By Arthur Hayes

Compiled by: TechFlow

Given that Circle CEO Jeremy Allaire appears to have no choice but to be in office at the behest of Coinbase CEO Brian Armstrong, I hope that for investors who trade any “stablecoin”-related asset in the public stock market, this article will help you avoid the huge risks and losses that promoters incur when they force worthless assets on unsuspecting retail investors. With this as a prelude, I will begin my discussion of the past, present, and future of the stablecoin market.

Professional cryptocurrency traders are somewhat unique in the world of capital markets. If they want to survive and thrive, they need to have a deep understanding of how money moves through the global fiat banking system. In contrast, stock investors or foreign exchange speculators do not need to understand how stocks or currencies are settled and transferred, because the brokerage firms they must use will quietly provide this service in the background.

First, buying your first Bitcoin wasn’t easy; it wasn’t clear what the best and safest options were. For most people, the first step (at least when I started getting into crypto in 2013) was to buy Bitcoin by sending a fiat bank wire directly to another person or paying with physical cash. You would then graduate to trading on exchanges that offered two-sided markets, where you could trade larger volumes of Bitcoin with smaller fees. But depositing your fiat into an exchange wasn’t/is not easy or straightforward. Many exchanges didn’t have solid banking relationships or were in a regulatory grey area in their home countries, meaning you couldn’t wire funds directly to them. Exchanges came up with workarounds, such as directing users to transfer fiat directly to a local agent who would issue cash vouchers on the exchange, or setting up an ostensibly unrelated adjacent business so that it looked unrelated to crypto in the eyes of bank account managers, thereby obtaining an account and directing users to transfer funds there.

Scammers take advantage of this friction and steal fiat in a variety of ways. The exchange itself may lie about where the funds are going, and then one day…poof—the website disappears along with your hard-earned fiat. If you use a third-party intermediary to move fiat in and out of the crypto capital markets, these people can disappear with your funds at any time.

Because of the risks involved in transferring fiat money in the crypto capital markets, traders must have a detailed understanding and trust in the cash flow operations of their counterparties. I learned how to process global payments as money moved through the banking systems of Hong Kong, China, and Taiwan (a region I refer to as Greater China).

Understanding how money flows in Greater China has helped me understand how major Chinese and international exchanges (Bitfinex) do business. This is important because all the real innovation in crypto capital markets is happening in Greater China. This is even more true for stablecoins. It will become apparent why this is important.

The greatest cryptocurrency exchange success story in the West belongs to Coinbase, which opened its doors in 2012. However, Coinbase’s innovation was in obtaining and maintaining a banking relationship in one of the most hostile markets to financial innovation: Pax Americana. Beyond that, Coinbase was just a very expensive cryptocurrency brokerage account, which was all it took to propel its early shareholders into billionaires.

The reason I’m writing another long post about stablecoins is because of the huge success of the Circle IPO. To be clear, Circle is severely overvalued, but the price will continue to rise. This listing marks the beginning, not the end, of this round of stablecoin mania. The bubble will burst after a stablecoin issuer is launched in a public market somewhere (most likely in the United States) that uses financial engineering, leverage, and amazing showmanship to separate tens of billions of capital from fools. As usual, most of the people who hand over precious capital will not understand the history of stablecoins and cryptocurrency payments, why the ecosystem has evolved the way it has, and what it means for which issuers will succeed. A very reliable, charismatic guy will take the stage, spew all kinds of nonsense, wave his (most likely male) hands back and forth, and convince you that the leveraged shit he is peddling is about to corner the trillion-dollar stablecoin total addressable market (TAM).

If you stop reading here, the only question you should 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 the ability to reach millions of users at an affordable cost — publishers must use the channels of cryptocurrency exchanges, Web2 social media giants, or traditional banks. If they don’t have distribution channels, there’s no chance of success. If you can’t easily verify that the publisher has the right to push the product through one or more of these channels, run!

Hopefully, my readers will not burn their capital in this way because, after reading this article, they will be able to think critically about the stablecoin investment opportunities that are before them. This article will discuss the evolution of stablecoin distribution.

First, I’ll talk about how and why Tether grew in Greater China, which laid the foundation for their conquest of stablecoin payments in the Global South. Then I’ll discuss the ICO boom and how this created real product-market fit for Tether. Then I’ll discuss the first attempts by Web2 social media giants to enter the stablecoin game. Finally, I’ll briefly mention how traditional banks will get involved.

