The Stablecoin Thesis: A Deep Dive Into Crypto's Real Trillion Dollar Opportunity. After countless discussions with many people explaining the same thing, I figured it's time to write it down 😅 For the last 7-8 months while building csUSDL, I've been obsessively researching stablecoins, having endless discussions with fellow founders, partners and diving deep into why this might be crypto's biggest opportunity yet. TLDR This deep dive is split into three parts that build on each other: 1. The Market Reality (PMF): Stablecoins now power 50% of all crypto transactions ($5T+ in 2024) because they're 10x better than traditional finance. 2. Money Architecture: Banks aren't just storing money - they're managing risk layers of money promises. Crypto is rebuilding this entire stack transparently. 3. The Convergence: The lines between stablecoins, lending, and banking are disappearing. This convergence is creating entirely new financial primitives. Part 1: Why Stablecoins Are Winning Before we dive into the impressive growth numbers, let's understand something fundamental. Every major financial innovation in history has been about making money movement more efficient. Banks, credit cards, wire transfers - each solved specific friction in moving value. Stablecoins are the next evolution of this story, and the numbers prove it. From Pantera's comprehensive analysis, we're witnessing a fundamental shift in crypto's utility. Let's Look at the numbers: - Stablecoins: 3% → 50% of crypto transactions since 2020 - Volume: $5T+ - Users: 200M active accounts - Growth: Consistent even in bear markets But here's what's fascinating - this growth isn't coming from crypto traders. It's coming from: - Indonesian businesses using stablecoins for cross-border trade - Argentine professionals protecting their savings - African merchants accessing global markets - Eastern European companies optimizing treasury operations Why are they choosing stablecoins? Because the alternative is: - Paying 2-5% fees for international transfers - Waiting 2-5 days for settlement - Dealing with banking hours and restrictions - Managing multiple currency conversions Stablecoins solve this with: - Near-zero fees - ~2 minute settlement - 24/7 operations - Direct dollar access Part 2: The New Architecture of Money Now that we've seen the market validation, let's understand why this growth was inevitable. What looks like a simple crypto dollar on a blockchain is actually something much more powerful. To understand why, we need to look at how money really works. Think about what happens when you receive a payment. It doesn't arrive as physical cash - it's a promise from a bank to pay dollars. That bank, in turn, has promises from other institutions. The entire financial system is built on layers of these promises. The Hierarchy of Money Money exists in layers, with each layer representing a different type of promise and level of risk. Traditional Money Layers (Historical Example - 1920s US) Layer 1 - Gold - The base commodity - Secure but difficult to transact with - No counterparty risk - Limited by physical constraints Layer 2 - Federal Reserve Notes - Promise to pay gold at $20.67 per Troy ounce - Paper money for daily transactions - Backed by government authority - More convenient than gold Layer 3 - Bank Deposits - Promise to pay Federal Reserve Notes - Most common form of money in use - Created through banking system - Relies on bank solvency That's how banking evolved to scale beyond physical limitations. But these promises have problems: - You can't verify them easily - You can't program them - You can't combine them in new ways - You can't use them globally without friction Although, Banks would maintain ledgers at the Fed for inter-bank settlement, eliminating the need to physically move gold or notes. This system worked until bank insolvency or leaving the Gold Standard revealed that Layer 1 money was the only true money. This is where stablecoins change everything. The New Money Stack Layer 1: The Trust Layer - USDC, PYUSD, USDP - 100% backed by real dollars - Monthly audits - Regulatory compliance - Direct fiat bridges Layer 2: The Innovation Layer - DAI, LUSD - Backed by crypto assets - Transparent operations - Programmable features - Community governance Layer 3: The Composability Layer - steakUSDC, aUSDC, yield-bearing stables - Built on other stablecoins - Automatic yield generation - Risk-managed exposure - Protocol integrations Each layer adds new capabilities while maintaining the core promise of redeeming the stablecoin at $1. The Business Model of Stablecoins Stablecoins aren't just better payment rails - they're complete financial businesses. And like all financial businesses, they need sustainable revenue models and strong risk management. Revenue Generation Stablecoins make money in two ways: 1. Fee Revenue The straightforward part - charging for services: Regulated Stablecoins - Circle: Enterprise API fees and integrations - Paxos: Institutional service charges - PYUSD: PayPal ecosystem integration fees Decentralized Stablecoins - MakerDAO: Stability fees from vaults - Protocol fees from PSM operations - Revenue from protocol integrations 2. Interest Revenue This is where it gets interesting: Regulated Approach - Treasury bill yields - Bank deposit interest - Low-risk, regulated investment returns Decentralized Approach -Lending protocol yields -Protocol treasury management -DeFi yield strategies Core Constraints for Stablecoins But generating revenue isn't enough. Two fundamental constraints shape every decision: 1. Solvency Management Regulated Stablecoins - Maintain 100% reserves at all times - Hold only high-quality liquid assets as cash equivalents. - Submit to regular audits - Example: USDC's monthly attestations Decentralized Stablecoins - Implement overcollateralization - Diversify across multiple collateral types - Deploy algorithmic risk management - Example: MakerDAO's surplus buffer system 2. Liquidity Management Regulated Model - Traditional bank redemption paths - Professional market maker networks - Integration with TradFi rails Decentralized Model - Deep AMM liquidity (Curve, Balancer, Uniswap) - PSM (Peg Stability Module) mechanisms - Flash loan capabilities for instant liquidity The Core Challenge Every stablecoin issuer faces the same fundamental question: "How do you maintain stability and trust while generating sustainable revenue in a highly competitive and evolving market?" This drives innovation across: - Reserve management strategies - Risk assessment systems - Yield optimization approaches - Compliance frameworks This combination of revenue models and risk management isn't just copying traditional finance. That's why understanding these mechanics is super important. Now we have A system that's simultaneously more trustworthy (100% reserves or Fractional reserves with over-collateralisation, real-time auditing), more efficient (instant settlement, programmable), and more innovative (composable, borderless). This is literally a fundamental upgrade to how money works. That's why the growth we saw in Part 1 is just the beginning. Part 3: The Great Convergence Here's where it gets interesting: the lines between stablecoins, lending protocols, and banks are disappearing. The Pattern Lending Protocols → Stablecoins - Aave isn't just lending anymore - aUSDC can become its own form of money - Morpho isn't just optimizing lending - steakUSDC is becoming a core building block and reserves for Angle Protocol & Reserve Protocol and many others. - Every successful lending protocol can create its own monetary layer e.g GHO Stablecoins → Banking - MakerDAO started as a stablecoin but now manages a sophisticated investment portfolio - Moonwell started as lending protocol , launched a yield bearing USDC vault with Morpho and now launched a card on Morpho Vault - Modern stablecoins are really full-service financial protocols Why This Convergence is Inevitable In the world of smart contracts, traditional distinctions don't matter. When money becomes programmable: - Lending becomes money creation - Money creation becomes banking - Banking becomes protocol design The Future Traditional banks took centuries to build their infrastructure - They're limited by legal contracts and legacy systems - Their innovation is constrained by regulatory borders But with smart contracts: - Infrastructure is code - Contracts are self-executing - Innovation is permissionless - Markets are global by default Closing thoughts Stablecoins are just not - Better payment rails ($5T+ volume proves this) - A new banking system (transparent, efficient, programmable) - Innovation in lending (protocols becoming banks and vice versa) We're seeing all of these converge into something bigger: a financial system that's simultaneously more trustworthy than traditional finance (100% reserves or transparent over-collateralised fractional reserves, real-time auditing), more efficient (instant, global, cheap), and more innovative (composable, programmable). That's the trillion-dollar opportunity hiding in plain sight. Credits: This analysis builds on three foundational articles that shaped my understanding while building csUSDL: 1. "The Trillion Dollar Opportunity" by Ryan Barney & Mason Nystrom at Pantera Capital (December 2024) 2. "CryptoBanking 101" by Sébastien (@SebVentures) at CryptoBanking 3. "Lending and Stablecoins" by Sébastien (@SebVentures) at CryptoBanking

