After Circle's successful listing, becoming the 'first stock of stablecoins', BitMEX founder Arthur Hayes published a lengthy article, fully deconstructing the past, present, and future of the stablecoin industry. He issued a warning about the stablecoin IPO frenzy, stating: 'In the end, this will all end with capital being drained.'
The listing of Circle is just the beginning
Arthur Hayes first expressed his views on Circle's IPO, believing its valuation is 'clearly too high', but due to the hot topic of stablecoins, the stock price may continue to rise. He stated:
'This means that the stablecoin bubble has officially begun, and you will soon see a series of new stablecoin startups launching IPOs in the U.S. stock market.'
However, most of these startups lack core capabilities and cannot distribute stablecoins through exchanges, Web2 giants, or traditional banks.
The core of stablecoin success: distribution channels
Arthur Hayes further points out that the key to stablecoins is not technology, but 'the ability to distribute on a large scale'. Tether's rapid growth was due to its close relationship with Bitfinex and its grasp of the strong demand for U.S. dollar assets in China and the Asian market, successfully becoming a 'substitute for digital dollars'. This allowed it to become the world's largest stablecoin by trading volume since 2015, establishing an unshakeable network effect.
In contrast, although Circle has a compliant background and support from U.S. politics, it lacks deep connections with the Asian market and must rely on partnerships with Coinbase to expand its user base. According to Arthur Hayes, to collaborate with Coinbase, Circle even gave 50% of its interest margin income to Coinbase as a condition.
The IPO frenzy is approaching, and the risk of capital raising is rising
In the 'high profit, storytelling potential' space of stablecoins, Arthur Hayes predicts that a wave of IPOs mimicking Circle's will emerge soon, with these companies touting collaborations with Web2 giants, joint issuances with traditional banks, and revolutionary payment and foreign exchange market pitches to attract institutional investors and retail investors with no industry understanding. However, he bluntly states that these are merely 'packaged scams', as all effective distribution channels have been locked down by the three giants: Tether, Circle, and Ethena, leaving no foothold for others.
Banks and social media are eyeing the market
However, this does not mean that the current stablecoin giants will not face competition. Arthur Hayes further analyzes that the biggest future competitors will not be startups, but social media platforms and large banks:
Social media companies (such as Meta, X, Google): Holding billions of users and data, they can natively embed stablecoin systems and issue them on a large scale without cooperation.
Traditional banks: Although they are subject to strict regulations, they may also promote their own stablecoins in the future to combat the trend of erosion in the payment and foreign exchange markets.
But Arthur Hayes emphasizes that these two types of institutions will not collaborate with third-party startups due to regulatory restrictions, data isolation, and risk control factors, forcing them to build their own technologies and systems. Additionally, Arthur Hayes further reveals that the most profitable business model for current stablecoin issuers comes from:
Funds from depositors that do not pay interest
Investing in short-term U.S. Treasury bonds or arbitrage strategies (e.g., cash-futures positive spread trading)
Obtaining extremely high profits from interest margin income
Taking Tether as an example, with only about a hundred team members, it can earn billions of dollars annually, becoming 'the most profitable bank per capita in the world'. Because of this, tech giants and financial institutions are eyeing this field, hoping to enter it.
Arthur Hayes warns that the bubble will eventually come
He pointed out that the next round of bubbles will be driven by IPOs, telling a grand narrative of 'de-dollarization' and 'digital dollar revolution', and will ignite a new wave of speculation through financial engineering and leverage design (even mimicking Terra/Luna).
In the face of the impending bubble, Arthur Hayes advises the public not to believe those stablecoin startups claiming to collaborate with certain banks or social platforms, as they may just be scams looking to harvest profits.
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