Arthur Hayes: $100 Trillion to Flow into Stablecoins, DeFi Set for Value Explosion

Original Title: Buffalo Bill

Original Author: Arthur Hayes, Founder of BitMEX

Original Translation: AIMan, Golden Finance

U.S. Treasury Secretary Scott Bessent deserves a new nickname. I previously dubbed him as BBC, an abbreviation for Big Bessent Cock. Yes, his devastating "member" is indeed wreaking havoc on the current state of the global financial ecosystem, but this nickname cannot fully capture his essence. I believe he needs a more fitting name to describe the pain he will bring to two very important components of the fiat (fugazi) financial system: the Eurodollar banking system and foreign central banks.

Just like the serial killer in the movie "The Silence of the Lambs" (for any young folks not in the know, this is definitely a classic worth a "Netflix and Chill" night), Scott "Buffalo Bill" Bessent is about to eradicate the Eurodollar banking system and take control of foreign non-dollar deposits. Just as slaves and a trained army maintained the "Roman Peace" (Pax Romana), slaves and dollar hegemony uphold the "American Peace" (Pax Americana). The aspect of slavery under the "American Peace" is not just about historically bringing Africans to pick cotton; the modern-day whip is the "monthly payment," with generation after generation of young people willingly shouldering the debt that crushes their lives, in pursuit of a worthless certificate, hoping to work at Goldman Sachs, Sullivan & Cromwell, or McKinsey. This is a broader, more insidious, and ultimately more effective form of control. Unfortunately, now that the U.S. has artificial intelligence (AI), these debt cattle are about to be unemployed... put on your blue-collar overalls, buddy.

I digress.

This article will discuss the control of the global reserve currency—the dollar—under the "American Peace." Successive U.S. Treasury Secretaries have wielded the dollar stick to varying degrees of success. One significant failure was allowing the emergence of the Eurodollar system.

The Eurodollar system emerged in the 1950s and 1960s, aiming to circumvent U.S. capital controls (such as Regulation Q), evade economic sanctions (the Soviet Union needed a place to park its dollars), and provide banking services for non-U.S. trade flows in the post-World War II global economic recovery. The monetary authorities of the time could have recognized the need to supply dollars to foreigners and allowed U.S. domestic money center banks to control this business, but domestic political and economic concerns required a strong stance. As a result, the Eurodollar system grew to an unknown scale over the following decades, becoming an undeniable force. An estimated $10 to $13 trillion of Eurodollars flow through various non-U.S. bank branches. The ebb and flow of this capital has led to various financial crises in the post-World War II era, crises that always require money printing to resolve. The Atlanta Fed's August 2024 paper titled "Offshore Dollars and U.S. Policy" discusses this phenomenon.

For Benthall, there are two issues with the European dollar system. The first issue is that he has no idea how many European dollars exist and what they are financing. The second, and most important issue, is that these European dollar deposits are not being used to buy his junk national debt. Can Benthall solve these two problems? But first, let me quickly touch on the situation of non-US retail holders of foreign currency.

De-dollarization is real. It truly began in 2008 when the US currency overlords decided not to let banks and financial institutions collapse due to their bad bets but to rescue them by initiating unlimited quantitative easing (QE Infinity). A useful indicator of the reaction of global central banks holding trillions of US-dollar-denominated assets is the percentage of gold in their reserves. The higher the percentage of gold in one's reserves, the less trust they have in the US government.

As seen in the chart above, after 2008, the percentage of gold in central bank reserves hit bottom and began a long-term ascent.

This is the TLT US ETF, which tracks the trend of US Treasury bonds with a maturity of 20 years or more divided by the price of gold. I set its index to 100 starting in 2009. Since 2009, relative to gold, bonds have depreciated by nearly 80%. The US government's monetary policy is to rescue its banking system while screwing foreign and domestic debt holders. No wonder foreign central banks are starting to emulate Scrooge McDuck. President Trump intends to follow a similar strategy, but in addition to screwing bondholders, he believes he can make America great again by taxing foreign capital and trade flows through tariffs.

Benthall indeed can't do much to persuade central bank reserve managers to buy more bonds. However, from the perspective of the dollar, there is a large underbanked population in the Global South who are most eager to have a USD-denominated account with positive interest. As you know, compared to Bitcoin and gold, all fiat currencies are junk. Nevertheless, if you are within a fiat system, the best fiat is the dollar. Regulators in most countries force their populace to hold their low-quality currency plagued by high inflation and restrict their access to the dollar financial system. These people would buy Treasury bills at any rate Benthall offers just to escape their terrible government bond markets. Can Benthall provide banking services to these people?