To reiterate, because I know X (platform) makes it hard to read prose longer than a few hundred characters, if a stablecoin issuer or technology provider can’t get distribution through crypto exchanges, Web2 social media giants, or traditional banks, they shouldn’t be in business.

Cryptocurrency Banking in Greater China

The current successful stablecoin issuers Tether, Circle, and Ethena all have the ability to distribute their products through large cryptocurrency exchanges. I will focus on the evolution of Tether and briefly mention Circle to illustrate that it is almost impossible for any new entrant to replicate their success.

At first, cryptocurrency exchanges were overlooked. For example, Bitfinex held the crown of the largest non-Chinese global exchange from 2014 until the late 2010s. At that time, Bitfinex was owned by a Hong Kong operating company that had various local bank accounts. This was great for an arbitrage trader like me living in Hong Kong because I could wire funds to the exchange almost instantly. There was a street across from my apartment in Sai Ying Pun that contained almost all the local banks. I would walk cash between banks to reduce fees and the time it took to receive the money. This was very important because it allowed me to turn over my capital once a day during the weekdays.

Meanwhile, in China, the three largest exchanges, OKCoin, Huobi, and BTC China, all have multiple bank accounts at large state-owned banks. With only a 45-minute bus ride to Shenzhen, and armed with my passport and basic Chinese language skills, I opened various local bank accounts. As a trader in mainland China and Hong Kong, having banking relationships means you have access to all the liquidity in the world. I also have the confidence of knowing that my fiat currency won’t disappear. In contrast, I live in fear every time I wire money to certain Eastern European-domiciled exchanges because I don’t trust their banking channels.

But as cryptocurrencies gained popularity, banks started closing accounts. Every day you had to check the health of every bank and exchange relationship. This was very detrimental to my trading profits; the slower money moved between exchanges, the less money I could make from arbitrage. But what if you could move electronic dollars on a crypto blockchain, rather than through traditional banking channels? Then dollars—the lifeblood of the crypto capital markets then as now—could move between exchanges 24/7 for virtually nothing.

The team at Tether worked with the original founders of Bitfinex to create such a product. In 2015, Bitfinex allowed Tether USD to be used on its platform. At that time, Tether used the Omni protocol as a layer on top of the Bitcoin blockchain to send Tether USD (USDT) between addresses. This is an original smart contract layer built on top of Bitcoin.

Tether allows certain entities to wire USD to their bank accounts, and in return, Tether mints USDT. USDT can be sent to Bitfinex and used to buy cryptocurrencies. Wow, awesome, why is it exciting that a random exchange offers this product?

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

Everyone in Greater China is in the same boat. Banks are closing accounts of traders and exchanges. Add to that the fact that Asians want access to dollars because their own currencies are vulnerable to shock devaluations, high inflation, and low domestic bank deposit rates. For most Chinese, access to dollars and U.S. financial markets is difficult or impossible. Therefore, Tether’s version of a digital dollar, available to anyone with an internet connection, is super attractive.

The Bitfinex/Tether team went with the flow. Jean-Louis van der Velde, Bitfinex CEO since 2013, previously worked for Chinese automakers. He knows Greater China and has worked hard to make USDT the preferred USD bank account for crypto-minded Chinese. Bitfinex, while never having an ethnic Chinese executive, has built tremendous trust between Tether and the Chinese crypto trading community. So you can be sure that the Chinese trust Tether. And in the Global South, the overseas Chinese are in control, as the citizens of the Empire have discovered in this unfortunate trade war, so the Global South is banked by Tether.

Just because Tether had a large exchange as its founding distributor did not ensure success. The market structure changed to the point where trading altcoins against the dollar was only possible through USDT. Let’s fast forward to 2017, at the peak of the ICO craze, when Tether really solidified its product-market fit.

ICO Baby

August 2015 was a very important month, as the People’s Bank of China (PBOC) conducted a shock devaluation of the RMB against the dollar, and Ether (the native currency of the Ethereum network) began trading. The macro and micro phases shifted in sync. It was legendary, and ultimately drove the bull run from then until December 2017. Bitcoin skyrocketed from $135 to $20,000; Ether from $0.33 to $1,410.

When money is printed, the macro environment is always favorable. Since Chinese traders are marginal buyers of all cryptocurrencies (at the time, just Bitcoin), if they feel that the yuan is unstable, Bitcoin will skyrocket. At least that was the argument at the time.

