Tether, described as a "0/100 hedge fund," is unlikely to start paying yield to users. Its entrenched network effects in the crypto trading ecosystem—its original and still dominant use case—are so strong that it doesn't need to compete on yield to maintain its market position.
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The overwhelming dominance of USD-backed stablecoins (95%+) isn't just about market maturity. It reveals a global preference for dollars that was previously constrained by physical and regulatory friction. In a digital, open environment, users in emerging markets overwhelmingly choose dollars.
For hundreds of millions in developing nations, stablecoins are not an investment vehicle but a capital preservation tool. Their core value is providing a simple hedge against high-inflation local currencies by pegging to the USD, a use case that far outweighs the desire for interest yield in those markets.
The stablecoin market is mature, so new entrants cannot compete on technology alone. To succeed, they must be launched by an entity with a massive built-in user base, such as a social media giant or a large multinational, making standalone stablecoin startups effectively zeros.
For stablecoin companies like Tether seeking legitimacy in the US market, the simplest path is to back their assets with US treasuries. This aligns their interests with the US government, turning a potential adversary into a welcome buyer of national debt, even if it means lower returns compared to riskier assets.
The primary strategic reason for a large platform to issue its own stablecoin isn't just yield, but control. Relying on an external stablecoin creates platform dependency, making the business vulnerable to changes in fees or strategy, much like Zynga's reliance on the Facebook platform.
After years of exploring various use cases, crypto's clearest product-market fit is as a new version of the financial system. The success of stablecoins, prediction markets, and decentralized trading platforms demonstrates that financial applications are where crypto currently has the strongest, most undeniable traction.
A regulatory settlement forced crypto firms to pay "rewards" instead of "interest" on stablecoins. Coinbase is exploiting this semantic difference to offer a 4% yield, creating a product that functions like a high-yield checking account but without the traditional banking regulatory burdens. This is a backdoor disruption of consumer banking.
Stablecoins will likely enter the US market not through domestic retail payments, but via international network effects, similar to WhatsApp. Initial US users will be those interacting with the global economy, and adoption will spread inward as these cross-border connections become more common.
Contrary to the popular narrative, the dominant use case for stablecoins in emerging markets is not remittances or savings. Survey data suggests overwhelmingly (88% in one study) that they are used as an entry and exit point for the broader cryptocurrency ecosystem, reframing their role in EM finance.
The high profits enjoyed by stablecoin issuers like Tether and Circle are temporary. Major financial institutions (Visa, JPMorgan) will eventually launch their own stablecoins, not as primary profit centers, but as low-cost tools to acquire and retain customers. This will drive margins down for the entire industry.