I first went to Argentina in 2018 and have been going regularly since. Here is a chart of ARSUSD indexed to 100 starting in September 2018. The Argentine peso has devalued against the dollar by 97% in seven years. Currently, when I go skiing there, I pay all my service providers in USDT.

Basent discovered a new tool that could solve his problem. It's called a stablecoin. A stablecoin pegged to the US dollar is now receiving support from the US Treasury. The Empire will back selected issuers as they siphon off Eurodollars and global Southern retail deposits. To understand why, I will quickly outline the structure of an "acceptable" stablecoin pegged to the US dollar. Then, I will discuss the impact on the Traditional Finance (TradFi) banking system. Finally, and this is also the reason you degenerates are here, I will explain why the global adoption of the US-backed stablecoin endorsed by the "Pax Americana" will drive the long-term usage growth of DeFi applications, particularly Ethena, Ether.fi, and Hyperliquid.

As you know, Maelstrom (author's institution) doesn't work for free. We hold a lot, a lot, a lot of size.

If you are not familiar enough with stablecoins, I will tease an upcoming stablecoin infrastructure project we are advising on—Codex—which I believe will be the best-performing token from the upcoming token generation event (TGE) until the end of this cycle.

What is an Acceptable Stablecoin?

A US dollar-pegged stablecoin is akin to a narrow bank. The stablecoin issuer accepts US dollars and invests these dollars in risk-free debt instruments. The only truly risk-free debt instrument denominated in US dollars is a Treasury bond. Specifically, as the issuer must be able to provide physical US dollars on demand when holders redeem, stablecoin issuers will only invest in short-term Treasury bills (T-bills). The term of a short-term Treasury bill is less than a year. Due to its near-zero or zero duration risk, its trading is akin to cash.

Let's look at the process.

To create one unit of stablecoin, I'll use Tether USD (symbol: USDT) as an example:

1. Authorized Participant (AP) wires US dollars to Tether's bank account.

2. Tether mints 1 USDT for every $1 deposited.

3. To earn USD returns, Tether purchases Treasury bonds.

If the AP wires $1,000,000, they will receive 1,000,000 USDT.

Tether purchases Treasury bonds worth $1,000,000.

USDT does not pay interest.

However, Treasury bonds basically pay the Federal Funds rate, which is currently 4.25% to 4.50%

Tether's Net Interest Margin (NIM) is 4.25% to 4.50%.

To attract deposits, Tether or affiliated financial institutions (such as cryptocurrency exchanges) will pay a portion of the Net Interest Margin when a depositor stakes their USDT. Staking simply means locking up your USDT for a period of time.

To redeem one unit of stablecoin:

1. AP sends USDT to Tether's crypto wallet

2. Tether sells Treasury bonds equivalent to the USD amount of USDT.

3. Tether sends $1 to AP's bank account for every 1 USDT.

4. Tether burns the USDT, removing it from circulation.

Tether's business model is very simple. Receive dollars, issue digital tokens running on public blockchains, invest dollars in Treasury bonds, and earn the Net Interest Margin. Belsente will ensure that the empire's legally sanctioned issuer can only hold dollars at chartered U.S. banks and/or hold Treasury bonds. No fancy stuff allowed.

Impact on Eurodollars

Before stablecoins existed, whenever Eurodollar banks faced trouble, the U.S. Federal Reserve and the U.S. Treasury always stepped in to offer assistance. A well-functioning Eurodollar market is vital to the empire's health. But now, there is a new tool to absorb these fund flows for Belsente. At a macro level, Belsente must provide a reason for Eurodollar deposits to move on-chain.

For example, during the 2008 global financial crisis, the Fed secretly provided billions of dollars in loans to foreign banks that were short of dollars due to the subprime mortgage collapse and the resulting chain reaction in derivatives. As a result, Eurodollar depositors trusted that the U.S. government implicitly guaranteed their funds, although technically they were outside the U.S.-regulated financial system. Declaring that in the event of another financial crisis, non-U.S. bank branches would not receive any help from the Fed or Treasury would redirect Eurodollar deposits into the arms of stablecoin issuers. If you think this is far-fetched, a strategist at Deutsche Bank wrote an article openly questioning whether the U.S. would weaponize dollar swap lines to force Europeans to do what the Trump administration asks of them. You better believe Trump's greatest pleasure would be to emasculate the Eurodollar market by effectively cutting off its banking services. These institutions canceled his family's banking services after his first term; now it's payback time. Karma.

