Original author: Alex Liu, Foresight News
Casinos take money from exchanges; banks that don’t pay interest on stablecoins. The analogy may not be appropriate, but it is enough to show how lucrative the business models of the two hottest tracks in the crypto industry are. Competition in the exchange field is fierce, structural opportunities are hard to find, and a new round of hype about stablecoins seems to have just begun.
Recently, Circle, the issuer of USDC, became the first stablecoin to be listed and was sought after by capital. Its closing price on the first day was three times the IPO price, with a market value of over 20 billion US dollars. The stablecoin payment chain Plasma, which has the shadow of Tether behind it, raised $500 million in funds within a few minutes. Some people were even willing to pay tens of thousands of US dollars in ETH network fees in order to deposit more than 10 million US dollars.
Circle StockCRCL Price
Why do people say that stablecoins are a good business? Even if they are, can retail investors participate? This article aims to briefly analyze the current mainstream stablecoin operating models and profit levels, point out the current situation of those who make money dont want to go public, and those who go public may not share the profits and the difficulties faced by retail investors in investing in this track, and explore potential solutions.
Are Stablecoins Good Business?
Let me first say the conclusion. Whether stablecoin is a good business depends on different players. At present, the most profitable player is Tether, the issuer of Tether USDT.
It is not appropriate to use banks that do not pay interest to compare all stablecoins. There are interest-bearing stablecoins such as sUSDe, sUSDS, sfrxUSD, and scrvUSD in the industry, and the income goes back to depositors. But as for the specific player Tether, it is even more excessive than banks that do not pay interest - not only does it not pay interest, but it even has to pay a 0.1% redemption fee to redeem USDT for US dollars (withdrawal), and the upper limit of the redemption fee is US$1,000.
Unlike banks, stablecoins have a variety of sources of income. The main source of income for banks is to lend money to lenders, earning the difference between lending interest and paying depositors deposit interest. If the borrower is unable to repay the loan, there may be bad debt losses. Mainstream stablecoin issuers such as Tether obtain risk-free returns by purchasing fiat cash for US short-term Treasury bonds (T-Bills), eliminating the risk of bad debts, which is a better profit model than banks that do not pay interest.
Stablecoin protocols such as Ethena are more like complex fund management platforms, which mainly make profits through spot pledge of crypto assets and perpetual contract hedging and arbitrage of funding rates, and the risks are correspondingly increased. Stablecoins launched by protocols such as Curve, Sky, and Aave mainly make profits through lending interest, which also has corresponding risks. Interest-bearing stablecoins that return part or all of the interest to depositors are certainly beneficial to users who deposit funds, but they reduce the profits of the business model behind them.
Net profit and number of employees of some companies
In this way, Tether, which only allows money to flow in but not out, is completely making money while lying down. As shown in the figure above, Tethers profit in 24 years is 13 billion US dollars, which exceeds financial giants such as Morgan Stanley and Goldman Sachs, and its 100 employees are only a few hundredths of the latter, reflecting an extremely high labor efficiency ratio. Binance, a crypto exchange with similar profit levels, has more than 5,000 employees worldwide and is also lagging behind in labor efficiency ratio. Zhao Changpeng recently admitted on X that Binance is far less efficient than Tether. The reason is that Tether only needs to focus on operating its most core and profitable USDT business. At the same time, USDT itself has a pioneer effect and network effect, and the market demand for it continues to expand, so it can expand naturally without spending too much marketing effort. Crypto exchanges, on the other hand, have complicated businesses and fierce competition. They need to list new coins, maintain customers, conduct marketing activities, etc., which consumes a lot of manpower and capital costs.
Tethers USDT is really a good business. Circle is the number two player in the stablecoin track. Its USDC now has a market value of over 60 billion US dollars, accounting for nearly 40% of Tethers USDT. It should also be a money printing machine, right?
The answer is no, at least for now.
According to Circles financial report, its net profit in 2024 is only $155 million (Tethers is tens of billions of dollars). This is because Circle has a distribution cost of more than $1 billion, and most of the gross profit is distributed to partners such as Coinbase and Binance to promote the adoption of USDC. For example, all the profits generated by USDC in the Coinbase exchange belong to Coinbase (Coinbase distributes the profits to users as interest), and Coinbase can also get half of the profits generated by USDC outside the exchange.
Circle Financial Report Table
In the face of competitors (whether it is USDT that does not compete with USDC in terms of compliance or PYUSD, FDUSD, etc. that also seek compliance), in order to maintain its adoption advantage, Circles distribution costs may remain high for a long time. In summary, Circle is a business with great potential, but it is still struggling in a fierce competitive environment and has not yet achieved profitability.
The plight of retail investors
It is not difficult to see from the above that Tether, the number one player in the stablecoin track, is undoubtedly a business that is very worthy of investment, but the current situation is that retail investors cannot get exposure at all.
Paolo Ardoino, CEO of Tether, retweeted on X that If Tether goes public, the companys market value will reach $515 billion, surpassing Costco and Coca-Cola to become the worlds 19th largest company and commented that We have no IPO plans for the time being. With Tethers profitability, there is no need to introduce external funds. If you obtain the exclusive right to operate a Macau casino, you probably only want to operate it independently, not to bring in partners.
Therefore, the most profitable stablecoin companies do not want to go public.
Should retail investors consider investing in Circle, the number two player that has already gone public? Few investors can buy CRCL at the IPO price of about $30. In fact, what most retail investors are facing is CRCL, which has a market value of tens of billions of dollars and a price-to-earnings ratio of over 100, with a net profit of $100 million at the opening. Buying stocks with such a high price-to-earnings ratio is usually a bet on the future, which is quite risky.
