Original Title: Assume The Position

Author: Arthur Hayes, Crypto Trader Digest

Translated by: Bitpush

(The views expressed here are solely those of the author and should not be taken as the basis for investment decisions or construed as recommendations or advice for engaging in investment trades.)

Given that Circle's CEO, Jeremy Allaire, appears to have no choice but to comply under the "direction" of Coinbase's CEO, Brian Armstrong (the author injects sarcasm here, implying a lack of autonomy and that Circle is under Coinbase’s control), I hope this article will help those trading any "stablecoin"-related assets on public equity markets avoid significant risks and losses when promoters deceptively offload worthless assets onto uninformed retail investors. With that as a prelude, let’s delve into the past, present, and future of the stablecoin market.

Professional crypto traders in the realm of capital markets are a unique breed. To survive and thrive, they must deeply understand how liquidity flows through the global fiat banking system. By contrast, equity investors or forex speculators don't need to know how stocks or currencies settle and transfer, as their brokers handle those operations seamlessly in the background.

First of all, buying your first Bitcoin isn’t straightforward; the best and safest methods aren’t always clear. For most people (at least when I started dabbling in crypto back in 2013), the first step involved directly wiring fiat currency to another person or paying in physical cash to acquire Bitcoin. From there, you’d upgrade to trading on a platform that offered bilateral markets, enabling you to trade larger volumes of Bitcoin with smaller fees. However, depositing fiat into an exchange was (and still is) neither simple nor straightforward. Many exchanges lacked solid banking relationships or operated in regulatory grey zones within their jurisdictions, leaving you unable to wire money to them directly. Exchanges resorted to workarounds, such as directing users to transfer fiat to local agents who would then issue cash vouchers on the platform. Alternatively, they’d establish an affiliate entity ostensibly unrelated to crypto to secure a bank account by presenting a façade of a non-crypto business to account managers, thereby facilitating user fund transfers.

This friction created openings for fraudsters to exploit, pilfering fiat currency through various schemes. Sometimes, the exchange itself would misrepresent the destination of funds, and one day… poof—the website, along with your hard-earned fiat, would vanish. If funds were moved through third-party intermediaries in and out of crypto capital markets, these individuals could disappear at any moment, taking your money with them.

Due to the risks associated with moving fiat currency within the cryptocurrency capital markets, traders must have a detailed understanding of and trust in their counterparties' cash flow operations. As I learned to navigate global payments, I gained firsthand experience dealing with the flow of funds within the banking systems of Hong Kong, Mainland China, and Taiwan (collectively referred to here as the Greater China region).

Understanding how money moves through the Greater China region helped me recognize how major Chinese-speaking markets and international trading platforms like Bitfinex conduct their business. This is critical because all real crypto capital markets innovation happens in the Greater China region, especially when it comes to stablecoins. Why is this important? The reasons will become clear if you keep reading. The most successful cryptocurrency trading platform in the West is Coinbase, which launched in 2012. However, Coinbase's innovation was in securing and maintaining banking relationships in Pax Americana—the American Empire—one of the world's most hostile markets to financial innovation. Beyond this, Coinbase is just an extraordinarily expensive cryptocurrency brokerage account, which was enough to turn its early investors into billionaires.

The reason I’m writing another long piece about stablecoins is the massive success of Circle’s IPO. To be clear, Circle is wildly overvalued, but the price will continue to rise. This IPO marks the beginning—not the end—of this round of stablecoin mania. After a stablecoin issuer lists on a public market (most likely in the U.S.), the bubble will burst. The issuer will then employ financial engineering, leverage, and a spectacle of showmanship to extract tens of billions in capital from fools. As always, most people parting with their hard-earned capital will have no understanding of the history of stablecoins and crypto payments, why the ecosystem evolved the way it did, or what it means for which issuers will succeed. A very charismatic and seemingly credible guy will take the stage, spew a bunch of nonsense, wave his hands (and yes, it's likely a "he"), and convince you that the leveraged garbage he’s pitching is about to monopolize a multi-trillion-dollar stablecoin Total Addressable Market (TAM).