Without collateral, European dollar depositors will act in their own best interest by moving their funds into a dollar-pegged stablecoin like USDT. Tether holds all of its assets as U.S. bank deposits and/or Treasuries. By law, the U.S. government guarantees all deposits in eight "too big to fail" (TBTF) banks; following the 2023 regional bank crisis, the Fed and Treasury effectively guaranteed all deposits at any U.S. bank or branch. The default risk on Treasuries is also zero because the U.S. government will never voluntarily default, as it can always print money to pay back Treasury holders. Therefore, stablecoin deposits are risk-free in nominal dollars, but European dollar deposits are not anymore.

Soon, dollar-pegged stablecoin issuers will see inflows of $10 to $13 trillion and will subsequently buy Treasuries. Stablecoin issuers will become a price-insensitive big buyer of Bensonian dogshit paper!

Even if Fed Chair Powell continues to thwart Trump's currency agenda by refusing to "cut rates, end quantitative tightening (QT), and restart quantitative easing (QE)," Benson can issue Treasuries at rates lower than the federal funds rate. He can do this because stablecoin issuers must buy whatever he sells at the provided yield to be profitable. With a few steps, Benson has gained control over the front end of the yield curve. The Fed's continued existence ceased to make sense long ago. Perhaps a Benini-style statue of Benson, titled "Benson and the Head of the Hydra Island Monster (i.e., the Fed)," will stand in some square in Washington, D.C.

Impact on the Global South

American social media companies will be the Trojan Horse that destroys foreign central banks' ability to control their civilian money supplies. In the Global South, the reach of Western social media platforms (Facebook, Instagram, WhatsApp, and X) is pervasive.

I've spent half of my life in the Asia-Pacific region. Converting depositors' local currencies into dollars or dollar equivalents (e.g., Hong Kong dollars) so that capital can gain dollar returns and U.S. stock exposure has been a significant part of the region's investment banking business.

Local currency authorities play whack-a-mole with traditional financial institutions to shut down plans allowing capital outflows. Governments need civilian capital and, to some extent, isolate the capital of non-political affiliated wealthy individuals so they can levy an inflation tax, support underperforming national champion enterprises, and provide low-interest loans to heavy industry. Even if Benson wants to use a U.S. mega financial center bank as a vanguard to bank the dispossessed, local regulators prohibit this. But there is another, more efficacious way to capture this capital.

Except for mainland China, everyone uses Western social media companies. What if WhatsApp were to roll out an encrypted wallet to each user? Within the app, users could seamlessly send and receive approved stablecoins like USDT. With this WhatsApp stablecoin wallet, users could send money to any other wallet on various public blockchains.

Let's illustrate how WhatsApp could provide a digital dollar bank account for its billion-plus global Southern members through a fictional example.

Fernando is a Filipino running a click farm in rural Philippines. Essentially, he generates fake followers and false impressions for social media influencers. As all of his clients are overseas, he found receiving payments to be both challenging and costly. WhatsApp became his primary payment method as it offered a wallet to send and receive USDT. His clients also all had WhatsApp, and they were more than happy to stop dealing with crappy banks. Both parties were delighted with this arrangement that bypassed the intermediary local Philippine banking system.

Over time, the Central Bank of the Philippines noticed a significant and growing outflow of bank funds. They realized that WhatsApp had spread a dollar-pegged stablecoin throughout the economy. The central bank had effectively lost control over the money supply. However, they were powerless to stop it. The most effective way to prevent Filipinos from using WhatsApp would be to shut off the internet. Besides, even pressuring local Facebook executives (if any) would be futile. Mark Zuckerberg rules from his bunker in Hawaii. And he has already received blessings from the Trump administration to globally launch stablecoin features to Meta users. Any internet laws unfavorable to US tech companies would result in hefty tariffs imposed by the Trump administration. Trump has threatened the EU that unless they abandon "discriminatory" internet legislation, he will raise tariffs.

Even if the Philippine government could remove WhatsApp from the Android and iOS app stores, motivated users could easily circumvent the block through VPN usage. Of course, any form of friction would inhibit the use of internet platforms, but social media is essentially an addictive drug. Having undergone over a decade of continuous dopamine hits, the masses will find any workaround to keep frying their brains.

