Hello everybody. Just got some technical difficulties. Hope you're all doing well.
Good afternoon, Seoul. My name is Bill Chera. I'm the founder of Forbit, the modular stablecoin protocol. And it's a real honor to be here at Korea Blockchain Week with all of you and with Haseeb, managing partner of Dragonfly Capital and one of the most respected voices in the space. Today we're going to talk about one of the most interesting things going on: stablecoins. So Haseeb, welcome. Most of us here know you and know your work, but what's the most interesting thing to you right now at Dragonfly?
So crypto industry has been moving a lot over the last year and at Dragonfly we're just trying to keep a handle on all the ways in which the world is changing, especially with regard to stablecoins. So we've seen just this year the passage of the Genius Act. We've seen Circle basically go public in one of the most blockbuster IPOs of the year. In addition to that, we've seen many other countries pass their own stablecoin bills. I know Korea currently has like four bills that are currently working its way through the Korean legislature. Add to that, you've got things like Ethena becoming the third largest synthetic dollar in existence today, growing like crazy. You've also got things like USDH. You've got USAT, which is Tether's US-facing business. Everything is moving right now. You've got Tempo, Stripe. It's a lot to try to digest and as an investor, our primary mandate is to figure out where is all of this going. So, every day I'm talking to issuers, I'm talking to businesses working with stablecoins, and trying to draw the line out so we can stay one step ahead of it.
Yeah. So I think like you just mentioned, it's an ocean of choices, of issues that are facing the market. And maybe we can break them down. So some of the things you mentioned, what are your thoughts on regulated versus virtual stable tokens, or fully pegged versus synthetic dollars, given your experience in the space? How would you start explaining the marketplace to all the folks that are trying to enter it?
So the vast majority of stablecoins today are fiat-backed stablecoins. These are the types of stablecoins that are regulated by the Genius Act and that require all the stuff that we've been talking about. So the largest are obviously Tether and Circle. We talk a lot about RWAs. Stablecoins are the original RWA, right? Stablecoins, it's a real-world asset in that there's real dollars in a real bank and there are one-for-one tokens issued that correspond to those dollars. That's an RWA, right? So, that's what most stablecoins are that exist today. Then you have the crypto-collateralized stablecoins. Those are the earliest versions of decentralized stablecoins like MakerDAO. You've also got Liquity. There's some projects that still exist today that do this. But they've largely taken a backseat to what's increasingly called these synthetic dollars. And synthetic dollars are things like Ethena. So, Ethena is not built the same way that something like MakerDAO is. It's built through basically a derivative.
So, the simple way to understand Ethena is Ethena is like a tokenized cash-and-carry trade. So, you go long the spot, you short the futures and you collect the interest or the basis that you get paid for being entered into that position. That's Ethena. It's grown to be massive because of the fact that it has an uncorrelated source of yield. One of the key features of the Genius Act, which is the bill in the US, is that stablecoins are not allowed to directly pay yield to holders. Okay? Now, why does this matter? This matters because all the stablecoins today cannot give you what they're getting. They're getting the Fed funds rate. They're getting 4% a year. They can't give that to you by law. That means that you hold a stablecoin, you're getting zero. So there's a lot more interest because of that in getting the interest. That's what Ethena gives you. But it gives you an uncorrelated source of yield. Even as the Fed funds rate goes down, the yield that you can get on something like Ethena goes up. So that's part of the reason why it's grown so much and why these things are so attractive today.
So I think riffing off of that, from USDC to Tether to Ethena as you mentioned to Hyperliquid, how do you differentiate from the actual models of the business to the utility they provide to the users, to how they operate, and how does that affect the landscape of stables moving forward?
