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Incumbent stablecoin issuers may want to start looking over their shoulder.
A raft of new entrants are coming to challenge industry stalwarts like USDT, USDC and DAI by taking a payments-first approach.
Looking at the profitability of Tether, it’s not hard to see why the issuer is attracting competitors. The company behind the leading stablecoin reported over $4.5 billion of net profit in the first quarter of 2024.
Read more: Tether just obliterated its former net profit record for a single quarter
Overcoming the cold start problem is no easy feat. The top three stablecoins enjoy widespread support on both centralized exchanges and within DeFi.
The approach of Agora Dollar, which launches in June, is to share revenue generated with businesses that adopt its AUSD stablecoin, founder Nick van Eck wrote in a recent blog post.
And he expects the pie to grow — a lot.
From roughly $150 billion today, “we see [stablecoins] growing to $3T by 2030. Eventually, all other currencies will be digitized too, and FX trading will predominantly occur on-chain,” van Eck said.
As issuer profitability soars alongside rising interest rates, some have tried to attract users by passing a portion of that yield on to holders. Maker pioneered the concept with Savings DAI (sDAI), and it has since been iterated on by others.
Read more: To unseat Tether, upstart stablecoins are sharing the wealth
But van Eck argues this undermines the moneyness of these tokens since yield-bearing stablecoins “are security products” in the USA and elsewhere.
“These products are likely to fall under securities legislation in other global markets,” van Eck said. “Not only does this deprive you of customers, it also deprives you of liquidity providers, vendors and a higher utility ceiling.”
But merchants don’t have to accept sDAI directly. Over the past few months, sDAI has done between $30-40 million in volume, per DefiLlama, thanks largely to DeFi integrations — it’s useful as collateral for instance — and its direct convertibility to DAI.
Gnosis Pay, which issues debit cards directly connected to crypto assets via Safe, recently inked a fresh partnership with Visa.
According to Sam MacPherson, CEO and Co-founder at Phoenix Labs, future integrations with Gnosis Pay will let users hold sDAI and programmatically refill their spendable card balance when it falls below a set threshold.
To do so, Gnosis Pay would swap sDAI — which can be best thought of as an on-chain savings asset — into the EURe stablecoin issued by Monerium, a licensed e-money token platform.
But Sveinn Valfells, CEO of Monerium, told Blockworks he agrees with van Eck in principle.
“Depending on their nature, yield bearing instruments mirror either bank time deposits or securities, they are not homogeneous and therefore not suitable for payments,” Valfells said.
From a regulatory standpoint, Europe is ahead of the US when it comes to stablecoins, he said, explaining that the concept of electronic money “is comparable to a standalone current account and which has been used for over twenty years by dozens of companies for online payments and prepaid cards.”
Maker’s newly launched Cash and Savings interface automatically handles the conversion of sDAI to specific DAI amounts, so there’s no reason this can’t also be done automatically for EURe to eliminate the friction ordinarily associated with yield-bearing assets in a payments context.
However, sDAI is not available to US persons, and Agora’s van Eck predicts regulatory hurdles as a big reason why “yield-bearing stablecoins will never be used as a means of transaction or payment at scale.”
Agora’s model assumes that revenue shared with businesses minting AUSD will ultimately flow to end users, thus encouraging adoption.
“Imagine a world where some applications take a small share of the income from Agora and use the majority to benefit users, creating a win-win situation where businesses thrive and users enjoy enhanced services and better user experience,” van Eck said.
Although AUSD will launch on Ethereum mainnet — which has the deepest liquidity — it will soon follow with a native launch on Sui, the parties said Wednesday.
Sui, one of the newer fast-finality layer-1 chains, has suffered from a lack of natively issued stablecoins. It relies instead on importing multiple wrapped versions of tokens like USDC through bridges, engendering a subpar user experience.
More competition is coming in the next few months. Stable[dot]com unveiled USD3 at the Consensus conference Wednesday, with co-CEO Jack Jia touting a “unique crypto-fintech stack” to “streamline payments, USD access, trading and settlements, and more.”
The announcement came without any supporting technical documentation or details on how it would differentiate from incumbents, other than an implicit pledge to play nice with regulators.
“Stable[dot]com is a regulated financial institution in the US with a deep compliance program created by industry veterans,” Jia told Blockworks.
That stance indicates that it’s gunning for Tether, which has often been criticized — particularly in its early years — for playing fast and loose with AML policies.
It will take more than a strong brand and venture capital backing to make inroads in the stablecoin market as it exists today.
Just ask PayPal. In the 10 months since launching in August 2023, it has managed to mint a modest $400 million of PYUSD, placing it twelfth globally in the stablecoin category.