If you stop reading here, the only question you need to ask yourself when evaluating an investment in a stablecoin issuer is: How will they distribute their product? To achieve mass distribution—by which I mean reaching millions of users at an acceptable cost—issuers must leverage the pipelines of cryptocurrency exchanges, Web2 social media giants, or traditional banks. If they lack distribution channels, they have no chance of success. If you cannot easily verify whether an issuer has the right to push its product via one or more of these channels, run away!

I hope my readers won’t burn their capital this way because they read this article and are able to think critically when presented with stablecoin investment opportunities. This piece will delve into the evolution of stablecoin distribution. First, I’ll discuss how and why Tether grew within the Greater China region, which laid the foundation for its dominance in stablecoin payments across the Global South. Then, I’ll cover the initial coin offering (ICO) boom and how this created true product-market fit for Tether. After that, I'll examine the first attempts by Web2 social media giants to enter the stablecoin game. Finally, I'll briefly touch on how traditional banks will play a role. Let me reiterate, because I know X (the platform) makes it hard to read prose longer than a few hundred characters: if a stablecoin issuer or technology provider cannot distribute through cryptocurrency exchanges, Web2 social media giants, or traditional banks, they should not be in the game.

Cryptocurrency Banking in the Greater China Region

The currently successful stablecoin issuers like Tether, Circle, and Ethena all possess the capability to distribute their products through major cryptocurrency exchange platforms. I will focus on the evolution of Tether with a brief mention of Circle to illustrate why it is nearly impossible for any new entrant to replicate their success.

Initially, cryptocurrency trading was overlooked. For example, from 2014 to the late 2010s, Bitfinex held the crown as the largest non-mainland China global trading platform. At that time, Bitfinex was owned by a Hong Kong-based operating company that maintained various local bank accounts. This was fantastic for an arbitrage trader like me, living in Hong Kong, as I could almost instantaneously wire funds to the exchange platform. Across the street from my apartment in Sai Ying Pun, there was practically every local bank. I would walk between banks to shuttle money around, reducing fees and minimizing the time required to receive funds. This was critical as it allowed me to turn over my capital once per business day.

Meanwhile, the three major trading platforms at the time – OKCoin, Huobi, and BTC China – all held multiple bank accounts with large state-owned banks. A bus ride to Shenzhen took only 45 minutes, and armed with my passport and basic Mandarin skills, I was able to open various local bank accounts. As a trader operating in both mainland China and Hong Kong, having banking relationships meant that you had access to global liquidity. I also felt confident knowing that my fiat funds wouldn’t disappear. In contrast, every time I wired funds to certain exchanges registered in Eastern Europe, I lived in fear, distrusting their banking channels.

However, as cryptocurrency gained more recognition, banks started shutting down accounts. Every day, you had to monitor the operational status of each bank<>exchange platform relationship. This was detrimental to my trading profits: the slower funds moved between platforms, the less I could earn through arbitrage. But what if you could transfer electronic dollars over a crypto blockchain instead of relying on traditional banking channels? Then dollars—still the lifeblood of crypto capital markets just as they were back then—could move between exchange platforms almost instantly, 24/7, and at negligible cost.

The Tether team collaborated with the original founders of Bitfinex to create just such a product. In 2015, Bitfinex enabled the use of Tether USD on its platform. At the time, Tether utilized the Omni protocol as a layer built atop the Bitcoin blockchain, allowing Tether USD (USDT) to be sent between addresses. This was an early smart contract layer constructed on Bitcoin.

Tether allows certain entities to wire transfer U.S. dollars to its bank accounts, and in return, Tether mints USDT. USDT can then be sent to Bitfinex and used to buy cryptocurrencies. Holy cow, that's pretty badass! But why does it sound so exciting when a random trading platform offers this product?

Stablecoins, like all payment systems, only become valuable when a large number of economically significant participants become nodes within the network. For Tether, aside from Bitfinex, cryptocurrency traders and other large exchanges need to use USDT to solve any practical problems.

Everyone in Greater China faces the same situation. Banks are shutting down accounts for traders and exchanges. On top of that, Asians have a strong appetite for U.S. dollars because their local currencies are prone to sudden devaluations, high inflation, and low domestic bank deposit interest rates. For most Chinese people, accessing U.S. dollars and participating in U.S. financial markets is very challenging, if not impossible. Therefore, Tether's digital dollar version, which anyone with an internet connection can access, becomes insanely attractive.

