March 05, 2025 | Read Online

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"Stablecoins are finally happening and they're really useful."

— John Collison

DAS NYC preview: Stablecoins

In his classic study of innovation in business, The Innovators Dilemma, Clay Christensen found that "disruptive innovations often start in markets that are overlooked or ignored by established companies."

Disruptors often enter the market with products that may not initially match the quality of incumbent offerings but are "good enough" to meet the needs of overlooked customers: "Disruptive innovations are most likely to flourish in markets with unmet needs."

The disruptor might then improve its good-enough product by leveraging a new technology or experimenting with a new business model, eventually becoming competitive with an incumbent's offering.

Those incumbents often fail to respond to this threat effectively because they're prone to be overly focused on their most profitable customers, married to their older technologies, and protective of their high-margins: "The fear of cannibalizing existing products often prevents companies from embracing disruptive technologies."

With luck, the disruptor may go on to reshape its industry, often displacing the established players who fail to adapt.

Given the subject line above, you may see where I'm going with this.

If Professor Christensen were here to study today's finance industry, he'd likely identify stablecoins as a threat to the incumbents of finance: payments companies and maybe even banks.

A dollar issued by Tether, for example, may not be as good as a dollar issued by JP Morgan, but it's good enough for the billions of people who may want dollars but can't open a JP Morgan account.

Most of those billions of potential customers live in emerging economies and are therefore too low-margin for banks to bother with.

But having found product-market fit in those underserved markets, stablecoins are increasingly being used by high-margin customers, too.

In their latest annual letter, Stripe's co-founders noted that stablecoins are being used by US companies to repatriate revenue earned in markets like Nigeria and Argentina, by CFOs to manage Treasury assets, and by HR departments to manage international payroll.

This, they say, makes stablecoins "room temperature semiconductors for financial services."

I'm not entirely clear on what that means, so I'm looking forward to hearing Stripe's head of crypto, John Egan, explain it to me (and everyone else) as DAS NYC the week after next.

The basic idea, however, is that stablecoins are important because "improvements to the basic utility of money make economies more prosperous."

Who will be providing that utility remains to be seen, however.

It might be that stablecoin issuers disrupt payment companies: "Relying solely on reserve interest isn't a sustainable way to monetize a stablecoin," according to MIT's Christian Catalini, who believes, as a result, that for Circle and Tether to survive, they will have to "transition into a payments company."

Or stablecoin issuers might disrupt banks: Bill Gates once said that "banking is necessary, but banks are not" — and stablecoins could be a first step toward banking without banks.

But it could also work the other way around with payment companies disrupting stablecoin issuers: "The ultimate goal is that wherever you see a way to move money around, PayPal's Jose Fernandez da Ponte told the Empire newsletter this week, "you should have an option to do that with digital currencies."

Or banks might disrupt stablecoin issuers: Bank of America says it's just waiting for regulatory clarity to issue its own stablecoin and a bank-issued stablecoin might prove hard to compete with.

Or, more fundamentally, tokenized deposits might disrupt stablecoins: Fully reserved dollars are capital inefficient, so why not have banks issue fractionally reserved ones?

I think even the great Clay Christensen would struggle to predict which of these scenarios is most likely or who will be using stablecoins to disrupt whom, because it's just too early to say.

(So early that the Wall Street Journal referred to Circle's USDC as a "so-called stablecoin" in yesterday's article on the long-running Circle vs. Tether feud.)

But not for much longer, because "stablecoins are finally happening," as John Collison says, and regulatory clarity is happening, too.

The SEC, for example, approved a yield-bearing stablecoin for the first time last week, which seems to set the industry up for a classic case study of Christensen's innovators dilemma.

Will Circle and Tether be forced to offer yield, as well?

Will payment companies issue their own yield-bearing stablecoins?

Will banks?

"Companies must be willing to disrupt themselves before they are disrupted by others," Christensen warned.

Today, he might also have warned about incumbents disrupting the disrupters.

Either way, it'll be fun to find out.

— Byron Gilliam

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📅 March 18-20 | NYC

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