Stablecoins: The Trojan Horse of the Crypto Industry

Author: ZACH RYNES, ChainLink

Compiled by: Deep Tide TechFlow

The tokenization of every financial asset in the world is inevitable.

While this view may have been controversial in the past, the crypto industry is no longer fighting alone. Larry Fink, co-founder and CEO of BlackRock, has frequently discussed the inevitability of tokenization and its benefits for the global financial system. As the world's largest asset management company, BlackRock manages assets worth $10.5 trillion, more than four times the total market capitalization of the entire crypto asset market ($2.5 trillion).

In other words, an institution managing more capital than the entire crypto industry is telling the world that the global financial system and all its assets will exist in tokenized form on the crypto track. This signal cannot be ignored.

This reality of tokenization is arriving faster than most people expect. The BlackRock BUIDL Fund, a tokenized basket of U.S. government securities on the Ethereum mainnet, has now surpassed $460 million, quickly becoming the largest tokenized fund issued on a public blockchain.

(See 21.co Dune Analytics for details)

However, ironically, as more of the world's largest financial institutions recognize the value of asset tokenization for capital markets and launch tokenized financial products, the average person still primarily views cryptocurrencies as a "speculative casino" with no real social value.

Much like a hangover the morning after a night of heavy drinking, the 2021 cryptocurrency boom ultimately ended in the collapse of a Ponzi scheme worth $40 billion, the bankruptcy of nearly all retail-facing lending platforms, and the widely reported collapse of the FTX fraud case. Hundreds of billions in capital evaporated overnight, never to return.

In 2024, U.S. courts mandated the launch of a Bitcoin spot ETF, followed by the approval of an Ether spot ETF, making cryptocurrencies a focal point of bipartisan discussion during the election cycle, bringing a breath of fresh air for 2024. Yet, even so, negative perceptions of cryptocurrencies have not faded.

So, what can resolve the information asymmetry between institutions and retail investors regarding asset tokenization?

Stablecoins may be the answer.

Digital Dollar: An Intuitive Pitch for Cryptocurrencies

Cryptocurrency is an extremely difficult concept to explain simply to the general public. The industry encompasses multiple fields, including cryptography, distributed systems, game theory, economics, and political science. Most people do not truly understand how the financial system works (nor do they need to), so the problems that cryptocurrencies aim to solve are largely foreign to them.

Imagine trying to explain what the internet is to someone who knows nothing about computers.

Thus, there is no universal explanation for cryptocurrencies. Instead, what often happens is that curious individuals are overwhelmed by monologues about the historical failures of central banks and fiat currency devaluation, while ingesting a near-lethal dose of industry jargon that only those already captivated by cryptocurrencies can comprehend.

But stablecoins are different; people can understand stablecoins.

Stablecoins are a powerful structure because they adopt a concept (the dollar) that people are already very familiar with and interact with daily, adding something they are not familiar with (blockchain). This not only creates a gap for curiosity but also makes the core differences and advantages of cryptocurrencies more apparent, as people have a benchmark mental model to compare stablecoins against.

The existence of stablecoins sidesteps the entire existential question of "what is money" that inevitably arises when explaining crypto-native assets like Bitcoin, presenting a core argument: Cryptocurrency is the best way to represent assets.

In fact, simply by connecting to the internet, stablecoins enable anyone to transfer dollars to anyone else in the world. Transactions are completed in seconds, with fees of less than a cent. No rent-seeking intermediaries, no bank accounts needed, no oppressive capital controls, no multi-day settlement delays, no nonsense.

The benefits of stablecoins are evident for those living in countries with hyperinflated local currencies, those who have tried cross-border remittances, or anyone who just wants to conduct financial transactions on weekends or holidays.

Once you start regularly transacting in stablecoin format (digital dollars), using traditional banking services will feel absurd and outdated. It’s like going from gigabit fiber to 56K dial-up.

Money should not have business hours; stablecoins are online 24/7/365.

In terms of market demand, the data speaks for itself. Stablecoins have objectively achieved product-market fit, as they are breaking historical records across all metrics—monthly active users, transaction volume, circulating supply.

(See Visa Onchain Analytics Dashboard for details)

In comparison, stablecoins are the 16th largest holder of U.S. Treasury securities, with holdings of approximately $145 billion. More than Norway, Saudi Arabia, and South Korea. As one of the largest and fastest-growing purchasers of U.S. government debt, along with the fact that stablecoins bolster the global dominance of the dollar, this provides a solid case that the U.S. will only become more favorable to the existence and growth of stablecoins over time.

