Stablecoins Are Eating The World

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To investors,

Stablecoins are the second best product in crypto after bitcoin. I would even argue that stablecoins are the only other product with true product-market fit.

The data is overwhelming.

Nic Carter’s Castle Island worked with Brevan Howard, Visa, and Artemis to publish a white paper on stablecoins. Two of the most compelling data points were:

Approximately 2 out of every 3 emerging market crypto users had converted stablecoins and their local currency.

About 40% of emerging market crypto users had used stablecoins to pay for a good or service.

These are large numbers in emerging markets. But the stablecoin story is not exclusive to emerging markets.

Philip Gradwell was recently hired as Head of Economics at Tether and shared the following three statistics:

#1 - USDT has 330 million on-chain wallets and accounts, a proxy for users, as of Q3 2024, plus tens of millions more who only use USDT on centralized platforms.

#2 - Growth is accelerating with Q3 welcoming 36 million new users, Tether’s best quarter yet.

#3 - Fastest rate of growth is on Layer 2 chains and TON added 3.3 million users in its first six months.

These insights are great across the two sources because they tell us a few things about stablecoins that every investor should internalize. Here are my takeaways:

Stablecoins are a global story — both developed and developing nations.

Users are looking to hold stablecoins, along with transact with them.

Stablecoin usage trends towards the fastest, lowest cost blockchain, regardless of decentralization.

The US dollar is gaining adoption with the increased access that stablecoins bring, which is counter to the narrative that crypto is a threat to the US dollar.

There are hundreds of millions of people using these assets already, which suggests the user base will eventually be billions according to current growth rates.

If bitcoin tokenized gold, then stablecoins tokenized dollars. This upgrade proves the market wants dollars that are cheaper and faster to transact with.

I am watching the stablecoin story closely because of how strong the product-market fit has been. My expectation is we will see stablecoins eat into the market share of dollars.

Remember, 100% of dollars used to be physical currency. Today that number stands at less than 10%. Eventually 80-90% of dollars will be stablecoins in my opinion.

The challenge for investors is how to invest alongside this trend. Buying a stablecoin that is always worth $1 won’t allow you to make any money. You have to find unique ways to allocate capital and benefit from the trend.

You could invest in private companies behind these assets. Maybe crypto exchanges that embrace the assets will have an advantage. There will be payment processors who are stablecoin-friendly, which may drive outsized returns. But the exact investment strategy to benefit from the rise of stablecoins is still unclear.

Let me know if any of you have ideas. I would love to learn from you and think more critically today.

Hope everyone has a great day. I’ll talk to everyone tomorrow.

-Anthony Pompliano

Founder & CEO, Professional Capital Management

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