Thread by @ccatalini

1/ Why everyone is wrong about stablecoins
@Stripe’s recent acquisition of stablecoin orchestration startup Bridge sent shockwaves through the crypto world. For the first time, a major payments company committed over a billion dollars to accelerate its use of this technology.

2/ What most miss: Bridge might be worth $1.1 billion to Stripe, but on its own, it likely wouldn’t have hit that mark. This isn’t due to any lack of talent— @zcabrams and his team assembled a top group of engineers—...

3/ ...but rather because making money with stablecoins is extremely challenging. But how can that be? After all, Circle and Tether have been raking in substantial profits following the interest rate hikes of the last two years.

4/ The reality is that network effects in the stablecoin market are likely much weaker than most anticipate, and it’s far from a winner-take-all environment. In fact, stablecoins may well function as loss leaders.

5/ So what are the biggest misconceptions about stablecoins? Let’s take a closer look.

#1 Stablecoins need a complementary business model— Relying solely on reserve interest isn’t a sustainable way to monetize a stablecoin.

6/ Of course, it’s not just the ‘stock’ of stablecoins that can be monetized; their ‘flow’ can be too. Circle’s recent increase in redemption fees suggests they’re starting to realize this.

7/ However, this approach violates a fundamental principle in payments: to build user trust and retention, entry and exit must be seamless.

8/ This leaves transaction fees as a potential revenue source—but enforcing them on a blockchain is challenging without strict control over the protocol. So what options do stablecoin issuers have? They’ll need to start competing with their own customers.

9/ Stripe doesn’t face this dilemma. As one of the world’s most successful payments companies, they’ve mastered the art of deploying and monetizing a streamlined software layer on top of global money movement.

10/ #2 Dollarization is not a product— Crypto has a history of greatly underestimating the influence of regulation on its future. The same is true for stablecoins today.

11/ Many assume that stablecoins will seamlessly operate as low-cost, global dollar accounts for consumers and businesses. The reality is far more complex.

12/ #3 There will not be a single stablecoin winner—The reality is that a stablecoin’s most important feature—its peg to a currency like USD or EUR—is also its greatest weakness.

13/ Today, these assets are seen as distinct, but once regulation standardizes stablecoins and makes each equally safe, individuals and businesses will view them simply as dollars or euros.

14/ A common misconception in the history of technological disruption is how frequently incumbents manage to push back. Even Clayton Christensen’s key example of disruptive innovation—the rise of smaller disk drive producers in the hard disk industry—is wrong.

15/ Tech companies with banking licenses, like Revolut, Monzo, and Nubank, are well-positioned to lead in their markets, and other players are likely to accelerate their licensing efforts to gain similar advantages.

16/ The future is bright for leading payments, fintech, and neobank players, who can leverage stablecoins to streamline operations and accelerate global expansion. It also opens new opportunities for domestic stablecoin issuers.

17/ Leading crypto exchanges will also leverage stablecoins to enter the consumer and merchant payments space more aggressively, positioning themselves as credible challengers to major fintech and payment companies.

Full article on Forbes: forbes.com/sites/christia…