The Bitfinex/Tether team capitalized on these conditions. Jean-Louis van der Velde, who has been CEO of Bitfinex since 2013, previously worked for an auto manufacturer in Mainland China. He understands Greater China and has worked to make USDT the go-to dollar bank account for the Chinese-speaking crypto-savvy population. Even though Bitfinex has never had a Chinese executive, it has built enormous trust between Tether and the Chinese-speaking crypto trading community. Thus, you can be confident that the Chinese-speaking region trusts Tether. Meanwhile, in the Global South, overseas Chinese are holding things down. As we’ve seen during this regrettable trade war, the Global South gets its banking services via Tether.

Simply having a major exchange as its initial distributor did not guarantee Tether’s success. The market structure shifted such that trading altcoins against the dollar could only be done using USDT. Fast forward to 2017, during the height of the ICO frenzy, when Tether truly secured its product-market fit.

ICO Baby

August 2015 was a pivotal month because the People’s Bank of China (PBOC) carried out a major devaluation of the Chinese yuan against the U.S. dollar, and Ether (the native currency of the Ethereum network) began trading. Macro and micro narratives synchronized. It was legendary and ultimately propelled the bull market from then until December 2017. Bitcoin skyrocketed from $135 to $20,000; Ether rose from $0.33 to $1,410. Whenever money printing is involved, the macro environment is always favorable. Traders from the Chinese-speaking region were the marginal buyers of all cryptocurrencies (referring primarily to Bitcoin at the time). If they felt uneasy about the yuan’s stability, Bitcoin would soar. At least, that was the narrative back then.

The People's Bank of China's sudden currency devaluation intensified capital flight. By August 2015, Bitcoin had plunged from its all-time high of $1,300 before the February 2014 Mt. Gox bankruptcy to a low of $135 earlier that month on Bitfinex. At the time, Zhao Dong, one of the largest OTC Bitcoin traders in mainland China, faced the largest margin call in Bitfinex’s history, amounting to 6,000 bitcoins. Speculation about capital flight from mainland China fueled a rally; between August and October 2015, BTCUSD more than doubled in value.

The micro is always where the fun happens. The real altcoin boom began with the Ethereum mainnet launch and its native currency Ether (ETH) going live on July 30, 2015. Poloniex was the first exchange to support Ether trading; this foresight propelled it to prominence in 2017. Interestingly, Circle acquired Poloniex near the peak of the ICO market, a move that almost led to its collapse. Years later, they sold the exchange at a significant loss to none other than the esteemed Justin Sun.

Poloniex and other Mandarin-speaking market exchanges capitalized on the emerging altcoin market by launching crypto-only exchanges. Unlike Bitfinex, these exchanges did not require integration with fiat banking systems. You could only deposit and withdraw cryptocurrency, which could then be used to trade other cryptocurrencies. However, this setup was less than ideal, as traders naturally gravitated toward trading altcoin/USD pairs. Without the ability to accept fiat deposits and withdrawals, how could exchanges like Poloniex and Yunbi offer such trading pairs? Enter USDT!

USDT, once launched on the Ethereum mainnet, could be transacted using the ERC-20 standard smart contract. Any exchange supporting Ethereum could also easily support USDT. This allowed crypto-only exchanges to list altcoin/USDT pairs, catering to market demand. Furthermore, digital dollars could flow seamlessly between major exchanges like Bitfinex, OKCoin, Huobi, BTC China—where capital entered the ecosystem—and more speculative venues like Poloniex and Yunbi, which served as the playgrounds for gamblers.

The ICO frenzy gave birth to the juggernaut that became Binance. CZ (Changpeng Zhao) had angrily resigned as CTO of OKCoin a few years earlier due to personal disputes with CEO Star Xu. After leaving, CZ founded Binance, aiming to become the largest altcoin trading platform globally. Binance operated without bank accounts, and even today, I’m not sure if you can directly deposit fiat currency into Binance without going through intermediaries. Using USDT as its banking channel, Binance quickly became the go-to venue for trading altcoins—and the rest is history.

