Original Title: Assume The Position

Original Author: Arthur Hayes, Crypto Trader Digest

Original Translation: Bitpush

(The views expressed here are solely those of the author and should not be taken as the basis for any investment decisions, nor should they be considered as recommendations or advice for engaging in any investment or trading activities.)

Given that Circle CEO Jeremy Allaire appears to have no choice but to "assume the position" under the "directive" of Coinbase CEO Brian Armstrong (a sarcastic remark by the author, implying a lack of independence and dominance by Coinbase), I hope this article serves as a guide to investors trading publicly-listed assets related to "stablecoins" to avoid significant risks and losses when promoters try to offload worthless assets onto unsuspecting retail investors. With this as a preamble, I’ll dive into the past, present, and future of the stablecoin market.

In the realm of capital markets, professional cryptocurrency traders hold a distinct position. To survive and thrive, they must have an in-depth understanding of how money flows through the global fiat banking system. In contrast, stock investors or forex speculators don’t need to concern themselves with the nitty-gritty of how stocks or currencies are settled and transferred, as their brokers handle these mechanics behind the scenes.

First, buying your very first Bitcoin isn’t straightforward; what is the optimal and safest way isn’t always clear. For most people, the initial step (at least back in 2013 when I began exploring cryptocurrencies) was to purchase Bitcoin by sending a fiat wire transfer directly to another person or by paying in physical cash. Then, you’d level up to trading on platforms offering bilateral markets, where you could trade larger amounts of Bitcoin at lower fees. However, depositing fiat currency onto an exchange back then—and even now—was neither easy nor straightforward. Many exchanges lacked stable banking relationships or operated in regulatory gray zones within their respective jurisdictions, which meant you couldn’t directly wire money to them. Exchanges devised workarounds, such as guiding users to transfer fiat directly to local agents, who in turn issued cash vouchers to users on the platform; or setting up adjacent businesses that appeared unrelated to cryptocurrency in order to secure bank accounts under the radar of banking compliance officers, tricking them into thinking the business had no ties to crypto and directing user funds there.

Scammers exploited this friction to steal fiat in various ways. Exchanges themselves could misreport the destination of funds, and one day… poof—both the website and your hard-earned fiat simply vanish. If you relied on third-party intermediaries to move fiat in and out of the crypto capital markets, there was always a risk that these individuals would abscond with your money without a trace.

Due to the risks associated with transferring fiat currency in the cryptocurrency capital markets, traders must have a detailed understanding of and trust in the cash flow operations of their counterparties. When funds flow within the banking systems of Hong Kong, Mainland China, and Taiwan (a region I will call Greater China), I’ve learned how to navigate global payments.

Understanding how funds move within the Greater China region has helped me grasp how key Mandarin-speaking regions and international trading platforms (like Bitfinex) operate. This is significant because all meaningful innovations in cryptocurrency capital markets occur in Greater China. This is especially true for stablecoins. Why this matters will soon become evident, so keep reading. The greatest success story of a cryptocurrency trading platform in the West belongs to Coinbase, which opened in 2012. However, Coinbase’s innovation lies in securing and maintaining banking relationships in one of the most hostile markets for financial innovation—the Pax Americana. Beyond that, Coinbase is essentially just an extremely expensive cryptocurrency brokerage account, and that was all it needed to make its early shareholders billionaires.

The reason I’m writing yet another long essay on stablecoins is because of the enormous success of the Circle IPO. Let’s be clear: Circle is grossly overvalued, but the price will continue to rise. This IPO marks the beginning, not the end, of this round of stablecoin mania. After a stablecoin issuer launches on a public market (quite likely in the U.S.), the bubble will burst. That issuer will employ financial engineering, leverage, and dazzling theatrics to separate fools from tens of billions of dollars in capital. As always, most of the people parting with their valuable capital won’t understand the history of stablecoins and cryptocurrency payments, why the ecosystem evolved the way it did, or what this means for which issuers will succeed. A very convincing and charismatic guy will take the stage, spouting all kinds of nonsense, flailing his hands around (and yes, it’s very likely he’ll be male), and convincing you that the leveraged junk he’s peddling is about to monopolize a multi-trillion-dollar Total Addressable Market (TAM) for stablecoins.

