In the ever-changing crypto market, stablecoins serve as a crucial bridge between traditional finance and the crypto economy. Recent events in the crypto market have pushed stablecoins into the spotlight, prompting a reevaluation of their survival logic and competition rules.
On the evening of April 2, Sun Yuchen revealed that the Hong Kong trust company First Digital Labs caused the price of its issued stablecoin FDUSD to plummet to $0.87, severely depegging. This not only panicked holders but also raised questions about the stability and trustworthiness of stablecoins within the crypto community. Binance, as the main trading platform for FDUSD, quickly responded with a 1:1 redemption guarantee, stabilizing market sentiment and allowing the price to re-peg. Without Binance's endorsement, FDUSD might have gone unnoticed, highlighting the importance of channels for stablecoins.
Almost simultaneously, USDC issuer Circle submitted an IPO application to the U.S. SEC, aiming to capture the global market through listing and compliance. Few are aware that its S-1 filing reveals that exchanges holding USDC can receive considerable interest sharing, indicating that Circle is spending to buy channels to enhance USDC's market position and liquidity.
These two issues may seem unrelated, but they both point to this: in the current stablecoin market, the key to success lies in channels rather than technology. Channels determine the visibility and liquidity of stablecoins, directly affecting user trust and adoption.
The survival logic of stablecoins is divided into two extremes: asset reserves and channel expansion. Asset reserves are the foundation; stablecoins like USDC and USDT have short-term U.S. Treasury bonds or dollar backing to address trust issues. Channel expansion addresses usage issues, covering exchange endorsements, DeFi protocol integrations, and payment scenario coverage. Without access to mainstream trading scenarios, a closed-loop of usage cannot be formed.
Data shows that in April 2024, the monthly trading volume of stablecoins on centralized exchanges reached $2.18 trillion, a significant increase compared to December 2023. By September 2024, about 90% of stablecoin trading volume was concentrated on top exchanges and DeFi protocols, indicating that the breadth and depth of channels determine the adoption rate of stablecoins. In practice, channels are more decisive than asset reserves; sufficient reserves without channel support mean stablecoins cannot be utilized.
FDUSD, due to its low reserve transparency, experienced a price depeg after Sun Yuchen's revelation, and Binance's endorsement was what stabilized its price, demonstrating that channel endorsement is a 'lifeline' when asset reserve transparency is lacking. To maintain USDC's market share, Circle paid Binance a prepayment of $60.25 million and monthly incentive fees, giving Coinbase 50% of the remaining income from USDC reserves to encourage exchanges to reserve and promote USDC.
Austrian economist Friedrich Hayek proposed allowing the market to freely compete to select the best currency. The emergence of stablecoins seems to put this into practice, but in reality, market choices are profoundly influenced by channels. The popularity of USDT is not only due to its large reserve but also because it has become an underground hard currency in 'special channels' such as gray markets; USDC's position on Binance and Coinbase is bought by Circle's spending.
#Stablecoins' survival is a game of trust and scenarios, with channels being the lifeblood and key to victory. In the future, as regulations tighten, DeFi rises, and central bank digital currencies compete, the global expansion path for stablecoins will become more complex. However, the logic of channels will remain unchanged; those with broader channels will become the champions.