Finally, Bissant could wield his sanctions weapon. Asian elites stash their money in offshore banking centers full of US dollars. They evidently don't want their wealth eroded by their currency's inflationary policies. Do as I say, not as I do. Suppose Philippine President Bongbong Marcos were to threaten Meta. Bissant could immediately retaliate, sanctioning him and his cronies, thus freezing their billions of offshore wealth unless they capitulate and allow the stablecoin to spread domestically. His mother, Imelda, is acutely aware of the reach of US law, having beaten a RICO charge alleging her and her late husband, former dictator Ferdinand Marcos, embezzled Philippine government funds to buy NYC real estate. I don't think the Marcoses thirst for a second round.

If my argument is correct and stablecoins are part of the US power play to expand the use of the dollar as part of its currency policy, then the empire will shield US tech giants from local regulators as they provide dollar banking services to the masses. And those governments will be powerless to stop it. If I'm right, how big is the total potential market from stablecoin deposits from the Global South? The most advanced group of nations in the Global South is the BRICS nations. Let's exclude China since Western social media companies are barred from it. The question is, what is the best estimate for local currency bank deposits? I asked Perplexity, and its answer is $40 trillion. I know this may be contentious, but let's also add the Euro-poor-eans who use the Euro to this group. I believe the Euro is a dead garcon walking, as Germany-first and then France-first economic policies will split the currency union. With the arrival of capital controls, by the end of this century, the only use for the Euro will be to pay the entrance fee to the famous Berlin electronic music club Berghain and the minimum spend at the Caribbean's French St. Bart's beach club Shellona. When we add the $16.74 trillion in European bank deposits, the total approaches around $34 trillion available for the taking.

Go Big or Go Home

Bennett has a choice: either go big or become a Democrat. Does he want Team Red to win big in the 2026 midterms, crucially the 2028 presidential elections? I believe he does, and if so, the only path to victory is to fund Trump to enable him to offer more freebies to the masses than Mamdanis and AOCs. Hence, Bennett needs to find a price-insensitive buyer of US Treasuries. Apparently, given his public support for the tech, he sees stablecoins as part of the solution. But he needs to go all-in.

If the Eurodollar and deposits from the Global South and Euro-poor-eans do not flow into stablecoins, he must Bismark them with all his shining "tools" (referring to sanctions and other means). Either take the dollar skin-deep (accept dollarization) or face sanctions once again.

The $10 to $13 trillion purchasing power in Treasuries comes from the Eurodollar system's breakdown.

The $21 trillion purchasing power in Treasuries comes from the Global South and Euro-poor-eans' retail deposits.

Total = $34 trillion

Clearly, not all of this capital will flow into dollar-pegged stablecoins, but at least we have a huge total addressable market (TAM).

The real question is, how will the increase in stablecoin deposits reaching as high as $34 trillion drive DeFi adoption to new heights? If there is credible evidence that DeFi usage will increase, which shitcoins will pump?

Stablecoin Flow Into DeFi

The first concept readers must grasp is staking. Let's imagine that a portion of that $34 trillion now exists in the form of stablecoins. For simplicity's sake, let's assume Tether's USDT receives all the inflow. Faced with fierce competition from other issuers like Circle and major TBTF banks, Tether must pass on some of its net interest margin to holders. It achieves this by partnering with some trading platforms where USDT staked in a linked trading platform wallet generates interest in the form of newly minted USDT units.

Let's consider a straightforward example.

Fernando from the Philippines has 1000 USDT. PDAX, a Philippines-based cryptocurrency exchange, offers a 2% staking USDT yield. PDAX creates a staking smart contract on Ethereum. Fernando stakes his 1000 USDT by sending it to the smart contract address, and a few things happen:

1. His 1000 USDT becomes 1000 psUSDT (PDAX Staked USDT; PDAX's liability). Initially, 1 USDT = 1 psUSDT, but every day psUSDT gains value over USDT due to accrued interest. For instance, using a 2% annual interest rate and ACT/365 simple interest calculation, psUSDT gains about 0.00005 per day. One year later, 1 psUSDT = 1.02 USDT.