From 2015 to 2017, Tether achieved product-market fit and built a moat to fend off future competitors. Due to the trust placed in Tether by the Chinese-speaking trading community, USDT was accepted across all major trading venues. At this time, it wasn't used for payments, but it was the most effective way to transfer digital dollars both within and outside the cryptocurrency capital market ecosystem.

By the late 2010s, trading platforms found it increasingly difficult to maintain bank accounts. Taiwan effectively became the crypto banking hub for all major non-Western trading platforms, which controlled the bulk of global cryptocurrency trading liquidity. This was because several Taiwanese banks allowed trading platforms to open USD accounts and somehow managed to maintain correspondent banking relationships with large U.S. money center banks, such as Wells Fargo. However, this arrangement began to unravel as correspondent banks pressured Taiwanese banks to expel all crypto clients or risk losing access to the global USD market. As a result, by the late 2010s, USDT became the only viable way to move dollars at scale within the cryptocurrency capital markets. This solidified its position as the dominant stablecoin.

Western players, many of whom had raised funds under the narrative of using cryptocurrency for payments, scrambled to create competitors to Tether. The only competitor to survive at any meaningful scale was Circle's USDC. However, Circle was at a clear disadvantage since it is a U.S. company, headquartered in Boston (yuck!), with no ties to the core of cryptocurrency trading and usage—the Greater China region. The unspoken narrative at Circle used to be (and maybe still is): Mainland China = scary; USA = safe. This narrative is laughable because Tether has never had ethnic Chinese executives, but it has always been, and still is, associated with the Northeast Asian market and now the Global South.

Social Media Wants to Join

The stablecoin craze is nothing new. In 2019, Facebook (now Meta) decided it was time to launch its own stablecoin, Libra. Its appeal lay in the fact that Facebook, through Instagram and WhatsApp, could effectively provide USD bank accounts to the entire world outside the mainland Chinese market. This is what I wrote about Libra in June 2019:

The event horizon has passed. With Libra, Facebook is stepping into the digital asset space. Before I begin my analysis, let me make one thing clear: Libra is neither decentralized nor censorship-resistant. Libra is not a cryptocurrency. Libra will destroy all stablecoins, but who cares. To all the projects somehow deemed valuable because they were fiat money market funds created by an obscure sponsor and operating on a blockchain, I won’t shed a single tear.

Libra could potentially lead to the decline of commercial and central banks. It might reduce their utility to being mere regulated digital fiat warehouses—a role that arguably suits them in the digital age. Stablecoins offered by Libra and other Web2 social media companies could have stolen the spotlight. These companies have the largest user bases and possess nearly complete information about their customers' preferences and behaviors.

Ultimately, U.S. political institutions stepped in to protect traditional banks from genuine competition in the payments and forex sectors. At the time, I had this to say: I have no sympathy for the foolish remarks and actions of U.S. Congresswoman Maxine Waters in the House Financial Services Committee. However, the concerns raised by her and other government officials were not born out of altruism for their constituents but from fear—fear of a disruption to the financial services industry that fattens their wallets and sustains their positions. The speed with which government officials rushed to condemn Libra tells you that there was something in the project that held potential positive value for humanity.

That was then, but now the Trump administration is allowing competition in financial markets. Trump 2.0 holds no love for the banks that deplatformed his entire family during President Biden’s administration. Thus, social media companies are reviving plans to natively integrate stablecoin technology into their platforms.

For shareholders of social media companies, this is good news. These firms could entirely consume the revenue streams of the traditional banking system and monopolize payments and forex. However, for entrepreneurs looking to launch new stablecoins, this is bad news. Social media companies will internally build everything necessary to support their stablecoin endeavors. Investors in new stablecoin issuers must be cautious of promoters boasting collaborations with or distribution through any social media platform.