If you stop reading here, the only question you need to ask yourself when evaluating an investment in a stablecoin issuer is this: How will they distribute their product? To achieve mass distribution—by which I mean the ability to reach millions of users at a sustainable cost—the issuer must rely on the pipelines of cryptocurrency trading platforms, Web2 social media giants, or traditional banks. If they lack a distribution channel, there’s no chance of success. If you can’t easily verify whether the issuer has the right to push products through one or more of these channels, run away!

I hope my readers won’t burn their capital this way, as they can critically evaluate stablecoin investment opportunities by reading this article. It will discuss the evolution of stablecoin distribution. First, I’ll talk about how and why Tether thrived in Greater China, laying the groundwork for its conquest of stablecoin payments across the Global South. Then, I’ll discuss the ICO boom and how it created true product-market fit for Tether. Next, I’ll cover how Web2 social media giants made their first foray into the stablecoin game. Finally, I’ll briefly touch on how traditional banks will play a role. To reiterate, because I know X (the platform) has made it difficult to read prose longer than a few hundred characters: If a stablecoin issuer or technology provider cannot distribute through cryptocurrency trading platforms, Web2 social media giants, or traditional banks, they should stay out of the game.

Crypto Banking in Greater China

The successful stablecoin issuers today — Tether, Circle, and Ethena — all possess the ability to distribute their products through major cryptocurrency exchanges. I will focus on the evolution of Tether and briefly touch on Circle to demonstrate why it’s nearly impossible for any new entrant to replicate their success.

Initially, crypto trading was overlooked. For example, from 2014 to the late 2010s, Bitfinex held the title as the largest non-mainland China global trading platform. At that time, Bitfinex was owned by a Hong Kong operating company with various local bank accounts. This was fantastic for arbitrage traders like me based in Hong Kong because I could practically wire funds to the exchange instantly. Across the street from my apartment in Sai Ying Pun were branches of almost every major local bank. I would walk between the banks to shuttle cash, reducing fees and the time it took to make deposits. This was critical as it allowed me to turn over my capital once per business day.

Meanwhile, the three major exchanges at the time — OKCoin, Huobi, and BTC China — all maintained multiple bank accounts with major state-owned banks. A 45-minute bus ride to Shenzhen, armed with my passport and basic Mandarin skills, was enough for me to open various local bank accounts. As a trader operating out of both mainland China and Hong Kong, having these banking relationships meant having access to global liquidity. There was also peace of mind knowing my fiat money was secure. In contrast, every time I wired funds to certain exchanges registered in Eastern Europe, I lived in constant fear, distrusting their banking channels entirely.

However, as cryptocurrencies gained notoriety, banks started shutting down accounts. Every day, you had to check the operational status of the bank <> exchange relationships. This was detrimental to my trading profits — the slower funds moved between platforms, the less I could make from arbitrage opportunities. But what if you could transfer electronic dollars on a crypto blockchain instead of via traditional banking channels? Then the U.S. dollar — the lifeblood of crypto capital markets, both then and now — could move between exchanges 24/7 at near-zero cost.

The Tether team collaborated with the original founders of Bitfinex to create such a product. By 2015, Bitfinex allowed the use of Tether USD on its platform. At that time, Tether relied on the Omni Protocol as a layer built on the Bitcoin blockchain to send Tether USD (USDT) between addresses. This was an early smart contract layer built atop Bitcoin.

Tether allows certain entities to wire transfer U.S. dollars into its bank accounts, and in return, Tether mints USDT. USDT can be sent to Bitfinex and used to purchase cryptocurrencies. Holy cow, that’s freaking amazing! But why is it so exciting when a random trading platform offers this kind of product?

Stablecoins, like all payment systems, only become valuable when a significant number of economically meaningful participants join the network as nodes. For Tether, beyond Bitfinex, crypto traders and other major exchanges need to use USDT to solve any real-world problems.

