Author:Rob Hadick ＞|＜
Compiled by: TechFlow
Recently, many people have asked me about the future direction of the stablecoin market and which parts of the value chain are likely to accumulate the most value in this ecosystem. Here, I share some unfiltered personal insights on this topic.
In my analysis, I have divided the market into several categories - more granular than most frameworks I've seen (though not as comprehensive and complex as @artemis__xyz's market map, which is excellent) - because the payment system itself is full of complexity and nuances. For investors, understanding the responsibilities and value attribution of each role is particularly important, as they often overlook these critical details. I have divided the stablecoin market into the following seven categories:
(1) Settlement Rails
(2) Stablecoin Issuers
(3) Liquidity Providers
(4) Value Transfer/Money Services
(5) Aggregated APIs/Messaging
(6) Merchant Gateways
(7) Stablecoin-Powered Applications
You may wonder: why so many categories? Especially when I haven't even discussed core infrastructure (such as wallets or third-party compliance services)? The reason is that each domain has its unique "moat" and different ways of capturing value. Although there is some overlap between certain service providers, it is crucial to understand the nuances of each part.
Here are my thoughts on the value distribution across these categories:
1. Settlement Rails:
The core competitiveness of settlement networks lies in network effects - including deep liquidity, low transaction fees, fast settlement times, reliable online services, and built-in compliance and privacy protection. These factors make settlement networks likely to form a "winner-take-all" market landscape. I am skeptical that general blockchains can meet the scale and standards of major payment networks. While general chain expansions or Layer 2 solutions may be effective in certain scenarios, the key is that we need solutions specifically built for payments.In the future, the winners in this domain will be highly valuable and likely focused on stablecoins or payments.
2. Stablecoin Issuers:
Currently, stablecoin issuers (such as @circle and @tether_to) are the notable winners in the market, as they benefit from strong network effects and the current high-interest rate environment. However, looking ahead, if they continue to operate like asset management companies rather than developing as payment companies, their growth will face bottlenecks. Issuers need to invest more resources in the following areas: fast and reliable payment infrastructure, high-standard compliance processes, low-cost minting and redemption mechanisms, seamless integration with central banks and core banking, and stronger liquidity support (similar to @withAUSD). While "stablecoin-as-a-service" platforms (such as @paxos) may spawn a lot of competition, I still believe that neutral, non-bank or fintech-issued stablecoins will be the main winners, as market competition will not allow closed systems to operate independently without a trusted neutral party. Stablecoin issuers have already accumulated a lot of value, and some leading players will continue to maintain their advantage, but they need to go beyond the simple issuer role.
3. Liquidity Providers (LPs):
Liquidity providers are currently mainly composed of OTC platforms or exchanges. They are either large, successful crypto enterprises or small firms that have underperformed in the broader crypto market competition and have turned to focus on the stablecoin business. However, this domain is highly competitive, with low pricing power, and their moats mainly manifest in access to cheap capital, service stability, and the ability to support deep liquidity and multiple trading pairs. As a result, over time, large players may dominate the market, and liquidity providers focused on stablecoins may find it difficult to establish lasting competitive advantages.
4. Value Transfer/Money Services ("Stablecoin PSPs")
This category is sometimes referred to as "stablecoin orchestration" platforms, such as @stablecoin and @conduitpay. They build competitive barriers and win the market by controlling proprietary settlement networks and direct partnerships with banks (rather than relying on third-party service providers). The "moats" of these platforms lie in their deep collaboration with banks, flexibility in handling multiple payment forms, global coverage, liquidity assurance, system stability, and strict compliance standards. Although many companies claim to have these capabilities, in reality, only a few truly possess dedicated infrastructure. In this domain, the winners will gain some pricing power, forming regional duopolies or oligopolies, and grow into large enterprises by complementing traditional payment service providers (PSPs).
5. Aggregated APIs/Messaging Platforms
These platforms often claim to provide services similar to PSPs, but in reality, they only package or aggregate APIs. Unlike PSPs, they do not directly bear compliance or operational risks, but rather act as a marketplace for PSPs and Liquidity Providers (LPs). Currently, these platforms can profit by charging high fees, but over time, they may face compression or even replacement, as they have not solved the core challenges in the payment flow or infrastructure. Although some platforms compare themselves to the "Plaid of the stablecoin domain," they overlook the fact that blockchain technology has already solved many of the pain points that Plaid addressed for traditional banking and payment systems. If these platforms cannot extend into more end-customer-facing domains and take on more of the service stack, they will struggle to maintain profitability and long-term competitiveness.
6. Merchant Gateways/Payment Onramps
Merchant gateways primarily help businesses and merchants accept stablecoin or cryptocurrency payments. Although they sometimes overlap in function with PSPs, they are typically more focused on providing developer-friendly tools, while integrating third-party compliance and payment infrastructure, and packaging them into a user-friendly interface. These platforms aim to stand out by simplifying developer integration, similar to the development path of Stripe. However, unlike Stripe's early days, developer-friendly payment options are now very common, and distribution capability has become a key determinant of success. Traditional payment companies can easily partner with orchestration platforms to add stablecoin payment options, making it difficult for crypto-only gateways to gain a market advantage. While companies like Moonpay and Transak have previously profited through high pricing, this advantage may be hard to sustain. In the B2B domain, some platforms may succeed by providing unique enterprise-level features (such as large-scale fund management), but the prospects in the B2C space are less optimistic. Overall, this domain faces significant challenges.
7. Fintech and applications driven by stablecoins
Nowadays, it is easier than ever to create a "new-style bank" or "fintech" based on stablecoins, so competition in this field will be extremely fierce. Who can win will depend on distribution capabilities, market strategies, and differentiated product design - similar to the traditional fintech industry. However, for well-known brands like Nubank, Robinhood, and Revolut, adding stablecoin functionality is relatively simple, making it difficult for startups to stand out in developed markets. In emerging markets, there may be more opportunities to launch unique products (e.g. @Zarpay_app), but if your differentiation is solely based on stablecoin-based financial services, you are likely to fail in developed markets. Overall, I expect the failure rate in this field to be very high, and consumer-oriented startups focused on cryptocurrencies/stablecoins will face huge challenges. However, business models targeting enterprises may still find their niche.
Of course, there are some uncovered edge cases and overlapping areas. But this framework helps us as investors better understand the opportunities in the stablecoin market. Feel free to share your thoughts. If you are interested in the above content or are a startup seeking financing, please feel free to contact me.
