Visa effect

Author:Nishil JainArticle Compilation：Block unicorn

Foreword

In the 1960s, the credit card industry was in chaos. Banks across the United States were trying to build their own payment networks, but each network operated independently. If you held a Bank of America credit card, you could only use it at merchants that had agreements with Bank of America. And when banks tried to expand their business to other banks, all credit card payments encountered the problem of interbank settlement.

Implications for Stablecoins

In a sense, Anchorage Digital and other companies that now offer stablecoin as a service are replaying the BankAmericard story in the stablecoin space. They provide the underlying infrastructure for new issuers to build stablecoins, while liquidity is constantly being dispersed among new tokens.

Currently, there are over 300 stablecoins listed on the Defillama platform. Moreover, each newly created stablecoin is limited to its own ecosystem. Therefore, no single stablecoin can generate the network effect needed to go mainstream.

Since the same underlying assets support these new coins, why do we need more coins with new code? In our Visa story, these are like BankAmericards. Ethena, Anchorage Digital, M0, or Bridge—each allows a protocol to issue its own stablecoin, but this only exacerbates fragmentation in the industry. Ethena is another similar protocol that allows yield transfers and white-label customization of its stablecoin. Just like MegaETH issued USDm—they issued USDm through a tool that supports USDtb. However, this model failed. It only fragmented the ecosystem. In the credit card case, the brand differences between different banks are irrelevant because they don't cause any friction in the user-to-merchant payment process. The underlying issuance and payment layer is always Visa. However, this is not the case for stablecoins. Different token codes mean an unlimited number of liquidity pools. Merchants (or applications or protocols in this case) will not add all stablecoins issued by M0 or Bridge to their list of accepted stablecoins. They will decide whether to accept them based on their liquidity in the open market; the most held and most liquid coins should be accepted, and the rest will not. The Road Ahead: The Visa Model for Stablecoins [Image of a stablecoin] We need independent third-party institutions to manage stablecoins across different asset classes. Issuers and applications supporting these assets should be able to join cooperatives and earn reserve rewards. At the same time, they should also have governance rights, able to vote on the development direction of the stablecoins they choose. From a network effect perspective, this would be an excellent model. As more and more issuers and protocols join the same token, it will facilitate the widespread adoption of a token that keeps profits internally rather than flowing into other people's pockets.