2. Fernando receives 1000 psUSDT to his exchange wallet.

Some powerful things just happened. Fernando locked his USDT in PDAX and received an interest-bearing asset in return. The psUSDT can now be used as collateral in the DeFi ecosystem. This means he can trade another cryptocurrency with it; he can borrow against it as collateral; he can trade derivatives with leverage on a DEX, and so on.

What happens when Fernando wants to redeem his psUSDT back to USDT a year later?

1. Fernando goes to the PDAX platform to unstake by sending 1000 psUSDT to his trading platform wallet and/or connecting a third-party DeFi wallet (such as Metamask) to the PDAX dApp.

2. The psUSDT is destroyed, and he receives 1020 USDT.

Where does the extra 20 USDT interest paid to Fernando come from? It comes from the collaboration between Tether and PDAX. Tether has a positive net interest margin, which is merely interest income earned from its treasury investments. Tether then uses these dollars to create additional USDT and sends a portion to PDAX to fulfill its contractual obligations.

Both USDT (the base currency) and psUSDT (interest-bearing currency) have become acceptable collateral throughout the DeFi ecosystem. Therefore, a certain percentage of the total stablecoin flow will interact with the DeFi dApp. The Total Value Locked (TVL) measures this interaction. Whenever a user interacts with a DeFi dApp, they must lock up their capital for a period, as represented by TVL. TVL is at the top of the funnel for transaction volumes or other revenue-generating activities. Therefore, TVL is a leading indicator of the future cash flow of DeFi dApps.

Before we delve into how TVL affects the future earnings of several projects, I would like to explain some key assumptions in the financial model to be used.

Model Assumptions

I will soon present three simple yet powerful financial models to estimate the target prices of Ethena (token: ENA), Ether.fi (token: ETHFI), and Hyperliquid (token: HYPE) by the end of 2028. I predict until the end of 2028 because that is when Trump will leave office. My fundamental assumption is that the likelihood of Team Blue (referring to the Democratic Party) winning the presidency is slightly higher than that of Team Red (referring to the Republican Party). This is because Trump cannot possibly successfully correct the injustices inflicted on his base voters over half a century of accumulated monetary, economic, and diplomatic policy missteps within four years. The rat poison on the cake is that no politician will deliver on all their campaign promises. Therefore, the voting rate of the ordinary Red Team Republican voter will decrease.

The ordinary members of Team Red will be indifferent to any successor of Trump standing for president, and there won't be a sufficient turnout to surpass those suffering from Trump Derangement Syndrome (TDS) and childless cat ladies. TDS will afflict any Team Blue Democrat who ascends to the throne, leading them to adopt a cut-off-their-nose-to-spite-their-face monetary policy just to prove they are different from Trump. But ultimately, no politician can resist the temptation to print money, and a stablecoin pegged to the dollar is one of the best price-insensitive buyers of short-term treasuries. Therefore, while they may not initially wholeheartedly support stablecoins, the new emperor will soon realize that without this capital, they are actually naked and will eventually continue the policy swing I mentioned earlier. This policy swing will burst the crypto bubble and lead to an epic bear market.

Finally, the numbers mentioned in my model are massive. This is a once-in-a-century shift in the global monetary architecture. Most of us, unless receiving stem cell injections through the rest of our lives...perhaps, will never again witness such an event in our investing careers. The upside potential I predict will be larger than SBF's amphetamine habit. You will never again see DeFi stalwarts profiting from the surge of USD-pegged stablecoins in such a bull market.

Because I like to predict with numbers ending in zero in decimal form, I estimate that by 2028, the circulating supply of USD stablecoins will reach at least $100 trillion. This number is significant because the deficits Berkson must finance are massive and growing exponentially. The more Berkson uses treasury bonds to finance the government, the faster the debt pile grows because he has to roll over debt every year.

The next key assumption is Berkson's and the new Federal Reserve chair's chosen federal funds rate level after May 2026. Berkson has publicly stated that the federal funds rate is too high by 1.50%, while Trump usually calls for a 2.00% rate cut. Considering that overshooting tends to occur regardless of an uptrend or downtrend, I believe the federal funds rate will quickly drop to around 2.00%. This number lacks real rigor, just like all establishment economists are clueless. We are all improvising, so my numbers are as good as theirs. The political and economic reality of a bankrupt empire demands cheaper funding, and a 2% federal funds rate provides just that.

Lastly, where do I think the 10-year bond yield will land? Berkson's aim is to achieve 3% real growth. Adding the 2% federal funds rate (theoretically representing long-term inflation), we get a 10-year yield of 5%. I will use this to calculate the present value of terminal cash flows.

