New Stablecoin Law Is Spurring Competition and Threatening Profits
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Two months after the passage of stablecoin legislation, the lucrative industry duopoly is under attack.
The Takeaway
- New stablecoin law sparks intense competition, challenging market leaders.
- Stripe and Anchorage Digital emerge as major players, issuing new stablecoins.
- Stablecoin issuers face profit squeeze by sharing reserve interest with partners.
In just over two months, the new stablecoin law has upended crypto markets, giving a group of new competitors a chance to wrest control from the industry’s two dominant companies, Tether and Circle.
The biggest disruptor has been Stripe, which is benefiting from its well-timed $1.1 billion acquisition of stablecoin infrastructure startup Bridge earlier this year. Anchorage Digital, the only digital assets firm with a federal trust charter, is also roiling the market.
The two companies are benefiting from a dramatic shift in the $300 billion market, which has been dominated by stablecoins issued by Tether and Circle. Now, companies like Stripe and Anchorage are offering to create stablecoins for crypto companies, including crypto platforms, blockchains and publicly traded companies that have bought up crypto assets.
Stripe has won several deals to issue new stablecoins that could grow rapidly, while Anchorage struck a deal with Tether to issue its new U.S. stablecoin. Other winners include a Kansas City community bank providing accounts for crypto companies, as well as big money managers like BlackRock that are investing the assets of stablecoin providers.
“Folks had this perception that issuing a stablecoin was, like, a big deal,” said Zach Abrams, CEO and co-founder of Stripe’s Bridge in an interview in New York last week. With Stripe’s new service, “issuing stablecoin becomes, like, a trivial thing that everyone should do if they are building with stablecoins.”
Stablecoins are cryptocurrencies that are typically pegged to the dollar and keep most of their assets in safe investments such as U.S. Treasurys. Crypto traders have embraced them as a way to park money for use as collateral in crypto trading and for international money transfers.
More noncrypto players are coming in. Interactive Brokers is working on potentially issuing a stablecoin, its founder, Thomas Peterffy, said in July. Cloudflare, an internet cloud company, also said it plans to launch a stablecoin.
The new competition is rattling the lucrative duopoly enjoyed by Tether and Circle, which together account for 81% of the market. The companies have been earning outsize profits because stablecoins don’t pay interest to their investors. Instead, stablecoin issuers typically pocket the roughly 4% to 5% yield they earn. That can total billions of dollars for companies like Tether, which has $177 billion in stablecoins outstanding and made $13 billion in profits last year.
The new law bans stablecoins from paying interest, but many aggressive competitors are paying their users by having crypto exchanges give them rewards. The stablecoin issuers share a portion of the interest they earn with the exchanges to fund the rewards, cutting into their profits.
Stripe’s service passes back all the interest revenue from reserve assets to its partners, such as crypto wallet MetaMask and Native Markets for Hyperliquid, minus a fee that starts at 0.5% of assets.
Popular crypto wallet Phantom picked Stripe as a partner to issue its new stablecoin, CASH, in part because Stripe has a wide network of merchants as clients and can add CASH as one of the checkout payment options for them, said Phantom’s co-founder and CEO, Brandon Millman. The company plans to use the stablecoin to offer real-world services like peer-to-peer payments.
Some of the bidding wars to issue stablecoins are playing out in the open, but other partnerships stem from relationships. Sergio Mello, Anchorage’s head of stablecoins, tweeted at Tether CEO Paolo Ardoino in February, which led to an in-person meeting between them where they bonded over their upbringing in northern Italy. That paved the way for the partnership between Anchorage and Tether to issue USAT, a new stablecoin targeting the U.S. market.
The competition could quickly turn stablecoins into a commodity business with low margins. The profit squeeze on stablecoins is apparent at BitGo, a crypto custodian gearing up to go public. The company has issued the Trump family’s World Liberty stablecoin, USD1. BitGo’s financial data show that its revenue from issuing stablecoins was $15.7 million in the first half of this year, but it paid interest income to its partner of $15.2 million. If the Federal Reserve continues to cut rates, interest payments will get squeezed further.
Banks have been slow to get into stablecoin issuance. But they are moving to provide bank accounts that are critical for stablecoin firms’ operations, or to manage the stablecoin’s reserves. Lead Bank, a Kansas City, Mo.–based community bank with $1.7 billion in assets backed by Ribbit Capital and Andreessen Horowitz, is a clear winner. Lead Bank counts more than 100 digital asset companies as customers, more than twice as many as it had two years ago, a representative for the bank said. Its clients include Stripe’s Bridge and BVNK, which processes stablecoin payments.
BlackRock is also a winner. Its tokenized money market fund, launched in March 2024, surpassed $2.8 billion in assets under management. It serves as reserve assets for multiple stablecoins, including Ethena’s $1.8 billion stablecoin USDtb, issued in partnership with Anchorage.
The stablecoin legislation that passed in Congress is not the final word on the industry. A bill focused on crypto market structure is coming, and banks and crypto firms are fighting over the issue of stablecoins paying interest.
Banks call it a “loophole” that could cause customers to pull their deposits, preventing banks from lending and potentially hurting the economy. They are advocating for banning the indirect yield payment.
The changes are happening so quickly that the line between issuers and platforms is getting murkier. The creation of branded stablecoins poses a risk to customers, who might not fully understand that the cash balance they hold in their apps might be stablecoins or know which companies are issuing the tokens and are responsible for backing them.
“It’s important for the customers to know where exactly the dollar is held…and make sure they understand there’s a relationship with the third party,” said crypto and stablecoin infrastructure firm Zerohash’s CEO, Edward Woodford.