Everyone in Greater China faces the same predicament. Banks are shutting down accounts of traders and exchanges. Add to that the fact that Asians want access to U.S. dollars because their local currencies are prone to sharp devaluations, high inflation, and low domestic bank deposit rates. For most Chinese people, accessing dollars and U.S. financial markets is extremely difficult or outright impossible. As a result, a digital dollar offered by Tether, which anyone with an internet connection can access, becomes incredibly appealing.

The Bitfinex/Tether team capitalized on the opportunity. Jean-Louis van der Velde, who has served as the CEO of Bitfinex since 2013, previously worked for an automotive manufacturer in mainland China. He understands the Greater China region and has worked diligently to make USDT the go-to “crypto-native” dollar bank account for Chinese-speaking regions. Although Bitfinex has never had Chinese executives on its management team, it has built enormous trust between Tether and the Chinese-speaking cryptocurrency trading community. This means you can be certain that Tether holds strong credibility in the Chinese-speaking regions. Meanwhile, in the Global South, overseas Chinese dominate the playing field. Just as imperial citizens discovered during this unfortunate trade war, the Global South is banked by Tether.

Simply having a major exchange as its founding distributor doesn’t guarantee success for Tether. Market structures shifted to the point where trading altcoins against the dollar could only happen via USDT. Fast forward to 2017, at the peak of the ICO boom, and Tether truly solidified its product-market fit.

ICO Baby

August 2015 was a pivotal month because the People’s Bank of China (PBOC) executed a sharp devaluation of the Chinese yuan against the U.S. dollar, and Ether (the native currency of the Ethereum network) began trading. Both the macro and micro stages shifted in sync. It was legendary and ultimately fueled the bull market from then until December 2017. Bitcoin skyrocketed from $135 to $20,000, while Ether surged from $0.33 to $1,410. When printing money is involved, the macro environment is always favorable. Since traders in the Chinese-speaking regions were the marginal buyers of all cryptocurrencies (at the time, primarily Bitcoin), whenever they felt the yuan was unstable, Bitcoin would soar. At least, that’s how the narrative went back then.

The shock depreciation by the People's Bank of China intensified capital flight. By August 2015, Bitcoin had plummeted from its all-time high of $1,300 before the February 2014 Mt. Gox bankruptcy to a low of $135 earlier that month on Bitfinex. At that time, Zhao Dong, the largest OTC Bitcoin trader in mainland China, suffered the largest-ever margin call on Bitfinex, amounting to a staggering 6,000 Bitcoins. Speculation about capital flight from mainland China fueled the subsequent rally. From August to October 2015, BTCUSD more than doubled.

The micro level is always the most fascinating. The altcoin boom truly began with the launch of the Ethereum mainnet and its native currency, Ether (ETH), on July 30, 2015. Poloniex was the first exchange to allow Ether trading, and this foresight propelled it to prominence in 2017. Interestingly, Circle purchased Poloniex near the peak of the ICO market and nearly went bankrupt. Years later, they offloaded the platform at a massive loss to none other than His Excellency Justin Sun.

Poloniex and other Chinese-language exchanges capitalized on the burgeoning altcoin market by introducing crypto-only trading platforms. Unlike Bitfinex, such platforms didn’t require integration with traditional fiat banking systems. You could only deposit and withdraw cryptocurrencies, which were then used to trade other cryptocurrencies. However, this was less than ideal because traders instinctively want to trade altcoin/USD pairs. So how could exchanges like Poloniex and Yunbi offer such trading pairs without supporting fiat deposits and withdrawals? Enter USDT!

After the launch of the Ethereum mainnet, USDT could be moved on this network via ERC-20 standard smart contracts. Any exchange supporting Ethereum could easily support USDT as well. Thus, crypto-only exchanges could offer altcoin/USDT pairs to satisfy market demand. This also allowed digital dollars to seamlessly flow between major exchanges like Bitfinex, OKCoin, Huobi, BTC China—places where capital entered the ecosystem—and more speculative playgrounds like Poloniex and Yunbi, where gamblers indulged in risky trades.

The ICO craze gave rise to what would later become the Binance behemoth. CZ (Changpeng Zhao) resigned as CTO of OKCoin years earlier after a personal dispute with its CEO, Star Xu. Following his departure, CZ founded Binance with the ambition of creating the world’s largest altcoin exchange. Binance had no bank accounts, and to this day, it’s unclear whether you can directly deposit fiat currency into Binance without some sort of payment processor. Binance relied on USDT as its banking bridge, quickly establishing itself as the go-to place for altcoin trading. The rest is history.

