Cryptocurrency Business Models

Everyone is talking about stablecoins. But they’re not all built the same — issuers, business models, and strategies can differ widely. Here’s an overview. 𝗧𝗵𝗲 𝗶𝘀𝘀𝘂𝗲𝗿𝘀 - Specialized fintechs / crypto-native firms → e.g. Tether, Circle, Paxos. These dominate today, building their business model around issuance and reserve management. - Payment companies & platforms → e.g. PayPal (PYUSD). They issue stablecoins as an extension of their ecosystem to drive payments, retention, and new financial services. - Banks → from global banks like JPMorgan (JPM Coin) to regional or central banks exploring tokenized deposits or settlement coins. Banks may issue directly for wholesale settlement or customer-facing stablecoins. - Big Tech / platforms → e.g. Meta’s abandoned Diem project. Tech platforms see stablecoins as a way to lock users into closed ecosystems. - Central Banks (CBDCs) → officially distinct from stablecoins, but they share the core principle of fiat-backed digital tokens issued and redeemed 1:1. 𝗧𝗵𝗲 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗺𝗼𝗱𝗲𝗹𝘀 1. Direct issuance → The issuer mints (creates) and redeems (removes from circulation) coins itself, fully controlling reserves. Customers deposit fiat (e.g. USD), the issuer mints stablecoins, and the reserves are invested in highly liquid, low-risk assets (US Treasuries, repos, deposits at systemically important banks). Example: Tether (USDT) and Circle (USDC). Revenue model: Issuers earn interest on reserves. In 2024, Circle distributed ~60% of that income to partners like Coinbase, while Tether retains it all. 2. White-label issuance → The issuer mints on behalf of a partner, who owns the distribution relationship. The economics are often flipped: most reserve income goes to the partner, while the issuer charges a management fee. Example: Paxos, issuing PayPal’s PYUSD and Global Dollar (USDG) for partners like Robinhood and Kraken. Both models rely on the same reserve mechanics — but differ in who owns the customer relationship and who captures the economics. 𝗧𝗿𝗲𝗻𝗱𝘀 - Distribution is key. Issuance alone doesn’t drive adoption — that’s why Circle shares reserve income with Coinbase and Paxos passes most to PayPal. - Tokenization is the growth driver. From powering crypto and xborder payments today, stablecoins can become the natural settlement layer for tokenized assets - equities, bonds, even mortgages. - From reserves to transactions. Revenues could shift from interest on reserves to transaction fees, moving stablecoins closer to payments than balance-sheet plays. - Banks + fintechs converge. As banks issue tokens, the line between stablecoins and tokenized deposits will blur — with regulation pushing them together. - Diverging strategies. Tether keeps all income, Circle shares to grow, Paxos builds infrastructure via white-label. Opinions: my own, Graphic source: Goldman Sachs Subscribe to my newsletter: https://lnkd.in/dkqhnxdg

Stablecoin payment business models today are flawed. They replicate the traditional web2 approach, charging a percentage of the transaction fee. Consumers and businesses are tired of giving up a percentage of their hard earned cash just to transact. 1% to as high as 4% transactions fee's aren't going to cut. Does 1% of $100 hurt? No. But scale this up to 1% of $1m and now we are talking about someone's monthly salary. And 1% by most standards is LOW. Blockchain technology offers the chance to rethink our the approach to payment infrastructure. Here are two innovative ways payments companies can make money without taking a percentage of every transaction: 1. Create a Purpose-Built Blockchain Instead of charging transaction fees, companies can monetize gas fees by running validator nodes on their own blockchains, using something like Arbitrum Orbit, the Optimism's OP stack, or an Avalanche subnet. Gas fees are significantly lower than a percentage of the transaction, especially for large transactions. As the network grows, so does the revenue. 2. Create a Purpose-Built Stablecoin Take a cue from Glo Dollar, a stablecoin backed by US dollars and T-bonds. In the case of Glo Dollar, any revenue generated from the T-bonds is distributed as a public good. For other purpose-built stablecoins, that revenue can be generated to build the ecosystem. The key difference here, compared to something like USDC, would be reinvesting the revenue in infrastructure and building to support their stablecoin. Stable.com is an example that is focusing on building infrastructure around their stablecoin. Web3 presents unique opportunities to rethink business models and put more control into the hands of users. These are just a few ways to innovate beyond the traditional fee-based approach.

One of the most interesting business models for web3 is "payment for user & asset flow." It's essentially user & liquidity referral fees. The model is particularly interesting in crypto since the *assets stay with users.* That means that wallets and anyone with distribution have a massive monetization opportunity that could ultimately resemble "Google search." Google routes internet users to advertisers' products. Wallets can route users + liquidity to DeFi applications and other apps and platforms. We are seeing the early signs of this today. ---- Phantom has received $1.57m in referral fees from Hyperliquid over the last six weeks (5 basis points for every dollar traded). This is a model that Wall Street should be studying deeply. For example, Fidelity could tokenize its AUM and allow its customers to move assets into DeFi. Before they do that, they'll want to monetize their users and assets. DeFi protocols will likely pay for that user/asset/liquidity flow. When you change the data structure (users control assets), you change the business model. Keep an eye on this. --- P.S. We're covering Hyperliquid for readers of The DeFi Report this Friday. If you'd like to have the latest research hit your inbox when it's published, you can sign up below Data: powered by Allium