Moreover, as an Internet technology company with a high P/E ratio and in a stage of rapid development, it is normal for it not to pay dividends for a long time. Being its shareholder does not mean you can make money without doing anything.
Those who make money don’t want to go public, and those who go public may not share the profits. In fact, “profit” has nothing to do with retail investors. It is difficult for retail investors to have exposure to the highly profitable track. This is the dilemma of retail investors.
Usual’s attempt
What retail investors may need is the Usual mode.
Usual is a controversial stablecoin protocol. It once caused a large number of users to lose money due to the USD 0++ depegging, which seriously undermined the communitys trust in the project. However, the mechanism design of the Usual protocol itself is bright, and it has made valuable attempts in the design of the distribution mechanism and token economics.
The stablecoin issued by Usual is called USD 0, and each USD 0 is backed by RWA (Real World Assets) worth $1. The RWA here is actually interest-bearing stablecoins such as USYC and M, whose income comes from US short-term Treasury bonds (T-Bills), and is issued by licensed and compliant RWA issuers such as Hashnote.
Simply holding USD 0 does not generate any interest, and the Treasury bond income of the underlying RWA assets is captured by the protocol. Similar to Tether, this is a good business.
But Usual is not Tether after all. USDT has the pioneer effect and network effect, forming real use cases to support demand - trading in exchanges, acting as a shadow dollar as a payment medium in Southeast Asia, Africa, etc., and everyone voluntarily holds USDt. But why do people hold USD 0 without interest?
Another role of the Usual ecosystem, USD 0++, comes in handy. The correct name of USD 0++ is the liquidity-enhanced treasury bond, but it has USD in its code, which can be easily misunderstood as a stablecoin. Users can pledge USD 0 for USD 0++, and each 1 USD 0++ can be redeemed for 1 USD 0 after 4 years (i.e. 2028). It is not difficult to understand that before the 4-year maturity, the value of USD 0++ should be less than 1 USD 0, and gradually approach it over time.
This is the pattern of treasury bonds. I buy a 1-year treasury bond with a face value of 110 yuan for 100 yuan. When the bond matures, I get 110 yuan by exchanging it. Therefore, I lock in a 10% annualized return when I buy it. Similarly, the closer the treasury bond is to its redemption period, the closer it is to its face value.
When the protocol was in rapid development, Usual exchanged USD 0 and USD 0++ at a ratio of 1:1, which intentionally or unintentionally deepened the misunderstanding that USD 0++ was a stablecoin, and was directly responsible for the damage caused by the subsequent depecking of USD 0++. Since it is not a stablecoin, there is naturally no depecking, but the holders did suffer losses.
By pledging USD 0 to get USD 0++, users have handed over the income of the funds for the next 4 years. So why do users do this? Usual provides USUAL tokens with higher than normal treasury bond income as enhanced income for USD 0++. Previously, the annualized rate exceeded 100% when the currency price was high, and it is still around 10% now.
Usual Ecosystem Token Profits
This requires the USUAL token to be valuable, so what does the USUAL token enable? The underlying USD 0 treasury bond income captured by the protocol will be distributed to USUAL stakers (USUALx holders) in proportion every week, and USUAL stakers can also obtain USUAL token emissions. Currently, Usuals TVL (total locked value) is about 630 million US dollars, and about 520,000 USD 0 are distributed to USUAL stakers every week (about 50% APY).
In short, if there is no Usual agreement, I use USD to buy treasury bonds and get the yield of treasury bonds; with the Usual agreement, I hold USD 0, and the underlying USD is used to buy treasury bonds, but there is no interest. Pledge USD 0 to USD 0++ to get USUAL tokens, and pledge USUAL to get the underlying treasury bond interest.
The value of USUAL tokens comes from the income rights of depositors funds. This is a dig your own money flywheel game that revolves entirely around TVL. In theory, if TVL rises, the weekly profit dividend will increase, driving the USUAL coin price up, bringing higher USD 0++ income to attract higher TVL. But the flywheel may also go in the opposite direction - a drop in coin price leads to a drop in USD 0++ income, and a decrease in TVL leads to a decrease in USUAL token dividends, causing the coin price to fall further.
This model is highly dependent on token emission to maintain. 90% of USUAL tokens will be released through airdrops and as USD 0++ tokens over a period of 4 years. The remaining 10% of the total tokens are owned by the team and investors. What happens when the tokens are released? After 4 years, all USD 0++ will expire and there will be no need for USUAL tokens to continue to be emitted.
What the Usual team needs to do is to establish real use cases for USD 0 in this 4-year window when the regulatory environment is good and competitors have not yet fully entered the market, and use the token incentive gameplay to turn the flywheel and accumulate considerable TVL advantages and network effects. Four years later, Usual returned to the Tether model, but its profits were distributed to the stakers of USUAL tokens.
This is actually a 4-year chip distribution period.
What are the advantages of such exploration? Why do we say that retail investors may need the Usual model?
Usual has made it possible for retail investors to gain exposure to the profits of the Tether model through the USUAL token. USUAL tokens, which can be obtained by depositing, staking, and buying and selling, have lowered the investment threshold for the income rights behind the stablecoins of the Tether model. The token flywheel gameplay gives retail investors the opportunity to get chips at a low cost - USUAL tokens obtained at a lower TVL may appreciate significantly after the protocol grows. If you choose the mine yourself gameplay, only deposit funds and do not buy USUAL tokens, the worst result is the loss of interest.
The stablecoin market is clearly in its infancy, and the failure of Luna is still fresh in our memory. Will retail investors be able to get a piece of the pie? Or will this piece of fat eventually fall into the hands of giant groups such as Wall Street? We will be lucky enough to witness it together in the next few years.
Disclosure: The author of this article is involved in the USUAL ecosystem.