From 2015 to 2017, Tether achieved product-market fit and built a moat to fend off future competitors. Due to the trust of the Chinese-speaking trading community in Tether, USDT was accepted across all major trading platforms. At this time, it wasn't used for payments yet, but it became the most efficient way to transfer digital dollars both within and outside the crypto capital markets.

By the late 2010s, it was increasingly difficult for trading platforms to maintain bank accounts. Taiwan became the de facto crypto banking hub for all the largest non-Western exchanges, which controlled the majority of global crypto trading liquidity. This was because several Taiwanese banks allowed exchanges to open USD accounts and, somehow, managed to maintain correspondent banking relationships with major U.S. money-center banks such as Wells Fargo. However, as these correspondent banks demanded that Taiwanese banks expel all crypto clients or face losing access to the global USD market, this arrangement began to unravel. As a result, by the end of the 2010s, USDT became the only viable means for large-scale USD transfers within crypto capital markets, cementing its position as the dominant stablecoin.

Western participants, many of whom had raised funds based on the narrative of crypto payments, scrambled to create competitors to Tether. The only player to survive at scale was Circle's USDC. However, Circle was at a clear disadvantage as a U.S.-based company headquartered in Boston (ugh!) with no ties to the core of crypto trading and usage—Greater China. Circle's unspoken messaging, past and present, essentially boiled down to: Mainland China = scary; U.S. = safe. This messaging was laughable, given that Tether has never had ethnic Chinese executives, but it has always been associated with Northeast Asian markets in the past and now with the Global South.

Social Media Wants In

The stablecoin frenzy was nothing new. In 2019, Facebook (now called Meta) decided it was time to launch its own stablecoin, Libra. The allure was clear: Facebook could offer dollar bank accounts to the entire world (except mainland China) via Instagram and WhatsApp. Here’s what I wrote about Libra in June 2019:

The event horizon has passed. With Libra, Facebook has begun its foray into digital assets. Before I dive into the 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 f*** cares? I won’t shed a single tear for all those projects that, for some reason, were seen as valuable despite essentially being fiat money market funds operating on blockchain but backed by obscure sponsors.

Libra could potentially lead to the decline of commercial and central banks. It might reduce their utility to merely being a dumb, regulated warehouse for digital fiat currencies—something these institutions arguably should become in the digital age. Stablecoins offered by Libra and other Web2 social media companies could have stolen the show entirely. They boast the largest number of users and hold near-total access to their preferences and behavioral data.

Ultimately, U.S. political institutions stepped in to protect traditional banks from facing genuine competition in the payments and foreign exchange spaces. At the time, I said this: I have no affection for U.S. Representative Maxine Waters' ignorant statements and actions in the House Financial Services Committee. But the panic from her and other government officials wasn't driven by altruistic feelings toward their constituents—it was motivated by the fear of upheaval in the financial services industry, which lines their pockets and sustains their political positions. The government's hasty condemnation of Libra reveals that the project contained elements with potentially profound positive impacts on society.

That was then, but now the Trump administration seems poised to allow competition in the financial markets. Trump 2.0 holds no goodwill toward the banks that de-platformed his family during President Joe Biden's administration. As a result, social media companies are reviving plans to natively integrate stablecoin technology into their platforms.

This is great news for the shareholders of social media companies. These firms stand a chance to entirely cannibalize the revenue streams of the traditional banking system, payments, and foreign exchange. However, it's bad news for any entrepreneur aiming to create a new stablecoin, as social media companies will build everything in-house to support their stablecoin operations. Investors backing new stablecoin issuers should be wary of promoters bragging about collaborations or distribution deals with any social media company.