Other tech firms are also jumping on the stablecoin bandwagon. Social media platform X, Airbnb, and Google are reportedly in early discussions about integrating stablecoins into their operations. In May, Fortune magazine reported that Mark Zuckerberg’s Meta—despite previous failed attempts at blockchain initiatives—has been engaging in conversations with cryptocurrency companies about introducing stablecoins for payments. – Source: Fortune magazine

My article "Libra: Zuck Me Gently": https://blog.bitmex.com/libra-zuck-me-gently/

An Extinction-Level Event for Traditional Banks

Whether traditional banks like it or not, they will no longer be able to earn billions of dollars annually merely for holding and transferring digital fiat. Neither will they continue to collect the same fees on forex transactions. I recently spoke with a board member of a large bank about stablecoins, and they said, "We're doomed." They believe the stablecoin movement is unstoppable, pointing to Nigeria as a case in point. I hadn’t realized just how deeply USDT had penetrated that country, but they told me that one-third of Nigeria’s GDP is conducted using USDT, even though the central bank has made serious efforts to ban cryptocurrencies.

They continued to point out that since adoption is bottom-up rather than top-down, regulators are powerless to stop it. By the time regulators take notice and try to act, it’s already too late because adoption has become widespread among the population.

Even though there are people like them in senior positions at every major traditional bank, the organism of the bank itself resists change because it means the death of many of its cells—meaning employees. Tether operates with fewer than 100 employees yet leverages blockchain technology to perform critical functions of the entire global banking system. In comparison, consider JPMorgan, arguably the world’s best-run commercial bank, which employs just over 300,000 people.

Banks are facing a critical moment—adapt or die. What makes it harder for them to streamline bloated workforces and deliver the products the global economy needs is prescriptive regulation specifying how many people must be employed to perform certain functions. For example, my experience trying to set up a Tokyo office for BitMEX and obtain a cryptocurrency trading license. The management team considered whether it was worthwhile to establish a local office and secure a license to conduct some limited types of cryptocurrency trading outside of our core derivatives business. The cost of regulatory compliance was the issue because you couldn’t leverage technology to meet the requirements. Regulators required you to employ a person with the appropriate level of experience for each listed compliance and operational function. I don’t remember the exact numbers, but I believe it would require roughly 60 people annually, each earning at least $80,000, for a total of $4.8 million per year, to perform all mandated functions. All of this could have been automated for less than $100,000 annually via SaaS providers. And I might add, it would result in fewer errors than employing error-prone humans. Oh… and you can’t fire anyone in Japan unless you shut down the entire office. Yikes!

Banking regulation essentially serves as an employment creation program for an over-educated populace—a global issue. These people are overeducated in garbage rather than in topics that actually matter. They’re just highly-paid box-tickers. Although bank executives would love to cut staff by 99% and thereby raise productivity, as regulated entities, they are unable to do so.

Stablecoins will eventually be adopted by traditional banks in a limited form. They will operate two parallel systems—the old, slow, and expensive system, and the new, fast, and cheap one. The extent to which they can truly embrace stablecoins will be determined by prudential regulators in each jurisdiction. Remember, JPMorgan isn’t a single organism; each country’s branch of JPMorgan is its own instance subject to different regulations. Data and personnel often can’t be shared across instances, hindering company-wide tech-driven rationalization. Good luck to you, you bastard bankers—regulations protected you from the Web2 disruption, but they’ll ensure your demise in the face of Web3.

These banks will certainly not collaborate with third parties for technology development or stablecoin distribution. All of these processes will be handled in-house. In fact, regulators might explicitly prohibit cooperation. Therefore, for entrepreneurs building their own stablecoin technologies, this distribution channel is effectively closed. I don't care how many Proofs of Concept (PoCs) a particular issuer claims to be conducting with traditional banks. They will never lead to broad-scale adoption within the banking sector. So, if you're an investor and a stablecoin issuer's promoter claims they will partner with traditional banks to bring their product to market, run away quickly.

Now that you've understood the challenges new entrants face in achieving large-scale distribution for their stablecoins, let’s discuss why they attempt this seemingly impossible feat anyway. The reason is simple: being a stablecoin issuer is extremely profitable.

The USD Interest Rate Game

The profitability of stablecoin issuers depends on the amount of Net Interest Margin (NIM) they can capture. The issuer’s cost base comes from fees paid to holders, while revenue comes from cash invested in treasury debt (e.g., Tether and Circle) or some crypto market arbitrage trades (e.g., spot-held basis trading, such as used by Ethena). The most profitable issuer, Tether, pays no fees to USDT holders or depositors and collects the full NIM based on the yield levels of short-term Treasury bills (T-bills).

