Stablecoins are getting a lot of attention, but what about stablecoin chains?

Author: Sean C, Source: Capital Control, Compiler: Shaw Jinse Finance

Stablecoins are all the rage right now. Everyone's talking about them, and there's growing discussion about stablecoin blockchains in both traditional finance and crypto.

Recent reports indicate that Stripe is launching a blockchain. USDC issuer Circle has announced that it will also launch its own blockchain. Tether (USDT) has invested in several teams working on Tether-related chains, such as Plasma and Stable. Robinhood is launching a chain (not specifically for stablecoins).

JPMorgan and Fidelity will also be involved.

I believe the use and supply of stablecoins will grow significantly. However, I'm less certain about the significance of dedicated stablecoin settlement and payment chains. Some (un)stable thoughts: Most activities related to stablecoins fall into one of three categories: issuance, payments, or settlement. Issuing such currencies is attractive because the issuer can keep the proceeds of the underlying dollar while paying no fees to users. I generally like the Genius Act; it makes this much easier. On the issuance side, Tether will have a tough time competing. Liquidity begets liquidity, and Tether has a huge lead. Circle is relatively vulnerable, but still ahead of most new entrants. Payments and settlements are less exciting. On public blockchains, the cost of transferring value is already near zero. Over time, competition will drive payment fees down to zero, both domestically and internationally. This is good for users, but not a high-margin business. If most stablecoins and applications already exist on mainstream public blockchains like Ethereum and Solana, why would users migrate to smaller, less secure networks just to access a more limited portion of the same functionality? For crypto-native chains, issuing tokens may capture some of the hype cycle, but the fundamental value proposition of the tokens themselves is less clear. Technically, some of these chains present even larger problems. Chains built on USDC lack economic incentives for public, honest verification, so they become a private consortium of pre-approved validators. These validators can be refunded through a "dispute protocol." Circle's proposed chain is more like a multi-vendor database similar to PayPal that happens to run EVM code rather than a true Layer 1. In all cases, Circle and Tether remain the ultimate arbiters of USDC and USDT. They can freeze, reverse, or reject transactions at will. Off-chain companies remain the true record-keepers of the ledger. This won't change just because they have their "own" chain.