Other tech companies are also joining the stablecoin bandwagon. Social media platform X, Airbnb, and Google are reportedly in early talks to integrate stablecoins into their business operations. In May, *Fortune* magazine reported that Mark Zuckerberg’s Meta—despite previous failures with blockchain technology—has been in discussions with crypto companies about introducing stablecoins for payments. – Source: *Fortune* magazine

My article "Libra: Zuck Me Gently": https://blog.bitmex.com/libra-zuck-me-gently/

An Extinction-Level Event for Traditional Banks

Whether they like it or not, banks won't be able to continue earning billions annually from holding and transferring digital fiat, nor will they earn the same fees from foreign exchange transactions. I recently spoke with a board member of a major bank about stablecoins, and they said, "We're toast." They see stablecoins as unstoppable and pointed to Nigeria as evidence. I hadn’t realized the extent of USDT’s penetration in that country, but they told me a third of Nigeria’s GDP is conducted using USDT, even though its central bank has made serious attempts to ban cryptocurrencies.

They continued to point out that since adoption is grassroots rather than top-down, regulators are powerless to stop it. By the time regulators take notice and try to do something, it's too late, as adoption is already widespread among the populace.

Although each major traditional bank has people like them in senior positions, the banking organism itself does not want to change because it would mean the death of many of its cells—its employees. Tether, with fewer than 100 employees, can leverage blockchain technology to execute critical functions of the entire global banking system. By comparison, consider JPMorgan Chase, one of the world's best-run commercial banks. It employs slightly over 300,000 people.

Banks are at a pivotal moment—adapt or die. Yet attempts to streamline bloated headcount and offer the products the global economy demands are complicated by prescriptive regulations around how many people must be employed to perform certain functions. For instance, take my experience opening a Tokyo office for BitMEX and trying to secure a cryptocurrency trading license. The management team deliberated on whether to establish a local office and obtain a license to offer a limited set of crypto-related trading activities outside of our core derivatives business. The cost of regulatory compliance was the issue because you can’t use technology to meet the requirements. Regulators stipulate that for every listed compliance and operational function, you must hire a person with the appropriate level of experience. I don’t remember the exact number, but I believe we would need around 60 people per year, each earning at least $80,000, for a total of $4.8 million annually to fulfill all prescribed functions. All of this work could have been automated with a SaaS provider for under $100,000 a year. And let me add, there would be fewer errors than relying on fallible humans. Oh… and you can’t fire anyone in Japan unless you shut down the entire office. Ouch!

Banking regulations effectively function as a job creation plan for an over-educated population, and this is a global issue. They’re over-educated in nonsense rather than what truly matters. These people are merely high-paid box tickers. While banking executives would love to slash headcount by 99% and thereby boost productivity, they can't as regulated entities.

Stablecoins will eventually see limited adoption within traditional banks. They will run two parallel systems: the old, slow, and expensive one, and the new, fast, and cheap one. The degree to which they can truly embrace stablecoins will be determined by individual prudential regulators in each jurisdiction. Remember, JPMorgan is not a singular organism. Rather, every country's instance of JPMorgan is subject to its own local regulations. Often, data and personnel cannot be shared between these instances, hampering tech-driven rationalization on a company-wide scale. Good luck to you, you bastard bankers—regulation shielded you from Web2 disruption, but it will ensure your demise in Web3.

These banks certainly won't collaborate with third parties on technology development or stablecoin distribution. All of this will be done internally. In fact, regulators might explicitly prohibit such collaborations. Therefore, for entrepreneurs building their own stablecoin technology, this distribution channel is effectively closed. I don't care how many Proofs of Concept some specific issuer claims they're conducting with traditional banks. They will never lead to widespread adoption across the banking sector. So, if you're an investor, and if a stablecoin issuer's promoters claim they're going to partner with traditional banks to bring their product to market, run away fast.

Now that you understand the challenges new entrants face in obtaining large-scale distribution for their stablecoins, let's discuss why they still attempt this near-impossible feat. Simply put, because being a stablecoin issuer is extremely profitable.

The U.S. Dollar Interest Rate Game

The profitability of a stablecoin issuer hinges on the amount of net interest margin (NIM) available. The issuer’s cost base consists of fees paid to token holders, while the revenue comes from cash investments in Treasury debt (like Tether and Circle do) or returns generated via certain cryptocurrency market arbitrage strategies (such as spot holdings arbitrage basis trades, as practiced by Ethena). The most lucrative issuer, Tether, pays nothing to USDT holders or depositors and earns the entirety of the NIM based on short-term Treasury bill (T-bill) yield levels.