Tether can retain its full NIM because it has the strongest network effect, and its customers have no alternative access to U.S. dollar bank accounts. Potential customers do not choose other USD stablecoins because USDT is accepted across the entire Global South. A personal example would be how I handled payments during the ski season in Argentina. Each year, I spend a few weeks skiing in the Argentine countryside. Back in 2018, on my first trip, if a vendor didn’t accept foreign credit cards, making payments was inconvenient. But by 2023, USDT had taken over. My guides, drivers, and chefs all accepted USDT as payment. This was fantastic because, even if I’d wanted to, I couldn't pay in Argentine pesos; ATMs limited withdrawals to the equivalent of just $30 per transaction, charging a whopping 30% fee. It’s criminal—long live Tether. For my local staff, receiving digital dollars stored on a crypto exchange or in their mobile wallets, which they could easily use to buy domestic and international goods and services, was incredible.

Tether’s profitability is the best advertisement for social media companies and banks to create their own stablecoins. Both categories don't need to pay for deposits because they already have rock-solid distribution networks, which means they capture the entire NIM. Therefore, this could become a massive profit center for them.

[Chart Description: Tether's Estimated Annual Earnings (in billions of USD) vs. Time (years)]

Tether earns more annually than what this chart estimates. The chart assumes all AUC (Assets Under Custody) are invested in 12-month Treasury bills. The key takeaway is that Tether’s earnings are highly correlated with U.S. interest rates. You can observe the massive jump in earnings from 2021 to 2022, driven by the Federal Reserve raising rates at the fastest pace since the early 1980s.

This is a table I published in the article “Dust on Crust Part Deux,” which clearly shows using 2023 data that Tether is the most profitable bank in the world per capita.

Distributing stablecoins can be extremely expensive unless you're affiliated with an exclusive trading platform, a social media company, or a traditional bank. The founders of Bitfinex and Tether are the same group of people. Bitfinex has millions of customers, meaning Tether started with millions of users straight out of the box. Tether doesn’t have to pay for distribution because it’s partially owned by Bitfinex, and all altcoins trade against USDT.

Circle and any other stablecoins that came later must pay distribution fees to trading platforms in some form. Social media companies and banks will never collaborate with third parties to build and operate their stablecoins; thus, cryptocurrency exchanges are the only option. Exchanges can build their own stablecoins, much like Binance attempted with BUSD. However, many exchanges ultimately find building a payment network too challenging and distracting from their core business. Exchanges need equity stakes in the issuer or a share of the issuer’s NIM in order to allow the trading of their stablecoins. But even so, all crypto/USD trading pairs will most likely remain paired with USDT, meaning Tether will continue to dominate the market. This is why Circle had to cozy up to Coinbase. Coinbase is the only major platform not in Tether’s orbit because Coinbase’s customer base is mainly made up of Americans and Western Europeans. Until U.S. Commerce Secretary Howard Lutnick favored Tether and provided banking services through his company Cantor Fitzgerald, Tether had long been criticized by Western media as some kind of foreign-made scam. Coinbase's survival depends on being in the good graces of U.S. political institutions, so it needed to find an alternative. Hence, Jeremy Allaire assumed the position and agreed to Brian Armstrong’s demands. [1]

The deal is as follows: Circle pays 50% of its net interest income to Coinbase in exchange for distribution across the entire Coinbase network. Yachtzee!!

The situation is dire for new stablecoin issuers. There are no open distribution channels. All major crypto exchanges either own issuers themselves or partner with existing ones like Tether, Circle, and Ethena. Social media companies and banks are building their own solutions. As a result, a new issuer must allocate a significant portion of its NIM to depositors in an attempt to pull them away from more widely adopted stablecoins. Ultimately, this is why investors will end up losing their shirts on just about every publicly-listed stablecoin issuer or technology provider by the end of this cycle. But that won't stop the party; let’s dive into why investors get blinded by the enormous profit potential of stablecoins.

