Original title: The Trojan Horse of Crypto: Stablecoins
By Zach Rynes
Compiled by: Chris, Techub News
The tokenization of financial assets is inevitable.
While this view may have been controversial in the past, the cryptocurrency industry is no longer the only one holding this view. BlackRock co-founder and CEO Larry Fink now frequently speaks about the inevitability of tokenization and its benefits to the global financial system. As the world's largest asset manager, BlackRock manages more than four times the assets ($10.5 trillion) of the entire crypto asset market ($2.5 trillion).
In other words, an institution that manages more capital than the entire crypto industry is worth is telling the world that the global financial system and all of its assets will exist in tokenized form on the crypto asset rails, and that’s a signal that can’t be ignored.
This tokenized reality is arriving sooner than most expected. BlackRock’s BUIDL fund, a tokenized collection of U.S. government securities on the Ethereum mainnet, has now surpassed $460 million, quickly becoming the largest tokenized fund ever issued on a public blockchain.
Source: 21.co Dune Analytics
Although more and more large financial institutions around the world are gradually recognizing the value of asset tokenization in the capital market and even launching tokenized financial products, most ordinary people still regard cryptocurrency as a "speculative casino" and believe that it has no practical application value or significance to society.
Frankly speaking, their view is understandable.
Like a hangover after a binge, the 2021 cryptocurrency craze ended with the collapse of a $40 billion Ponzi scheme, the bankruptcy of almost all lending platforms for retail investors, and the collapse of the FTX fraud case. Tens of billions of dollars evaporated overnight and can never be recovered.
In 2024, with the launch of Bitcoin spot ETF and Ethereum spot ETF in the United States, cryptocurrency has become the focus of bipartisan discussion during the election cycle. However, even so, people's negative views on cryptocurrency have not subsided.
So, is there anything that can solve the information asymmetry between institutional and retail investors regarding asset tokenization?
Stablecoins may be the answer.
Digital Dollar: The Visual Salesmanship of Cryptocurrency
Cryptocurrency is an extremely difficult concept to explain succinctly to the general public. The industry is a combination of cryptography, distributed systems, game theory, economics, politics, and many other fields. Most people don't really understand how the financial system works (nor do they need to), so the problems that cryptocurrencies are trying to solve are mostly unfamiliar to them.
Imagine explaining what the Internet is to someone who knows absolutely nothing about computers.
As a result, there is no one universal explanation for cryptocurrencies. Instead, it often happens that people interested in cryptocurrencies are inundated with monologues about the historical failures of central banks and fiat currency debasement, while being exposed to too much industry jargon to be understood by anyone except those who are already fascinated by cryptocurrencies.
But stablecoins are different, people can understand stablecoins.
Stablecoins are a powerful idea because they combine something people are familiar with and use every day (the dollar) with something they are unfamiliar with (blockchain). This not only creates a curiosity gap, but also makes the core differences and advantages of cryptocurrencies more obvious because people can compare and understand stablecoins with existing mental concepts.
The emergence of stablecoins circumvents the inevitable question of "what is money" when explaining crypto-native assets such as Bitcoin and its derivatives, and puts forward a core point: cryptocurrency is the best way to represent assets.
In fact, stablecoins allow anyone to transfer dollars anywhere in the world with just an internet connection. Transactions are completed in one second and the fees are less than a penny. There are no rent-seeking intermediaries, no bank accounts required, no oppressive capital controls, no multi-day settlement delays, and absolutely no red tape.
For those who live in countries with severe currency inflation, try to send money across borders, or simply want to conduct financial transactions on weekends or holidays, the advantages of stablecoins are obvious.
Once you start transacting in stablecoins (digital dollars) on a regular basis, using traditional banking services will be like going back from a gigabit fiber optic network to 56K dial-up.
Money should not have business hours, and stablecoins are online 24 hours a day, 365 days a year.
From the perspective of market demand, the data speaks for itself. Stablecoins have reached product-market fit in all indicators - whether it is monthly active users, transaction volume or circulating supply, they are constantly setting new highs.
Source: Visa Onchain Analytics Dashboard
In contrast, stablecoins hold about $145 billion in U.S. Treasuries, making it the 16th largest holder, ahead of Norway, Saudi Arabia, and South Korea. As one of the largest and fastest-growing purchasers of U.S. government debt, and the fact that stablecoins reinforce the dollar’s global dominance, the U.S. will only become more conducive to the existence and growth of stablecoins over time.
