Stablecoins: The Trojan Horse of the Crypto Industry

The tokenization of every financial asset in the world is inevitable.

Although this view may have been highly controversial in the past, the crypto industry is no longer alone in this belief. Larry Fink, co-founder and CEO of BlackRock, now frequently talks about the inevitability of tokenization and its benefits for the global financial system. As the world’s largest asset management company, BlackRock manages $10.5 trillion, more than four times the market value of the entire crypto asset market ($2.5 trillion).

In other words, an institution managing more capital than the entire crypto industry is telling the world that the global financial system and all its assets will exist on crypto rails in tokenized form. This signal cannot be ignored.

This tokenization reality is arriving faster than most people anticipated. BlackRock’s BUIDL Fund, a tokenized basket of U.S. government securities on the Ethereum mainnet, has now exceeded $460 million, quickly becoming the largest tokenized fund issued on a public blockchain.

However, ironically, as more of the world’s largest financial institutions recognize the value of asset tokenization for capital markets and launch tokenized financial products, the general public still mainly views cryptocurrencies as a “speculative casino” with no real social value.

Much like a hangover after a night of heavy drinking, the 2021 crypto boom ultimately ended with the collapse of a $40 billion Ponzi scheme, the bankruptcy of nearly all retail-oriented lending platforms, and the highly publicized fraud case of FTX. Tens of billions of dollars evaporated overnight, never to return.

In 2024, U.S. courts forced the launch of a Bitcoin spot ETF, followed by the approval of an Ether spot ETF. Crypto became a bipartisan discussion topic in the election cycle, bringing fresh air to 2024. Nevertheless, the negative perception of cryptocurrencies has not dissipated.

So, what can address the information asymmetry between institutions and retail investors regarding asset tokenization?

Stablecoins might be the answer.

Digital Dollars: The Intuitive Pitch for Crypto

Cryptocurrencies are an incredibly difficult concept to explain simply to the general public. The industry spans multiple fields, including cryptography, distributed systems, game theory, economics, and political science. Most people don’t truly understand how the financial system operates (nor do they need to), so the problems crypto aims to solve are largely unfamiliar to them.

Imagine explaining the internet to someone who has never used a computer.

Therefore, there is no universal explanation for cryptocurrencies. Instead, what often happens is that people curious about crypto are overwhelmed by monologues about the historical failures of central banks and fiat currency devaluation, alongside near-lethal doses of industry jargon that only those already enchanted by crypto can understand.

But stablecoins are different. People can understand stablecoins.

Stablecoins are a powerful structure because they take a concept that people are already very familiar with and interact with daily (the dollar) and add something unfamiliar (blockchain). This not only creates a gap of curiosity but also makes the core differences and advantages of crypto more apparent because people have a benchmark mental model to compare stablecoins.

Stablecoins avoid the existential question of “what is money” that inevitably arises when explaining Bitcoin and other crypto-native assets, presenting a core point instead: crypto is the best way to represent assets.

In practice, with just an internet connection, stablecoins allow anyone to transfer dollars to anyone else in the world. Transactions are completed in a second, with fees less than a cent. There are no rent-seeking intermediaries, no need for a bank account, no oppressive capital controls, no multi-day settlement delays, no nonsense.

For people living in countries with hyperinflated local currencies, those who have tried cross-border remittances, or those who simply want to conduct financial transactions on weekends or holidays, the benefits of stablecoins are obvious.

Once you start regularly transacting in stablecoins (digital dollars), using traditional banking services feels absurd and outdated. It’s like going back to 56K dial-up internet after experiencing gigabit fiber optics.

Money shouldn’t have business hours. Stablecoins are always online, 24/7/365.

The data speaks for itself in terms of market demand. Stablecoins have objectively achieved product-market fit, breaking historical records in metrics like monthly active users, transaction volumes, and circulating supply.

In comparison, stablecoins are now the 16th largest holder of U.S. Treasuries, with holdings of about $145 billion. They surpass countries like Norway, Saudi Arabia, and South Korea. As one of the largest and fastest-growing purchasers of U.S. government debt, and with stablecoins strengthening the global dominance of the dollar, there is a solid case that the U.S. will only become more favorable to the existence and growth of stablecoins over time.

