7 distinct market segments, each with its own "moat" and different value capture mechanisms.
Written by: Rob Hadick, Dragonfly Partner
Compiled by: Luffy, Foresight News
Recently, I have received many questions about the direction of the stablecoin market and value capture, and I would like to share some rough thoughts here.
I will discuss my views on the market from several categories, which are more detailed than most of the frameworks I have seen, as payments are inherently complex and nuanced. Understanding who is doing what and what they have is very important, especially for investors who often overlook the subtle differences. These categories are: (1) Settlement, (2) Stablecoin Issuers, (3) Liquidity Providers, (4) Value Transfer/Money Services, (5) Aggregator APIs/Messaging, (6) Merchant Gateways, and (7) Stablecoin-Driven Fintech and Applications.
You may ask: why are there so many categories, especially when I haven't even introduced core infrastructure like wallets? This is because each domain has its own "moat" and different value capture mechanisms. While there is overlap between providers, understanding the differences in each part of the stack is crucial.
1. Settlement
This is about network effects, think deep liquidity, low fees, fast settlement times, reliable uptime, as well as compliance and privacy. They are likely to form a winner-take-all market. I am very doubtful that general blockchains can achieve the scale and standards of major payment networks. I expect general chain L2s to play a role, but the focus is that we need purpose-built solutions. The winners here will capture a lot of value and may focus on stablecoins/payments.
2. Stablecoin Issuers
Currently, issuers (such as Circle and Tether) are clearly the winners, as they benefit from massive network effects and high yields. But looking ahead, if they continue to operate more like asset managers than payment companies, they will get into trouble. They need to invest in fast, reliable infrastructure, high compliance standards, cheap minting/redemption processes, bank integrations, and comprehensive liquidity improvement (like what Agora is doing). "Stablecoin-as-a-Service" platforms (Paxos) will spawn countless competitors, but I still believe that stablecoins issued by neutral non-banks and fintechs will ultimately prevail, as the competitive landscape does not allow closed-loop systems to trade with each other without a trusted neutral third party. Issuers have already captured a lot of value, and some issuers will continue to thrive; but they need to evolve further, not just issue.
3. Liquidity Providers (LPs)
Today, LPs are typically OTC desks or exchanges, either large, successful crypto businesses or smaller firms. They are unable to compete broadly in the crypto business, so they have turned to focusing on the stablecoin business. This area feels highly commoditized, with very little pricing power, with moats entirely around obtaining cheap capital, uptime, and deep liquidity/high trading volumes. This means that over time, large companies will dominate this space. I don't believe that LPs focused on stablecoins can create strong and durable advantages.
4. Value Transfer/Money Services
These are the payment service providers (PSPs) for stablecoins, such as Bridge and Conduit, who will win by having proprietary channels and direct bank relationships rather than using third-party providers. Their "moat" comes from bank relationships, flexibility in handling different payment forms, global reach, liquidity, uptime, and robust compliance. Many claim to be this, but in reality, very few have truly proprietary infrastructure. The winners here will enjoy moderate pricing power, forming regional duopolies or oligopolies, and become very powerful businesses as complements to traditional PSPs.
5. Aggregator APIs/Messaging Platforms
These participants often claim to do the same thing as PSPs, but they are just wrapping or aggregating APIs. They don't bear compliance or operational risk themselves, and they should be viewed more as a market for PSPs and LPs. They can currently charge high fees, but they will ultimately be squeezed (perhaps even disintermediated entirely) because they don't have the "hard parts" of handling payment flows or building infrastructure. They call themselves the "Plaid of stablecoins," but they forget that blockchain has already solved many of the original pain points that Plaid solved for traditional banks/payments. Unless they get closer to the end customer and expand more of the stack, they will struggle to maintain profitability and business.
6. Merchant Gateways
These help merchants and businesses accept stablecoin or crypto payments. They sometimes overlap with PSPs, but mainly provide simple developer tools, while aggregating third-party compliance and payment infrastructure, and packaging it into a user-friendly interface. They hope to win like Stripe, on ease of integration, and then expand horizontally. But unlike Stripe's early days, developer-friendly payment options are now ubiquitous, and distribution is king. Mature payment players should be able to easily partner with payment service providers to add stablecoin payment capabilities, making it difficult for crypto-only gateways to carve out a niche. While companies like Moonpay or Transak have historically enjoyed tremendous pricing power, I don't believe this will continue. In B2B, there may still be some winners who add unique software features to manage large funds or scale stablecoin usage, but B2C is likely to be a failing category. Overall, though, I think this space is in for a tough fight.
7. Stablecoin-Driven Fintech and Applications
Now, it is easier than ever to build a "new bank" or "fintech" driven by stablecoins, so this space will be fiercely competitive. Who wins will depend on distribution, GTM capabilities, and differentiated product awareness, just like traditional fintech. But when well-known brands like Nubank, Robinhood, and Revolut can easily add stablecoin functionality, startups will struggle to stand out, especially in developed markets. In emerging markets, small businesses may have more opportunities to offer unique products, but if your differentiation is solely stablecoin-driven finance, you are likely to fail in developed markets. Overall, I expect the failure rate here to be very high. However, business-focused firms may have more opportunities to carve out niche markets.