With these assumptions, we arrive at the terminal value of accumulated cash flows. Since these cash flows can be used for buybacks provided to token holders, we can use them as the fundamental value of a specific project. This is how I assess and predict the fully diluted valuation (FDV). Then I will compare the future outputs of my model with the current value, and voilà, the upside potential becomes clear.

All model inputs are in blue, and all outputs are in black.

Stablecoin Consumption

The most critical behavior of new stablecoin users is consumption for goods and services. So far, everyone is accustomed to tapping their phones or debit/credit cards on some POS system to pay for things. Using stablecoins must be just as seamless. Is there a project that allows users to deposit stablecoins into a dApp and spend them as easily as with a Visa debit/credit card? Indeed, it's called Ether.fi Cash.

Users from around the world can register in minutes and, upon completing the registration process, they will have their own Visa-supported stablecoin debit card. This can be used on your phone, and/or through a physical card. After depositing stablecoins into your Ether.fi wallet, you can spend them anywhere that accepts Visa. Ether.fi can even extend credit based on your stablecoin balance to turbocharge your spending.

I am an advisor and investor in the Ether.fi project, so I am obviously biased, but I have been waiting over a decade for a low-fee offline spending crypto solution. The customer experience is the same whether I use an Amex or an Ether.fi Cash Card. This is crucial because, for the first time, many in the global South will use a payment method backed by stablecoins and Ether.fi to pay for goods and services anywhere in the world.

The real profit comes from being a financial supermarket, offering many of the traditional products offered by banks. Then, Ether.fi can provide additional products to depositors. The key ratio I forecasted for future cash flow calculations is the Fee/Vault Ratio. How much revenue can Ether.fi earn per dollar of stablecoin deposited? To arrive at a credible number, I consulted the latest annual filings of JPMorgan Chase, one of the world's best-operated commercial banks. With a $1.0604 trillion deposit base, they earned $18.8 billion in revenue, resulting in a Fee/Value Ratio of 1.78%.

Ether.fi Cash Vault %: This represents the percentage of the stablecoin supply deposited in the cash vault. Currently, only four months in existence, this percentage stands at 0.07%. Given the recent launch of this product, I believe it's possible for this percentage to grow to 1.00% by 2028.

I believe ETHFI can rise 34x from its current level.

Now that the common folk can spend their dollars, is there a way to earn a higher return than the federal funds rate?

Stablecoin Lending

After millions of people are out there spending stablecoins to buy coffee, they will want to earn interest. I have mentioned that I expect issuers like Tether to pass on some of the net interest margin to holders. But this won't be a huge number; many savers will look for higher yields without taking on additional risk. Is there internal yield in the crypto capital market that new stablecoin users can capture? Indeed, Ethena offers opportunities for higher returns.

There are only two ways to securely lend funds in the cryptocurrency capital markets. Lending to speculators through derivatives or lending to cryptocurrency miners. Ethena focuses on lending funds to bullish speculators through shorting cryptocurrency/USD futures and perpetual contracts. This is a strategy that I promoted during my time at BitMEX, which I referred to as "cash and carry." I later wrote an article titled "Dust on Crust," in which I implored a brave entrepreneur to package this trade and offer it as a synthetic dollar, high-yield stablecoin. Ethena founder Guy Young read that article and subsequently assembled an all-star team to accomplish this daunting task and turn it into reality. When we heard that Guy was building what he was, Maelstrom joined as a founding advisor. Ethena's USDe stablecoin has become the fastest-growing stablecoin in history, amassing approximately $13.5 billion in deposits in less than 18 months. By circulating supply, USDe is now the third-largest stablecoin, behind only Circle's USDC and Tether's USDT. Ethena's growth has been so strong that by next year's St. Patrick's Day, Circle CEO Jeremy Allaire will drown his sorrows in a pint of Guinness as Ethena becomes the second-largest stablecoin issuer behind Tether.

Due to exchange platform counterparty risk, the interest rate for borrowing dollars to speculate long on crypto payments is usually higher than the treasury bond rate. When I created perpetual contracts with the BitMEX team in 2016, I set a 10% neutral rate. This means that if the perpetual contract price equals the spot price, longs will pay shorts a 10% annual percentage yield (APY). Given that every perpetual contract exchange has copied BitMEX's design verbatim, they all have a 10% neutral rate. This is important because 10% is far above the current upper bound for the Federal Funds Rate of 4.50%. Therefore, the yield on pledged USDe should almost always be higher than the Federal Funds Rate. This provides an opportunity for new stablecoin savers willing to take on a little extra risk to earn on average twice the offered rate.