Shock devaluations by the People’s Bank of China exacerbated capital flight. By August 2015, Bitcoin had fallen from its all-time high of $1,300 before the collapse of Mt. Gox in February 2014 to a low of $135 on Bitfinex earlier that month, when ZhaoDong, China’s largest OTC Bitcoin trader, suffered the largest margin call ever on Bitfinex, amounting to 6,000 Bitcoins. Stories of Chinese capital flight fueled the rally; from August to October 2015, BTCUSD more than tripled.

The micro is always where the fun is. The surge in altcoins really began when the Ethereum mainnet and its native currency, Ether, went live on July 30, 2015. Poloniex was the first exchange to allow trading in Ether, and it was this foresight that propelled it to stardom in 2017. Interestingly, Circle almost went bankrupt buying Poloniex at the top of the ICO market. Years later, they sold the exchange to the Honorable Justin Sun at a huge loss.

Poloniex and other Chinese exchanges took advantage of the new altcoin market by launching crypto-only trading platforms. Unlike Bitfinex, there was no need to interface with the fiat banking system. You could only deposit and withdraw crypto to trade other cryptocurrencies. But this was not ideal, as traders instinctively wanted to trade altcoin/USD pairs. Without the ability to accept fiat deposits and withdrawals, how could exchanges like Poloniex and Yunbi (once the largest ICO platform in China) offer these trading pairs? Enter USDT!

Once USDT is live on the Ethereum mainnet, it can be moved on the network using ERC-20 standard smart contracts. Any exchange that supports Ethereum can easily support USDT as well. Therefore, pure cryptocurrency trading platforms can offer altcoin/USDT trading pairs to meet market demand. This also means that digital dollars can flow seamlessly between major exchanges (such as Bitfinex, OKCoin, Huobi, BTC China, etc.) - where capital enters the ecosystem - and more interesting and speculative venues (such as Poloniex and Yunbi) - where gamblers play.

The ICO craze gave birth to the behemoth that would become Binance. CZ (Changpeng Zhao) resigned from his position as CTO of OKCoin in a rage a few years ago due to a personal dispute with CEO Star Xu. CZ left and founded Binance with the goal of becoming the world's largest altcoin exchange. Binance has no bank account, and to this day I don't know if you can deposit fiat directly into Binance without going through some payment processor. Binance used USDT as its banking channel, quickly became the go-to place to trade altcoins, and the rest is history.

From 2015 to 2017, Tether achieved product-market fit and built a moat against future competitors. Due to the trust of the Chinese trading community in Tether, USDT is accepted on all major trading venues. It is not used for payments at this time, but it is the most efficient way to transfer digital dollars in and around the cryptocurrency capital markets and within them.

By the late 2010s, it was difficult for exchanges to maintain bank accounts. Taiwan became the de facto crypto banking hub for all of the largest non-Western exchanges, which control the majority of global crypto trading liquidity. This was because several Taiwanese banks allowed exchanges to open USD accounts and were somehow able to maintain correspondent banking relationships with large US money center banks such as Wells Fargo. However, this arrangement began to unravel as correspondent banks demanded that these Taiwanese banks expel all crypto customers or lose access to global USD markets. As a result, by the late 2010s, USDT became the only way to transfer USD at scale in the crypto capital markets. This solidified its position as the dominant stablecoin.

Western players, many of whom raised money on the crypto payments narrative, rushed to create competitors to Tether. The only one that survived at scale was Circle’s USDC. However, Circle was at a distinct disadvantage as it was a US company based in Boston with no ties to Greater China, the core of crypto trading and usage. Circle’s unspoken message was/still is: China = scary; US = safe. This message is hilarious because Tether has never had an executive of Chinese descent, but it was/is always relevant to the Northeast Asian market, and now the Global South.

Social media wants to join

Stablecoin mania is not new. In 2019, Facebook (now Meta) decided it was time to launch its own stablecoin, Libra. The appeal was that Facebook, through Instagram and WhatsApp, could offer dollar bank accounts to the entire world, except China. Here’s what I wrote about Libra in June 2019:

The event horizon has passed. With Libra, Facebook is entering the digital asset industry. 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 the hell cares. I won’t shed a single tear for all the projects that are somehow deemed worthy by a fiat money market foundation created by an obscure sponsor and running on a blockchain.

Libra could make commercial and central banks obsolete. It could reduce their utility to a dumb, regulated digital fiat warehouse. And that’s exactly what these institutions should be in the digital age.

