Distribution or demise: Arthur Hayes states that only stablecoins tied to exchanges or banks can succeed.

Arthur Hayes stated that stablecoin issuers lacking immediate access to a major exchange, a Web2 platform, or a traditional bank will find it difficult to endure.

In a June 16 blog entry, the co-founder of BitMEX reflected on how the banking closures in the 2010s in Hong Kong and Mainland China pushed traders towards Tether.

Bitfinex and Tether enabled users to transfer dollars into a single account, mint USDT, and move tokens around major exchanges 24/7.

According to Hayes, this initial network effect established enduring trust in USDT throughout Greater China and the Global South, creating a barrier that later entrants find challenging to overcome.

Three distribution gates

Hayes distilled stablecoin success to one key metric: access to millions of users via a large crypto exchange, a Web2 platform, or a traditional bank.

Tether manages the first gate, Circle leases the second by sharing half of its net interest income with Coinbase, and future bank-issued coins could occupy the third. Consequently, Hayes concluded that any issuer lacking one of these channels “has no business.”

Issuers generate revenue by holding reserves in Treasury bills and offering “little to no interest” to depositors. Since USDT is accepted wherever there is high demand for dollars, Tether retains the entire spread.

Circle gives up half to Coinbase to offset its limited reach. New tokens would need to offer yield rebates to draw users, which would compress margins and elevate breakeven points. Major exchanges collaborate with established coins, while social media and banking giants are developing in-house initiatives.

Hayes cautioned that unaligned issuers will encounter costly distribution agreements or be compelled to depend on speculative marketing. He noted that without scale, most will not survive once the initial excitement of listings diminishes, even if early share prices rise significantly.

Investor caution

Hayes expressed his belief that Circle’s initial public offering marks the beginning of a trend that will bring imitators to US markets at higher valuations but with lower economic viability.

He recommended that traders approach upcoming deals as short-term investments rather than long-term assets, emphasizing that short positions remain risky while liquidity is available.

Hayes concluded that restricted distribution channels, rather than technological factors, determine the limits of stablecoin growth, leaving Tether in a dominant position and Circle viable only through its partnership with Coinbase.

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