As the stablecoin ecosystem continues to evolve, market attention towards its future directions and value distribution is growing daily. This article will delve into the various tracks of the stablecoin market and their potential value from multiple perspectives. Understanding the diversity and complexity of this ecosystem has become increasingly important as it evolves.
In contrast to traditional frameworks, this analysis employs a more nuanced classification method, reflecting the intricacies and subtle differences inherent in the payments sector. Investors need to accurately grasp the roles and ownership structures of various participants. The primary classifications include:
Settlement Tracks
Stablecoin Issuers
Liquidity Providers
Value Transfer/Currency Services
Aggregation APIs/Messaging Platforms
Merchant Gateways
Stablecoin-Driven Applications
One may wonder why so many categories are necessary, especially since core infrastructures like wallets or third-party compliance are not yet covered. This is due to the unique defensive mechanisms and different value acquisition methods present in each area. While there may be overlaps between different providers, understanding the uniqueness of each layer is crucial. Below is an analysis of the value distribution across these sectors:
- Settlement Tracks
This area is clearly dominated by network effects, with core competitive advantages manifested in several aspects:
Deep Liquidity
Low Fee Structures
Fast Settlements
Stable System Availability
Native Compliance and Privacy Protection
This market is likely to develop into a winner-takes-all scenario. General-purpose blockchains struggle to meet the scalability demands of mainstream payment networks, making Layer 2 or specialized solutions more promising. The winners that emerge in this space will hold significant value and are likely to focus on stablecoins and payments.
- Stablecoin Issuers
Currently, issuers like Circle and Tether have achieved notable success due to strong network effects and a high-interest-rate environment. However, to continue their growth, these companies need to:
Build efficient and reliable infrastructure
Enhance compliance standards
Optimize minting and redemption processes
Strengthen integration with central banks and core banking systems
Improve overall liquidity (e.g., Agora)
While "stablecoin as a service" models from firms like Paxos may bring more competitors into the fray, neutral non-bank institutions and fintech-issued stablecoins may have a competitive edge, as transactions between closed systems require a trusted neutral third party. Although some issuers have already accumulated substantial value, they must broaden their scope beyond merely issuing stablecoins.
- Liquidity Providers (LPs)
Currently, the liquidity provider market is primarily dominated by over-the-counter (OTC) trading and exchanges, exhibiting a highly commoditized nature. The competitive advantages mainly rely on:
Low-cost capital acquisition
System stability
Deep liquidity and support for trading pairs
In the long run, large institutions are expected to dominate the market, making it difficult for liquidity providers focused on stablecoins to establish lasting competitive advantages.
- Value Transfer/Currency Services (Stablecoin "PSPs")
Platforms that orchestrate stablecoins (such as Bridge and Conduit) derive their competitive advantages from:
Proprietary payment rails
Direct partnerships with banks
Global coverage capabilities
Ample liquidity
High levels of compliance
There are few platforms that genuinely own proprietary infrastructure, but the successful ones are likely to form an oligopoly in regional markets and compete with traditional payment service providers (PSPs) to become major players.
- Aggregation APIs/Messaging Platforms
These market participants often claim to offer services comparable to those of payment service providers (PSPs), but in reality, they merely package and aggregate APIs. These platforms do not take on compliance or operational risks; more accurately, they should be viewed as market platforms for PSPs and liquidity providers (LPs).
While these platforms can currently charge high service fees, they face the risk of profit compression and potential obsolescence because they do not truly address the core challenges of the payment process or engage in infrastructure development. Despite branding themselves as the "Plaid of the stablecoin space," they overlook a crucial fact: blockchain technology has already resolved many of the pain points in traditional banking and payments. Unless they can expand their responsibilities in the tech stack and extend their services to end-users, maintaining their profitability and business sustainability will be challenging.
- Merchant Gateways/Entrances
These platforms assist merchants and businesses in accepting stablecoin or cryptocurrency payments. While they sometimes overlap with PSPs, they primarily focus on providing convenient developer tools, integrating third-party compliance and payment infrastructure, and packaging these into user-friendly interfaces. They aim to emulate the growth trajectory of Stripe by rapidly capturing market share through easy onboarding and further expanding their services.
However, unlike the early market environment Stripe faced, developer-friendly payment solutions are now ubiquitous, making channel distribution capabilities the key to success. Existing payment giants can easily partner with payment orchestration companies to add stablecoin payment options, complicating the market positioning for pure cryptocurrency gateways. While companies like Moonpay or Transak enjoyed strong pricing power in the past, this advantage is expected to diminish.
In the B2B sector, particularly in large fund management and scaled stablecoin applications, opportunities still exist, but the B2C space is highly competitive and presents serious challenges.
- Stablecoin-Driven Fintech and Applications
Today, it is easier than ever to create a "digital bank" or "fintech" product based on stablecoins, resulting in intense competition in this sector. Success depends on distribution capabilities, marketing strategies, and differentiated insights into products, which align closely with the requirements of traditional fintech.
In developed markets, traditional fintech giants like Nubank, Robinhood, and Revolut can easily integrate stablecoin functionalities, while startups need to identify unique value propositions.
In emerging markets, there may still be opportunities for unique products (such as Zarpay), but relying solely on stablecoin-backed financial services as a differentiator will likely be insufficient for success in developed markets.
Overall, pure cryptocurrency and stablecoin consumer startups in this category may face a high failure rate and ongoing challenges. However, enterprise-focused businesses may find opportunities to carve out their niches.
Conclusion
While this framework does not cover all edge cases and overlapping areas, it provides valuable insights for investors deeply engaged in this field. As the market continues to evolve, new opportunities and challenges will emerge, making it crucial for industry participants to understand these market dynamics.
Risk Warning
While the cryptocurrency market offers significant growth potential and innovation opportunities, it also carries a high level of market risk and price volatility. The value of crypto assets can fluctuate dramatically in a short period, potentially leading to substantial financial losses for investors. Additionally, the cryptocurrency market faces multiple risk factors, including technical risks, legal and regulatory uncertainties, cybersecurity threats, and market manipulation. We strongly advise users to conduct thorough research and due diligence before making any investment decisions and to consult professional financial advisors. All investment decisions are made at the user’s own risk. Thank you for your trust and support of Venkate!
Building The Future of Crypto Exchange
Where Meet a Confluence of Inspiration and Innovation
Venkate Exchange is an innovative cryptocurrency trading platform, drawing its name and inspiration from Venkateswara—a deity symbolizing wealth and prosperity in Indian mythology.