Stablecoins offered by Libra and other Web2 social media companies could have stolen the show. They have the largest customer base and almost complete information about their preferences and behaviors.

Finally, the US political establishment acted to protect the traditional banks from real competition in the payments and foreign exchange space. Here’s what I said at the time:

I have no love for the foolish comments and actions of U.S. Representative Maxine Waters on the U.S. House Financial Services Committee. But the outburst of concern she and other government officials are feeling is not rooted in altruism for their subjects, but in fear of disrupting the financial services industry that lines their pockets and keeps them in office. The speed with which government officials have rushed to condemn Libra tells you there is some potential positive value for human society in this project.

That was then, but now the Trump administration will allow competition in financial markets. Trump 2.0 has no regard for the banks that de-platformed his entire family during the administration of US President Biden. As a result, social media companies are reviving plans to embed stablecoin technology natively into their platforms.

This is good news for social media company shareholders. These companies can completely cannibalize revenue streams from the traditional banking system, payments, and foreign exchange. However, it is bad news for any entrepreneur creating a new stablecoin, as social media companies will build everything needed to support their stablecoin business in-house. Investors in new stablecoin issuers must be wary of promoters bragging about working with or distributing through any social media company.

Other tech companies are also jumping on the stablecoin bandwagon. Social media platform X, Airbnb, and Google are all in early discussions about integrating stablecoins into their business operations. In May, Fortune reported that Mark Zuckerberg’s Meta — which has unsuccessfully experimented with blockchain technology in the past — has been in discussions with cryptocurrency companies about introducing stablecoins for payments.

– Source: Fortune Magazine

The extinction event for traditional banks

Whether banks like it or not, they will not be able to continue to earn billions of dollars in revenue each year holding and transferring digital fiat, nor will they be able to earn the same fees when conducting foreign exchange transactions. I recently spoke to a board member of a large bank about stablecoins, and they said "we are screwed". They believe that stablecoins are unstoppable and point to the situation in Nigeria as proof. I had no idea of the extent of USDT penetration in the country, but they told me that a third of Nigeria's GDP is carried out in USDT, even though the central bank has very seriously tried to ban cryptocurrencies.

They go on to state that because adoption is bottom-up rather than top-down, regulators are powerless to stop it. By the time regulators notice and try to do something, it is too late because adoption is already widespread among the population.

Even though there are people like them in senior positions at every large traditional bank, the banking organism does not want to change because it would mean the death of many of its cells - its employees. With less than 100 employees, Tether can perform key functions for the entire global banking system using blockchain technology. For comparison, consider that JP Morgan, the world's best-run commercial bank, employs a little over 300,000 people.

Banks are facing a critical moment — adapt or die. But complicating their efforts to streamline their bloated workforces and provide the products the global economy needs is prescriptive regulation regarding how many people must be hired to perform certain functions. Take, for example, my experience at BitMEX trying to open a Tokyo office and obtain a license to trade cryptocurrencies. The management team considered whether we should open a local office and obtain a license to trade some limited types of cryptocurrencies in addition to our core derivatives business. The cost of compliance regulation is the problem, because you can’t leverage technology to meet the requirements. The regulators dictate that for each compliance and operational function listed, you must hire one person with the right level of experience. I don’t remember the exact number, but I believe it would take about 60 people, each making at least $80,000, for a total of $4.8 million per year to perform all the prescribed functions. All of this work could have been automated with a SaaS vendor for less than $100,000 per year. And I’d add that there would be fewer errors than hiring error-prone people. Oh… and you can’t fire anyone in Japan unless you close the entire office. Oops!

Bank regulation is designing job creation programs for an overeducated population, and this is a global problem. They are overeducated in bullshit, not in what actually matters. They are just highly paid box tickers. As much as bank executives would like to cut headcount by 99% and thereby increase productivity, as regulated institutions they cannot do it.

Stablecoins will eventually be adopted in limited form by traditional banks. They will be running two parallel systems, the old slow and expensive one, and the new fast and cheap one. The extent to which they are allowed to truly embrace stablecoins will be determined in each office by prudential regulators. Remember JPMorgan is not one organism, but each instance of JPMorgan in each country is regulated differently. Data and people often cannot be shared between instances, which hinders company-wide technology-driven rationalization. Good luck to you, asshole bankers, regulation protects you from Web2, but will ensure your death in Web3.