Narrative

There are three business models responsible for generating crypto wealth beyond simply holding Bitcoin and other altcoins. These are mining, running exchanges, and issuing stablecoins. Speaking from personal experience, my wealth stems from owning BitMEX (a derivatives trading platform), while Maelstrom (my family office) has its largest position and highest absolute return-generating asset in Ethena, the issuer of the USDE stablecoin. Ethena grew from zero to become the third-largest stablecoin in less than a year in 2024.

The uniqueness of the stablecoin narrative lies in its appeal to traditional finance (TradFi) participants. It’s the largest and most obvious total addressable market (TAM) for them. Tether has already demonstrated that an on-chain bank that simply holds peoples’ money and lets them transfer it back and forth can become the most profitable financial institution per capita in history. Tether achieved this success despite a "lawfare" campaign waged by various levels of the U.S. government. What happens if U.S. authorities adopt a non-hostile stance toward stablecoins and allow them to compete with traditional banks for deposits with some degree of operational freedom? The profit potential is insane.

Now consider the current context: U.S. Treasury staff estimate that stablecoin AUC (assets under custody) could grow to $2 trillion. They also see dollar-stablecoins as the spearhead for advancing or maintaining dollar hegemony and as buyers of U.S. Treasury debt that are indifferent to price sensitivity. Wow. That’s a major macro tailwind. And as a juicy bonus, remember that Trump holds a grudge against big banks for deplatforming him and his family after his first presidential term. He has no intention of standing in the way of free-market solutions to provide better, faster, and safer ways to hold and transfer digital dollars. Heck, even his sons have jumped into the stablecoin game.

This is why investors are salivating over investable stablecoin projects. Before we delve deeper into my predictions on how this narrative might translate into money-burning opportunities, let me first define the standards of an investable project.

The issuer in question must be able to list on the U.S. public equity markets in some form. Secondly, the issuer must offer a product for moving digital dollars; none of that foreign crap—this is ‘Murica. That’s it. As you can see, there is a lot of creative white space to work with here.

The Road to Ruin

The most obvious issuer to IPO and kick off the party is Circle. They are a U.S.-based company and the second-largest stablecoin issuer by AUC (assets under custody). Circle is significantly overvalued at this stage. Remember, Circle hands over 50% of its interest income to Coinbase. However, Circle’s valuation is 39% of Coinbase’s. Coinbase is a one-stop crypto-financial shop with multiple profitable business lines and tens of millions of global customers. Circle specializes in fellatio—while this is certainly a very valuable skill, they still need to upskill and take care of their step-children.

Should you short Circle? Absolutely not! Maybe, if you think Circle/Coinbase’s ratio is out of whack, you should buy Coinbase instead. While Circle is overvalued, when we look back on the stablecoin frenzy a few years from now, many investors will wish they just held Circle. At least they would have retained some capital.

The next wave of IPOs will be Circle copycats. Relative to Circle, these stocks will be even more overvalued in terms of price/AUC ratios. Absolutely, they’ll never surpass Circle in revenue generation. Promoters will flaunt meaningless traditional financial credentials in an attempt to convince investors they have the connections and expertise to disrupt traditional banks in global dollar payments through their networks or distribution channels. The scams will work; issuers will raise boatloads of cash. For those of us who have been in the trenches for a while, it will be hilarious to watch these suit-and-tie clowns con the public into investing in their garbage companies.

After this initial wave, the scale of scams will depend entirely on the stablecoin regulatory framework enacted by the U.S. The more freedom issuers have in terms of the backing assets for stablecoins and the ability to pay yields to holders, the more financial engineering and leverage they can deploy to cover up the garbage. If you assume a light-touch or non-existent stablecoin regulatory regime, you might witness a Terra/Luna redux, where an issuer creates some sort of bogus algorithmic stablecoin Ponzi scheme. Issuers could pay high yields to holders, with the yields stemming from the application of leverage on certain asset holdings.

As you can see, I don't have much to say about the future. There is no real future because the distribution channels for new entrants are shut down. Get this idea into your thick skull. Trade this piece of crap as if you're playing hot potato. But don't short it. These new stocks will rip the faces off of shorts. Macro and micro are in sync. As Chuck Prince, the former CEO of Citigroup, once said when asked about his company's involvement in subprime mortgages: "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We're still dancing."

I'm not sure how Maelstrom will dance, but if there’s money to be made, we’ll go for it.

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