollars are transferred, morphs into transforming the global financial system into an onchain format based on smart contracts and tokenized assets.
The possibilities of what a completely onchain financial system could look like are limitless.
Payment processing solutions that enable merchants to accept any fungible or non-fungible asset as payment, while only receiving their preferred currency (e.g., paying for groceries with stocks, Bitcoin, or tokenized digital art, while the recipient receives USD stablecoins).
The ability to support online creators, independent publications, or a social cause with micropayments and real-time payment streams that can be transparently tracked end-to-end (e.g., supporting cancer research via streaming $0.000004 per second (~$10 a month) to an organization with an onchain auditable budget).
Autonomous robo-taxi networks that collect their own revenue and automatically pay for expenses such as electricity consumption, toll fees, mechanical repairs, and upgrades (any service to be fully automated via AI will need an onchain economic system).
The creation of truly global capital markets, where anyone with just an internet connection can gain access to the same investment opportunities and yields as the largest, most wealthy entities in the world.
These are only just high-level concepts. Much like it was nearly impossible in the early 90’s to predict exactly which Internet-enabled use cases would scale to a global level, the same is true of creating an onchain financial system.
Ultimately, stablecoins are the first stepping stones towards a fully tokenized economy. They’re not only one of the first crypto-powered use cases to achieve true product-market fit, but they also serve as an indispensable tool for succinctly showcasing the core value proposition of crypto and tokenization to novices.
So the next time someone asks you what crypto is all about, skip the hour-long lecture and simply point them towards digital dollars.
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