These banks will certainly not collaborate with third parties on technology development or stablecoin distribution. They will do all of this in-house. In fact, regulators may explicitly prohibit collaboration. Therefore, this distribution channel is closed to entrepreneurs building their own stablecoin technology. I don’t care how many Proofs of Concept a particular issuer claims to be doing for traditional banks. They will never lead to bank-wide adoption. So if you are an investor, if a stablecoin issuer promoter claims that they will work with traditional banks to bring their product to market, run.

Now that you understand the difficulties new entrants face in gaining mass distribution for their stablecoins, let’s discuss the reasons why they would attempt this impossible feat anyway. Because being a stablecoin issuer is extremely profitable.

The US dollar interest rate game

The profitability of stablecoin issuers depends on the amount of net interest income (NIM) available. The cost basis of the issuer is the fees paid to holders, and the income comes from the returns of cash invested in Treasury debt (such as Tether and Circle) or some kind of cryptocurrency market arbitrage (such as spot holding arbitrage basis trades, such as Ethena). The most profitable issuer, Tether, pays no fees to USDT holders or depositors and earns full NIM based on the yield level of short-term Treasury bills (T-bill).

Tether is able to keep all of its NIM because it has the strongest network effects and its customers have no other choice of USD bank accounts. Potential customers won’t choose other USD stablecoins because USDT is accepted throughout the Global South. A personal example is how I make payments during the Argentinian ski season. I ski in the Argentinian countryside for a few weeks each year. When I first went to Argentina in 2018, payments were a pain if vendors didn’t accept foreign credit cards. But by 2023, USDT has taken over and my guide, driver, and chef all accept USDT as payment. This is great because even if I wanted to, I couldn’t pay in pesos; bank ATMs will only give out up to $30 in pesos per transaction and charge a 30% fee. Fucking crime — long live Tether. It’s great for my employees to receive digital dollars stored on a cryptocurrency exchange or in their mobile wallets and easily spend them to buy goods and services both domestically and internationally.

Tether's profitability is the best advertisement for social media companies and banks to create their own stablecoins. Neither of these categories needs to pay for deposits because they already have a rock-solid distribution network, which means they capture all NIM. Therefore, this could become a huge profit center for them.

Arthur Hayes' latest blog post: The stablecoin narrative is hot, don't short it casually

Tether makes more money each year than this chart estimates. The chart assumes that all AUC (assets under management) is invested in twelve month Treasury bills. The point is to show that Tether's returns are highly correlated to US interest rates. You can see the huge jump in returns from 2021 to 2022, which is due to the Fed raising rates at the fastest rate since the early 1980s.

Arthur Hayes' latest blog post: The stablecoin narrative is hot, don't short it casually

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

Distributing stablecoins can be very expensive unless you are affiliated with a captive exchange, social media company, or traditional bank. Bitfinex and Tether were founded by the same people. Bitfinex has millions of customers, so out of the box, Tether has millions of customers. 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 stablecoin that comes after it, will have to pay distribution fees to exchanges in some form. Social media companies and banks will never work with third parties to build and operate their stablecoins; therefore, cryptocurrency exchanges are the only option.

Crypto exchanges can build their own stablecoins, as Binance did with BUSD, but ultimately many exchanges believe that building a payment network is too difficult and a distraction from their core business. Exchanges require equity in the issuer or a portion of the issuer’s NIM to allow trading of their stablecoin.

But even so, all crypto/USD trading pairs will likely still be paired with USDT, which means Tether will continue to dominate the market. This is why Circle has to curry favor with Coinbase. Coinbase is the only major exchange not in Tether's orbit because Coinbase's customers are mainly Americans and Western Europeans.

Tether had been slammed by Western media as some kind of foreign-made scam until U.S. Commerce Secretary Howard Lutnik favored it and provided banking services for it through his firm Cantor Fitzgerald. Coinbase, whose existence depends on the favor of the U.S. political establishment, had to find an alternative. So Jeremy Allaire posed and accepted Brian Armstrong's request.

The deal goes like this: Circle pays Coinbase 50% of its net interest income in exchange for distribution across the Coinbase network. Yachttzee!!

The situation for new stablecoin issuers is dire. There are no open distribution channels. All major cryptocurrency exchanges either have issuers or are partnering with existing issuers Tether, Circle, and Ethena. Social media companies and banks will build their own solutions.