Source: Brendan Malone
The integration of fintech and stablecoins
Some may think that stablecoins are designed to replace existing fintech payment applications, but this is not the case. By launching their own stablecoins, existing fintech companies can not only enjoy the cost and speed advantages brought by blockchain settlement, but also eliminate the fragmentation problem of the payment industry.
It’s ridiculous that you can’t transfer funds from your Venmo wallet to your Cash App wallet, or between other popular payment apps. Stablecoins can be transferred between any two users, regardless of which wallet software they use. This improvement in user experience is undeniable and will become consumer expectation.
Furthermore, given the openness and programmability of stablecoins (issued by fintech companies), they can be seamlessly integrated into existing DeFi protocols and on-chain financial applications. This enables existing fintech companies to serve as an interface layer for users to interact with on-chain applications, such as by earning yield, while still enjoying dedicated customer support.
Just like tokenized assets, this reality is approaching faster than people realize.
Look at PayPal USD (PYUSD), a stablecoin worth over $400 million launched by the world’s largest payment processor, which is available today on multiple public blockchains. PYUSD has been integrated into the DeFi economy, including DEXs and lending platforms.
PayPal said, “PayPal USD is designed to reduce friction for payments within experiences in virtual environments, facilitate the rapid transfer of value to support friends and family, send remittances or make international payments, enable direct payments to developers and creators, and facilitate the continued expansion of the world’s largest brands into digital assets.”
Source: PayPal USD Stablecoin
In addition to fintech companies like PayPal issuing stablecoins directly, we have also seen established payment card companies such as Visa publish comprehensive research on improving stablecoin payments and actively participate in live pilots to 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 are helping to improve the speed of cross-border settlements and providing our customers with a modern option to easily send or receive funds from Visa’s vault,” said Cuy Sheffield, head of cryptocurrency at Visa.
In short, stablecoins are here to stay. They are becoming more entrenched in the existing payments industry, thereby amplifying their utility by making it easier for consumers to spend stablecoins and for merchants to accept them.
Towards on-chain finance
With the above context, my advice to help someone get into crypto is to have them download a crypto mobile wallet (such as Coinbase Wallet), generate a private key, and provision some stablecoins to trade.
While the cryptocurrency user experience today is far from perfect, even in its current state, stablecoin transactions are worlds apart from traditional international bank wires. The complexity of the technology will continue to be simplified, making the core benefits of cryptocurrency more significant. This is where the Trojan Horse effect comes into play. Once people experience the practical benefits of cryptocurrency firsthand, they will begin to expect all aspects of finance to work like stablecoins: globally accessible, fully transparent, with minimal intermediaries, always online, and resistant to manipulation.
This will all start with improving the way dollars are transferred, and will ultimately drive the global financial system to an on-chain form based on smart contracts and tokenized assets.
The possibilities of a fully on-chain financial system are endless.
Payment processing solutions can enable merchants to accept any fungible or non-fungible asset as payment while only accepting their preferred currency (e.g. paying for groceries with stocks, Bitcoin, or tokenized digital art while the recipient receives a USD stablecoin).
Support micropayments and real-time payment streams for online creators, independent publications, or social causes that can be transparently tracked end-to-end (e.g., supporting cancer research via payments of $0.000004 per second (~$10 per month) flowing to an organization with an on-chain auditable budget).
A network of autonomous driverless taxis could autonomously collect revenue and automatically pay for things like electricity consumption, tolls, and mechanical repairs and upgrades (any service that is fully automated through AI will require an on-chain economic system).
Creating truly global capital markets where anyone with nothing more than an internet connection can access the same investment opportunities and returns as the world’s largest, wealthiest entities.
These are just high-level concepts. Just as it was nearly impossible to accurately predict which Internet use cases would scale globally in the early 90s, the same is true for creating an on-chain financial system.
Ultimately, stablecoins are the first step towards a fully tokenized economy. Not only are they one of the first crypto use cases to achieve true product-market fit, they are also an indispensable tool for succinctly demonstrating the core value proposition of crypto and tokenization to newcomers.
So, next time someone asks you what cryptocurrency is, tell them that cryptocurrency is the digital dollar!