For new stablecoin deposits, a portion (but certainly not all) will be placed into savings using Ethena to earn higher yields. Ethena takes a 20% share of the interest income. Here is a simple model:

USDe Market Share: Currently, Circle's USDC holds a 25% market share of the circulating stablecoin supply. I believe Ethena will surpass Circle, and over time, we will see on the margin that as USDe gains deposits, USDC will lose deposits. Therefore, my long-term assumption is that USDe will capture a 25% market share, closely following Tether's USDT.

Average USDe Yield: Given that in the long-term scenario I predict, the USDe supply will be $2.5 trillion, this will bring downward pressure on the basis spread between derivatives and spot. As Hyperliquid becomes the largest derivatives trading platform, they will lower the neutral rate to increase demand for leverage. This also means that the open interest (OI) in the crypto derivatives market will grow significantly. If there are still millions of DeFi users with trillions of dollars in stablecoin deposits at their disposal, they can drive the OI up to trillions of dollars, which is reasonable.

I believe ENA can rise 51x from its current level.

Since the commoners can earn more interest income, how can they trade their way out of poverty caused by inflation?

Trading Stablecoins

The most damaging effect of global currency devaluation is that it forces everyone, who doesn't already have a significant amount of financial assets, to become a speculator to maintain their standard of living. With more people around the world now saving on-chain via stablecoins suffering from rampant fiat devaluation, they'll be trading the only asset class that allows them to speculate their way out of certain poverty—cryptocurrencies. The currently preferred on-chain trading venue is Hyperliquid (token: HYPE), which holds a 67% DEX market share. Hyperliquid is so transformative that it is rapidly capturing growth from CEXs like Binance. By the end of this cycle, Hyperliquid will be the largest cryptocurrency exchange of any type, and Jeff Yan (Hyperliquid's founder) may be richer than Binance's founder and former CEO CZ. The old king is dead. Long live the new king!

The theory that DEX will consume all other types of trading platforms is not new. What is new in the Hyperliquid case is the team's execution ability. Jeff Yan has built a team of approximately ten people that can deliver better products faster than any other centralized or decentralized team in the space.

The best way to understand Hyperliquid is to see it as the decentralized version of Binance. As Tether and other stablecoins primarily power Binance's banking channels, we can view Binance as the precursor to Hyperliquid. Hyperliquid also relies entirely on stablecoin infrastructure for deposits but is an on-chain trading experience. With the launch of HIP-3, Hyperliquid is rapidly transforming into a permissionless derivatives and spot trading powerhouse. Any application wanting a centralized limit order book with real-time margining can integrate any derivative market they desire through the HIP-3 infrastructure.

My prediction is that by the end of this cycle, Hyperliquid will become the largest cryptocurrency exchange of any type, with stablecoin circulation reaching $10 trillion, supercharging this growth. Taking Binance as an example, we can predict Hyperliquid's Average Daily Volume (ADV) given a stablecoin supply level.

Currently, Binance's perpetual futures ADV is $730 billion, and the total stablecoin supply is $2,770 billion; the ratio is 26.4%. This will be seen in the model as the Hyperliquid ADV Share.

I believe HYPE can rise 126x from its current level.

Finally, I want to talk about my most exciting garbage coin stablecoin project as it is about to have a token issuance.

Mortgaged Stablecoin

Since millions, potentially even billions of people are using stablecoins, how will non-crypto businesses leverage this new form of payment? Most businesses in the world have payment problems. They are charged exorbitant fees by payment processors, and many times, banks are unwilling to deal with them at all. But with stablecoins in the hands of more users, businesses can free themselves from the grip of greedy traditional financial institutions. While this is a great aspiration, businesses need an easily implementable tech stack that allows them to accept stablecoin payments, pay suppliers and taxes in local currency, and properly account for cash flow.

Codex is a dedicated blockchain project for stablecoins. They are currently not issuers but offer enterprises the ability to transact stablecoin-to-stablecoin, stablecoin-to-fiat, and fiat-to-stablecoin payments. Remember Fernando and his click farm. He needs to pay some of his employees pesos to their local bank accounts. Using Codex, Fernando can receive stablecoins from clients and convert a portion of stablecoins to pesos, directly depositing them into local bank accounts. Codex has rolled out this feature and achieved $1 billion in transaction volume in the first month.