Therefore, a new issuer must transfer a significant portion of its NIM to depositors in an attempt to pry them away from other stablecoins with higher adoption. Ultimately, this is why investors will lose money on almost every publicly listed stablecoin issuer or technology provider by the end of this cycle. But that won’t stop the party; let’s dig into why investors’ judgment is clouded by the huge stablecoin profit potential.

Narrative

There are three business models responsible for creating crypto wealth outside of just holding Bitcoin and other altcoins. They are mining, operating exchanges, and issuing stablecoins. In my case, my wealth comes from my ownership of BitMEX (a derivatives exchange), while Maelstrom (my family office)'s largest position and the asset that generates the most absolute returns is Ethena, the issuer of the USDE stablecoin. Ethena went from zero to the third largest stablecoin in less than a year in 2024.

The unique thing about the stablecoin narrative is that it has the largest and most obvious total addressable market (TAM) for traditional finance (TradFi) fools.

Tether has proven that an on-chain bank that simply holds people’s funds and allows them to transfer them back and forth can be the most profitable financial institution per capita ever. Tether has succeeded in the face of a legal battle waged by all levels of the US government.

What would happen if U.S. authorities were at least less hostile to stablecoins and allowed them some freedom to operate as they compete with traditional banks for deposits? The profit potential is insane.

Now considering the current setup, the US Treasury staff believes that stablecoin AUC (assets under management) could grow to $2 trillion. They also believe that USD stablecoins could be the tip of the spear to advance/maintain USD hegemony while also being a price insensitive buyer of Treasury debt.

Wow, that’s a major macro tailwind. As a tasty bonus, remember that Trump has a grudge against the big banks because they de-platformed him and his family after his first term as president. He has no intention of stopping the free market from providing a better, faster, and more secure way to hold and transfer digital dollars. Even his sons have jumped into the stablecoin game.

This is why investors are salivating over investable stablecoin projects. Before we move on to my predictions on how this narrative will translate into cash-burning opportunities, let me first define the criteria for investable projects.

The issuer in question is able to list in some form on a U.S. public stock market. Second, the issuer offers a product for a mobile digital dollar; no foreign shit, this is Murica. That's it, and as you can see, there's a lot of white space here for creativity.

Road to Destruction

The most obvious issuer to IPO and get the party started is Circle. They are a US company and the second largest stablecoin issuer by AUC.

Circle is seriously overvalued at this stage. Remember that Circle gives 50% of its interest income to Coinbase. Yet Circle's market cap is 39% of Coinbase's. Coinbase is a one-stop crypto finance shop with multiple profitable lines of business and tens of millions of customers worldwide. Circle excels at fellatio, and while it is 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 the Circle/Coinbase ratio is unreasonable, you should buy Coinbase. Although Circle is overvalued, when we look back on the stablecoin craze in a few years, many investors will wish they had just held Circle. At least they will have some capital left over.

The next wave of IPOs will be Circle copycats. Relatively speaking, these stocks will be more overvalued than Circle in terms of price/AUC ratio. In absolute terms, they will never surpass Circle in terms of revenue generation.

Promoters will tout meaningless traditional financial credentials, trying to convince investors that they have the connections and the ability to disrupt traditional banks in global dollar payments by partnering with them or leveraging their distribution channels. The scam will succeed; the issuers will raise a fucking ton of money. For those of us who have spent some time in the trenches, it will be hilarious to watch those clowns in suits and ties being able to trick the public into investing in their shit companies.

After this first wave, the scale of the scam depends entirely on the stablecoin regulation enacted in the U.S. The more freedom issuers get in terms of the assets backing the stablecoin and whether they can pay yields to holders, the more financial engineering and leverage that can be used to cover shit up. If you assume a light or no-touch stablecoin regulation regime, then you might see a repeat of Terra/Luna, where some issuer creates some kind of scammy algorithmic stablecoin Ponzi scheme. The issuer can pay holders high yields, and the yields come from applying leverage to certain asset holdings.

As you can see, I have relatively little to say about the future. There is no real future because the distribution channels are closed to new entrants. Forget that thought.

But don’t short. These new stocks will rip the faces off of shorts. The macro and micro are in sync. As former Citigroup CEO Chuck Prince said when asked about his company’s involvement in subprime mortgages: “When the music stops, things get complicated in terms of liquidity. But as long as the music is playing, you have to get up and dance. We’re still dancing.”

I’m not sure how Maelstrom would dance, but if there’s money to be made, we’ll make it.

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