The Fusion of Fintech and Stablecoins

One might think that stablecoins are intended to replace existing fintech payment applications, but the reality is quite the opposite. By issuing their own stablecoins, existing fintech companies can not only benefit from the cost and speed advantages of blockchain settlement but also eliminate fragmentation in the payment industry.

For example, you cannot send funds from a Venmo wallet to a Cash App wallet, which is obviously absurd. Stablecoins can transfer between any two parties, regardless of which wallet software is used. The improvement in user experience is evident and will become a consumer expectation.

Moreover, given their openness and programmability, stablecoins (issued by fintech companies) can be seamlessly integrated into existing DeFi protocols and on-chain financial applications. This makes existing fintech companies particularly well-suited as an interface layer for consumers wishing to interact with on-chain applications, such as earning yield while still receiving dedicated customer support.

Like tokenized assets, the speed at which this reality approaches is faster than people realize.

Take a look at PayPal USD (PYUSD)—a stablecoin worth over $400 million, launched by the world's largest payment processor, now available on multiple public blockchains. PYUSD has already been integrated into the entire DeFi economy, including decentralized exchanges and lending platforms.

According to ++PayPal++, "PayPal USD aims to reduce friction in experiencing payments in virtual environments, facilitating the rapid transfer of value to support friends and family, send remittances or make international payments, enabling direct flows to developers and creators, and helping the world's largest brands continue to expand into digital assets."

In addition to fintech companies like PayPal directly issuing stablecoins, we also see established payment card networks like Visa releasing comprehensive studies on improving stablecoin payments and actively participating in real-time pilots to enable Visa card payments to settle in Circle's USDC.

Cuy Sheffield, Visa's head of crypto, stated, "By leveraging stablecoins like USDC and global blockchain networks like Solana and Ethereum, we are helping to speed up cross-border settlements and providing our clients with a modern option to easily send or receive funds from Visa's treasury."

In short, stablecoins will continue to exist. They are becoming increasingly entrenched in the existing payment industry, amplifying their utility by making it easier for consumers to spend stablecoins and for merchants to accept them.

Moving Towards On-Chain Finance

Given this context, my recommendation for helping someone enter the cryptocurrency space is: have them download a cryptocurrency mobile wallet (like Coinbase Wallet), generate a private key, and provide some stablecoins for trading.

Although today's cryptocurrency user experience is far from perfect, even in its current state, stablecoin transactions are worlds apart from traditional international bank wire transfers. The technical complexities will continue to be abstracted away, making the core advantages of cryptocurrencies more apparent. This is where the Trojan Horse effect ultimately comes into play. Once someone experiences the tangible benefits of cryptocurrencies firsthand, they will begin to demand that every aspect of finance operates like stablecoins: globally accessible, fully transparent, minimally extractive, always online, and resistant to manipulation.

Starting with improving the way dollars are transferred, to transforming the global financial system into an on-chain form based on smart contracts and tokenized assets.

The possibilities of a fully on-chain financial system are limitless.

• Payment processing solutions that enable merchants to accept any fungible or non-fungible asset as payment while only receiving their preferred currency (e.g., paying for groceries with stocks, Bitcoin, or tokenized digital art, while the recipient receives dollar stablecoins).

• The ability to support online creators, independent publications, or social causes through micro-payments and real-time payment streams, which can be transparently tracked end-to-end (e.g., a payment stream of $0.000004 per second (about $10 per month) flowing to an organization with an on-chain auditable budget supporting cancer research).

• Autonomous robotaxi networks that can collect their own revenue and automatically pay for electricity, tolls, mechanical repairs, and upgrades (any service fully automated through AI will require an on-chain economic system).

• Creating truly global capital markets where anyone with an internet connection can access the same investment opportunities and returns as the largest and wealthiest entities in the world.

These are just high-level concepts. Just as it was nearly impossible to accurately predict which internet applications would scale to a global level in the early 1990s, creating an on-chain financial system is similarly unpredictable.

Ultimately, stablecoins are the first step towards a fully tokenized economy. They are not only the first cryptocurrency application to truly achieve product-market fit but also serve as an indispensable tool that succinctly showcases the core value propositions of cryptocurrencies and tokenization to newcomers.

So, the next time someone asks you what cryptocurrency is, skip the long-winded explanation and point them directly to digital dollars.