The reason I am so excited about Codex is its disruption of the traditional financial global transaction banking business. Yes, it's a huge total addressable market (TAM), but the more transformative, currently untapped business is providing credit to small and medium enterprises (SMEs) that were previously unable to access working capital financing. Today, Codex only provides less-than-a-day credit to the safest payment service providers (PSPs) and fintech companies, but tomorrow, Codex can extend longer-term loans to SMEs. If an SME operates entirely on-chain and uses Codex for stablecoin payments, it can achieve triple-entry bookkeeping.

Triple-entry bookkeeping improves upon double-entry bookkeeping by allowing Codex to calculate a small business's net income and cash flow statement in real-time, using tamper-proof data since all income and expenditure transactions are on-chain. Based on this tamper-proof data, Codex can confidently lend to SMEs, believing that the business's fundamentals will enable it to repay the loan principal and interest on time. Currently, in most developing countries and to some extent in developed nations, SMEs find it hard or impossible to obtain bank loans. Banks understandably are reluctant to take on risk as they fear the retroactive accounting data they receive is false. Therefore, banks only lend to large corporations or politically connected elites.

In my vision, Codex will pioneer lending to SMEs using stablecoin infrastructure, first becoming the largest and most impactful financial institution in the global South, and then in developed countries outside the United States. Codex will truly become the world's first genuine crypto bank.

Codex is still in its infancy, but if the founders succeed, they will make their users and token holders incredibly wealthy. Before undertaking this advisory role at Maelstrom, I ensured the founders were prepared to pursue a tokenomics strategy similar to Hyperliquid. From day one, the revenue earned will be returned to token holders. They may conduct a fundraising round. But I want to make sure that the world knows that there is already a real stablecoin infrastructure project today processing real transaction volume and gearing up for a Token Generation Event (TGE). It's time to board a faster-than-light (FTL) spaceship.

Besent's Dominance

Besent's intimidation of European dollar and non-dollar bank depositors around the world will depend on the U.S. government's spending trajectory. I am confident that Besent's boss, U.S. President Trump, has no intention of balancing the budget, reducing taxes, or cutting spending. I know this because Trump has cautioned his red team Republican allies against being too enamored with spending cuts. He jokingly says they still need to win the 2026 elections. Trump has no ideology other than winning. And in a late-stage capitalist democratic republic, political winners distribute benefits in exchange for votes. Hence, Besent will run rampant, with no Officer Starling around to stop him.

As the government deficit continues to expand and U.S. hegemony declines, a significant increase would be needed to boost tax revenue, making it unfeasible. Therefore, Powell will cram more and more debt down the market's throat. However, when the leader's explicit policy is to weaken a currency, the market does not want to hold debt denominated in that currency. Therefore, using stablecoins as a national debt sink, it's time to paint the dollar on your skin (referring to dollarization), or face sanctions again.

Powell will wave his sanction cudgel widely and fiercely to ensure that stablecoins pegged to the dollar will repatriate capital isolating from Eurodollars and non-U.S. retail bank deposits domestically. He will commission Tech Bros like Zuckerberg and Musk to spread the gospel to distant, uncivilized tribes. And these Broligarchs will be happy to don the flag, pushing dollar-pegged stablecoins to their non-U.S. users, regardless of local regulators' sentiments, because they are PATRIOTS!

If I am right, we will see news headlines covering these themes:

1. The necessity of regulating the offshore dollar market (i.e., Eurodollars)

2. Tying central bank digital currency swap lines with the Fed and/or Treasury to certain aspects of opening the digital market to U.S. tech companies

3. Proposing regulations requiring stablecoin issuers to hold dollars in U.S. bank branches and/or Treasury securities

4. Encouraging stablecoin issuers to go public on U.S. stock exchanges

5. U.S. tech giants adding crypto wallets to their social media applications

6. Trump administration officials making generally positive statements on stablecoin usage

Maelstrom remains very bullish on the stablecoin vertical, with positions in ENA, ETHFI, and HYPE. We always look to the future; hence, you will hear more about Codex, as I believe it will play a leading role in stablecoin infrastructure.

Pass me that dollar lotion (referring to stablecoin inflow), I'm a bit parched (referring to the need for capital inflow).

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