tl;dr
Arthur Hayes, BitMEX co-founder, argues that stablecoin issuers must have immediate access to large crypto exchanges, Web2 platforms, or legacy banks to survive. He cites how Tether’s early network effect, fueled by banking shutdowns in Hong Kong and China, established lasting trust and dominance. H...
Arthur Hayes, co-founder of BitMEX, asserts that the survival and success of stablecoins hinge primarily on the ability of issuers to gain immediate access to large crypto exchanges, Web2 platforms, or legacy banks. He emphasizes that distribution access is the key determinant in the highly competitive stablecoin market. Hayes illustrates this by highlighting how Tether capitalized on banking shutdowns in Hong Kong and Mainland China in the 2010s, which drove traders toward USDT. This early network effect helped Tether establish a lasting trust and dominance, especially across Greater China and the Global South, creating a moat that new entrants struggle to breach.
Hayes simplifies the path to stablecoin success into three essential distribution gates: crypto exchanges (dominated by Tether), Web2 platforms (exemplified by Circle’s partnership with Coinbase), and potential future issuers backed by legacy banks. Each gate offers direct access to millions of users, which is critical for wide adoption. Tether controls the exchange gate and retains the full spread on reserve holdings due to high dollar demand, while Circle shares half of its net interest income with Coinbase to compensate for its relatively weaker reach. New stablecoin projects lacking access to these gates face the daunting prospects of costly distribution deals or risky speculative marketing efforts, making it unlikely they will survive beyond the initial hype phase.
Hayes points to Circle’s initial public offering as the beginning of a trend that will attract numerous imitators to the US market, though with weaker economic fundamentals despite higher valuations. He advises investors to approach such deals cautiously, treating them as short-term trades rather than solid long-term investments. He also warns that while short positions carry risks as long as liquidity remains, the overarching cap on stablecoin growth comes not from technological innovation but from the limited and controlled distribution channels. Ultimately, Hayes concludes that Tether remains dominant due to its exchange relationships, and Circle remains viable only through its strategic alliance with Coinbase.