The Integration of Fintech and Stablecoins

Some might think stablecoins are designed to replace existing fintech payment apps, but the opposite is true. By issuing their own stablecoins, existing fintech companies can benefit from the cost and speed advantages of blockchain settlement while eliminating fragmentation in the payments industry.

For instance, you can’t send funds from a Venmo wallet to a Cash App wallet, which is obviously absurd. But stablecoins can be transferred between any two parties, regardless of the wallet software they use. The improvement in user experience is evident and will become a consumer expectation.

Moreover, given their openness and programmability, stablecoins (issued by fintech companies) can be seamlessly integrated into existing DeFi protocols and on-chain financial applications. This makes existing fintech companies particularly well-suited as interface layers for consumers wishing to interact with on-chain applications, such as earning yields while still having access to dedicated customer support.

Like tokenized assets, this reality is approaching faster than people realize.

Take PayPal USD (PYUSD), for example—a stablecoin with over $400 million in issuance, launched by the world’s largest payment processor, available on multiple public blockchains today. PYUSD is already integrated into the entire DeFi economy, including decentralized exchanges and lending platforms.

According to PayPal, “PayPal USD is intended to reduce friction for payments in virtual environments, enable fast value transfers to support friends and family, send remittances or international payments, facilitate direct flow to developers and creators, and help the world’s largest brands continue to expand into digital assets.”

Beyond fintech companies directly issuing stablecoins, we also see established payment card networks like Visa releasing comprehensive research on improving stablecoin payments and actively engaging in real-time pilots enabling Visa card payments to be settled in Circle’s USDC.

Cuy Sheffield, Visa’s head of crypto, stated: “By leveraging stablecoins like USDC and global blockchain networks like Solana and Ethereum, we are helping improve the speed of cross-border settlements and providing our customers with a modern option to easily send or receive funds from Visa’s treasury.”

In short, stablecoins are here to stay. They are becoming increasingly entrenched in the existing payments industry, amplifying their utility by making it easier for consumers to spend stablecoins and for merchants to accept them.

Moving Towards On-Chain Finance

With this background in mind, my recommendation for helping someone enter the world of crypto is to have them download a crypto mobile wallet (like Coinbase Wallet), generate a private key, and provide them with some stablecoins to transact.

While today’s crypto user experience is far from perfect, even in its current state, stablecoin transactions are a world apart from traditional international bank wires. The technological complexity will continue to be abstracted away, making the core advantages of crypto more apparent. This is where the Trojan Horse effect ultimately takes hold. Once someone experiences the tangible benefits of crypto firsthand, they will start demanding that all aspects of finance operate like stablecoins. Globally accessible, fully transparent, minimally extractive, always online, and manipulation-resistant.

From improving the way dollars are transferred to transforming the global financial system into an on-chain form based on smart contracts and tokenized assets.

The possibilities for a fully on-chain financial system are endless.

Payment processing solutions that enable merchants to accept any fungible or non-fungible asset as payment while only receiving their preferred currency (e.g., paying for groceries with stocks, Bitcoin, or tokenized digital art while the recipient receives dollar stablecoins).

The ability to support online creators, independent publications, or social causes with microtransactions and real-time payment streams that can be transparently tracked end-to-end (e.g., supporting cancer research with a payment stream of $0.000004 per second, equivalent to $10 per month, to an organization with an on-chain auditable budget).

Autonomous robotic taxi networks that can collect their own revenue and automatically pay for electricity, tolls, mechanical repairs, and upgrades (any service fully automated by AI will need an on-chain economic system).

Creating truly global capital markets where anyone with an internet connection can access the same investment opportunities and returns as the world’s largest and wealthiest entities.

These are just high-level concepts. Just as it was nearly impossible to predict which applications of the internet would scale globally in the early 1990s, so it is with creating an on-chain financial system.

Ultimately, stablecoins are the first step towards a fully tokenized economy. They are not only the first crypto application to achieve true product-market fit but also serve as an indispensable tool to succinctly demonstrate the core value proposition of crypto and tokenization to newcomers.

So, next time someone asks you what crypto is, skip the long explanations and point them directly to digital dollars.