Tether can retain its entire NIM because it boasts the strongest network effect, and its clients have no other viable U.S. dollar banking alternatives. Potential users won't opt for other dollar-denominated stablecoins because USDT is widely accepted across the global south. A personal example of this is how I handle payments during the Argentine ski season. I spend a few weeks each year skiing in rural Argentina. Back in 2018 on my first trip there, paying vendors was a hassle if they didn’t accept foreign credit cards. But by 2023, USDT had taken over, and my guides, drivers, and chefs all accepted USDT as payment. It's amazing because, even if I wanted to, I couldn’t pay with pesos—bank ATMs dispense a maximum equivalent of $30 in pesos per transaction, with a 30% surcharge. What a goddamn scam—long live Tether. For my employees, receiving digital dollars stored on a crypto exchange or in their mobile wallets is great, as they can easily use them to purchase local and international goods and services.

Tether's profitability is the ultimate advertisement for why social media companies and banks might want to create their own stablecoins. Both sectors wouldn't need to pay depositors since they already possess rock-solid distribution networks, allowing them to capture the entirety of the NIM. As a result, this could become a substantial profit center for them.

[Chart description: Tether’s Estimated Annual Revenue (in billions) vs. Time (years)]

Tether makes more money annually than this chart estimates. The chart assumes that all AUM (Assets Under Management) are invested in 12-month Treasury bills. The key takeaway is that Tether’s revenue is closely tied to U.S. interest rates. You can see the massive jump in revenue from 2021 to 2022, which was driven by the Federal Reserve raising rates at the fastest pace since the early 1980s.

This is a table I published in the article “Dust on Crust Part Deux,” showing clearly with 2023 data that Tether is the most profitable bank in the world on a per capita basis.

Distributing stablecoins can be extraordinarily expensive unless you are aligned with an exclusive trading platform, a social media company, or a traditional bank. The founders of Bitfinex and Tether are the same group of people. Bitfinex has millions of customers, and out of the box, Tether inherited millions of users. Tether does not need to pay for distribution because it is partially owned by Bitfinex, and all altcoins trade against USDT.

Circle, and any other stablecoin that comes afterward, must pay trading platforms in some form for distribution. Social media companies and banks will never partner with a third party to build and operate their stablecoins. This leaves cryptocurrency exchanges as the only option. Crypto exchanges can construct their own stablecoins, as Binance attempted with BUSD, but ultimately, many exchanges find building payment networks too challenging and a distraction from their core business. Exchanges require equity in the issuer or a share of the issuer’s NIM to allow trading of their stablecoin. But even then, every crypto/USD trading pair will likely still pair against USDT, meaning Tether will continue to dominate the market. This is why Circle had to cozy up to Coinbase. Coinbase is the only major exchange not in Tether’s orbit, as its clientele predominantly consists of Americans and Western Europeans. Before the U.S. Commerce Secretary Howard Lutnick endorsed Tether and provided it banking services through his company Cantor Fitzgerald, Tether had been vilified by Western media as some sort of foreign-created scam. Coinbase’s existence relies on the goodwill of U.S. political institutions, and it had to seek an alternative. Thus, Jeremy Allaire “assumed the position” and accepted Brian Armstrong’s demands. [1]

The deal works like this: Circle pays 50% of its net interest income to Coinbase in exchange for distribution across the entire Coinbase network. Yacht acquired (Yachtzee)!!

New stablecoin issuers are facing a brutal uphill battle. There are no open distribution channels. All major crypto trading platforms either own issuers or have partnerships with existing issuers like Tether, Circle, and Ethena. Social media companies and banks are building their own solutions. As a result, a new issuer must give up a substantial portion of its NIM to depositors in an attempt to lure them away from more widely adopted stablecoins. Ultimately, this is why by the end of this cycle, investors will likely take heavy losses on nearly every publicly traded stablecoin issuer or tech provider. But that won’t stop the party; let’s dive into why investors’ judgment will be clouded by the overwhelming profit potential of stablecoins.