Very good read.

"How protocol can start as a security and later decentralised" - @DavidSacks This will enable great founders to be comfortable launching token onshore. Founders are ready for compliance, just give them the clarity.

@ranjan3118 Yes , The beginning of infinity

what do you think?

@elonmusk @realDonaldTrump Same love for you as an entrepreneur.

Welcome @_ClaytonFuller to the Founders Club. One of the best team i have ever worked with in my career. Your team creativity always next level.

Make this as a poster on your wall. 🫡

@HiltnerJim @MorphoLabs Yes, the new UI looks dope

Do you think it will be same with new administration in US as well? What is the security concern on transacting on public blockchain other than regulation? BUIDL & many others are already launched on public blockchains. Private permissioned blockchain seems like offchain compliant bank stack with blockchain like capabilities. Love to read more on this. Staking with RWAs and gas token paid in RWAs, this is super and even restaking in RWAs would be bigger as well. Assets can be programmed to be permissioned as you already have. But def love ondo and curious to learn more about.

@DefiIgnas Yes i meant real use cases with more protocols for sure.

Respect and love for the innovation and real traction. It’s inspiring to see this. 🫡🫡🫡🫡🫡

Focus on traction Focus on traction Focus on traction and win so hard.

csUSDL is making waves with institutional adoption. More than thrilled to see the vision getting live. Its a pleasure to be working with @GSR_io Team.

Joining in few mins. Excited to talk about paytech and crypto payments with @sensible & other leaders.

Proud to welcome Jerry Zhou from @ambergroup_io into Founders Club. Its a pleasure to work with Amber team.

DeFi has building blocks and primitives but lack real liquidity. RWAFI will eat DeFi and most of us are not ready for it. Ondo has just taken a leap in that and expect more players doing the same. Preparing a big deep dive on this.

RWAs explosion is coming. 100x more bullish on csUSDL. Great ppt by @nathanlallman

$1.1M+ in our @Balancer pool in last 2 hours. Total TVL crossed $6.1M+ LPs know what to do and are doing it smoothly.