Yeah. So if you rewind the clock to 2018, 2019, people largely did not trust stablecoins by default, right? Most people in 2018 assumed that Tether was a fraud and that it was going to collapse. I remember when there were huge bets that people would make trying to short Tether because they thought it was going to depeg. Nobody shorts Tether anymore. It's just a waste of your time. And the same thing is true for emerging stablecoins. So if you look at things like TrueUSD, I remember way back in the day there used to be all this FUD that oh TrueUSD is depegging, this is going to collapse too. People did not trust these things. And if you look of course at the early decentralized stablecoins, even things like that were competitors to MakerDAO, a lot of them broke. A lot of them failed. If you remember, Fei was a stablecoin that depegged and failed. Of course the most famous of them is Terra, which was a decentralized stablecoin that depegged and failed. Now the models for all these are very different but the one thing that you know for certain is that more stablecoins died than survived.
Now look at today. Okay today you see a new stablecoin by default you assume that it's legit. It's one of these untold miracles of crypto that we've now entered into a regime that most people think most stablecoins are actually fine. And this is because we now have Paxos as one of the biggest issuers issuing these white-label stablecoins for which they have New York trusts that custody the actual underlying assets. Same thing is true when you look at Stripe and Bridge. Bridge, they have their own stablecoin. It's fine. People assume that it's going to be stable and trustworthy. PayPal is a stablecoin issuer now via Paxos. So we're now in a regime today where people largely by default trust stablecoins as opposed to not trusting them. And that allows you to have these white-label stablecoins like what Hyperliquid is doing with USDH. With USDH, they're not creating their own stablecoin from scratch. There are teams that are potentially doing this from scratch like Native Markets is doing this from scratch, but they're using Bridge or Paxos or Agora or one of these other issuers underneath the hood. We're all regulated, very stable, very high-quality collateral, high-quality backers, and that's the state of play today. So nobody's worried about stablecoins collapsing per se, but the race now is more about branding, distribution, and go-to-market.
So now that, as you said, it's more mainstream. Stablecoins are already processing trillions of dollars in the crypto markets. Do they evolve into a mainstream utilization? Do they become institutional? Do they become the norm of how everybody transacts globally or are we far away from that?
So, when do stablecoins become normal? That's kind of a deep question and I think in a way in order to understand that question, you have to break down what do people actually use stablecoins for. We're in crypto and so we're going to kind of tell this big story. Oh, people are using it for everything. But that's not true. There are a few things that people really use stablecoins for. The first use case for stablecoins was always crypto trading. That was the first use case for stablecoins, right? And that's when Tether really grew to be enormous when the default collateral on BitMEX, or sorry, BitMEX originally was collateralized to popularize USDT-margined perpetual swaps, right? And that is what really caused Tether to become really dominant. Well, Tether was always dominant, but that's what ensconced their dominance. And then you add to that all the other venues that have spot trading against Tether. That has always been the first big use case for crypto.
Now, the second use case for crypto has been capital flight. Capital flight meaning you're in China, you're in Venezuela, you're in Turkey, you're in Iran, you're in somewhere where you really don't want to hold the local currency. You want to get out of the local currency and get into something more stable. That's the dollar. It's the dollar globally. So those people moving their assets into dollars, that started many many years ago. And it's a large amount of capital that wants to find its way into dollars. But those dollars are not circulating, right? Those are not people trading in and out going and yoloing into perps or buying meme coins or whatever. Those are just people holding dollars in order to get dollar exposure. Okay, that was probably the second use case.
The third use case has now been international payments and it's largely international. It's not really domestic. There's a little bit of stuff like, oh, people in Venezuela are paying each other with Tether, you know, they're buying groceries or whatever. But in absolute terms, because those are really backwards countries that have very high bouts of inflation, there's not a lot of money that you need in order to satisfy those use cases, right? By percentage, it's not a lot of the overall demand. So, the much bigger thing is international payments that really started to take off with the Russia sanctions. Russia and China started paying each other very significantly in Tether starting in like 2022, 2023. But then it really started to take off last year. 2024 is when we started to see international finance, international payments, import-export businesses, commodities businesses, things like what Zebu is doing with respect to Telos paying each other. That kind of stuff really started taking off last year and now it's reached a fever pitch with the passage of the Genius Act and the normalization of stablecoin payments, but it's still not normal people in the normal economy, right? That's a long ways away. And to be clear, it might never happen that way.