Narrative

There are three types of business models responsible for creating crypto wealth beyond simply holding Bitcoin and other altcoins. They are mining, operating trading platforms, and issuing stablecoins. Take myself as an example: My wealth originated from my ownership of BitMEX (a derivatives trading platform), and Maelstrom (my family office) holds its largest position and generates the most absolute returns from Ethena, the issuer of the USDE stablecoin. Within less than a year in 2024, Ethena grew from zero to becoming the third-largest stablecoin.

The uniqueness of the stablecoin narrative lies in its massive and blatantly obvious Total Addressable Market (TAM) for the TradFi (traditional finance) suckers. Tether has already proven that a blockchain-based bank that simply holds people’s money and lets them move it around can be the most profitable financial institution per capita in history. And Tether achieved this feat in the face of a legal war (lawfare) launched by various arms of the U.S. government. What would happen if U.S. regulators were at least neutral toward stablecoins and allowed them the operational freedom to compete with traditional banks for deposits? The profit potential is insane.

Now, consider the current setup: U.S. Treasury staff believe that stablecoin AUC (Assets Under Custody) could grow to $2 trillion. They also recognize that dollar stablecoins may be the spearhead for advancing/maintaining dollar hegemony while also being buyers of Treasuries that are insensitive to debt pricing. Wow, that’s a major macro tailwind. As a tasty bonus, keep in mind that Trump holds a grudge against big banks because they de-platformed him and his family after his first presidential term. He has no intention of stopping the free market from offering a better, faster, and safer way to hold and transfer digital dollars. Even his sons have jumped into the stablecoin game.

That's why investors are salivating over investable stablecoin projects. Before we dive further into my predictions on how this narrative could translate into cash-burning opportunities, let me first define the standards for what constitutes an investable project.

The issuer in question must, in some form, be capable of listing on the U.S. public stock market. Secondly, the issuer offers a product for moving digital dollars; none of that foreign crap—this is "’Murica." That’s it. As you can see, there’s plenty of room for creative interpretation here.

The Road to Ruin

The most obvious issuer to IPO and kick off the party is Circle. They are a U.S.-based company and currently the second-largest stablecoin issuer by AUC (Assets Under Custody). Circle is massively overvalued at this point. Keep in mind that Circle hands over 50% of its interest income to Coinbase. Yet, Circle’s market cap is only 39% of Coinbase’s. Coinbase is a one-stop-shop crypto financial platform with multiple profitable business lines and tens of millions of global customers. Circle excels at fellatio—while that's an extremely 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 skewed, you should consider going long Coinbase. Even though Circle is overvalued, when we look back on the stablecoin mania a few years from now, many investors will wish they had just held Circle. At least they'd have some capital left.

The next wave of IPOs will consist of Circle copycats. Relatively speaking, these stocks will be even more overvalued than Circle when priced on an AUC basis. And absolutely speaking, they will never surpass Circle in income generation. Promoters will tout meaningless traditional financial credentials in an attempt to convince investors they have the connections and expertise to disrupt traditional banks in the global dollar payments space through partnerships or by leveraging traditional banks' distribution networks. It’s going to work—the issuers will raise a ton of **freaking** money. For those of us who’ve been in the trenches for a while, watching those suits fool the public into investing in their crap companies will be wildly entertaining.

After this first wave, the size of the scams will entirely depend on the stablecoin regulatory framework passed in the U.S. The more freedom issuers have in terms of backing stablecoins with certain assets and the ability to pay out yields to holders, the more financial engineering and leverage can be used to paper over bad ideas. If you assume a light-touch or hands-off regulatory approach for stablecoins, you might see a Terra/Luna saga all over again—where an issuer launches some shady algorithmic stablecoin Ponzi scheme. Issuers could pay high yields to holders, with the yield coming from leveraging certain asset positions.

As you can see, I don't have much to say about the future. There's no real future because the distribution channels for new entrants are closed. Drill this idea into your thick skull. Trade this piece of crap like you're playing hot potato. But don't short it. These new stocks will rip the faces off of shorts. Macro and micro are in sync. As former Citigroup CEO Chuck Prince once said when questioned about his company's involvement in subprime mortgages: "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing."

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

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