Stablecoins From Top to Bottom

The Rise of Stablecoins and the Regulatory Turning Point

The evolution of stablecoins in 2025 has been nothing short of spectacular. What was once a controversial idea, derided by governments and regulators throughout 2024, has now become a geopolitical priority for preserving the hegemony of the U.S. dollar. Sensing this shift, Silicon Valley has turned its attention to stablecoins, and it is now uncontroversial to say that the future of fintech runs through stablecoins.

As funding and competition accelerate, the traditional stablecoin model, which involves minting digital dollars, backing them 1:1 with short-term Treasuries, and keeping all the interest (think Circle and Tether), is coming under pressure. This dynamic is creating room for new and potentially more sustainable revenue models to emerge.

As noted above, the Guiding and Establishing National Innovation for U.S. Stablecoins Act (the “GENIUS Act”) was signed into law on July 18, 2025. The GENIUS Act creates a federal rulebook for “payment stablecoins,” mandating that only licensed issuers may oer them [in the United States]. Issuers must hold fully liquid 1:1 reserves, publish monthly reserve reports and redemption policies, and comply with anti-money laundering rules. Crucially, the Act clarifies that these stablecoins are not securities and places them under federal or state oversight, providing legal clarity that has long eluded the sector.

In short, the GENIUS Act draws bright lines around what is legal and what is not in the domain of stablecoin issuance, effectively removing the regulatory ambiguity that once kept institutions on the sidelines. The GENIUS Act was introduced into Congress by Senator Bill Hagerty from Tennessee in May 2025, and as stated above, was passed into law in July 2025. Why such haste after years of toil? Sure, there’s the fact that there is a Republican-controlled Senate and House, but the GENIUS Act was bipartisan. In the House, 102 of the 308 ‘yes’ votes came from Democrats; in the Senate, 18 of 68. The result was one of the most bipartisan financial bills in recent memory.

The Geopolitical and Macro Drivers of Adoption

At the heart of this urgency lies geopolitics and the race to anchor global dollar demand in the digital age. As global counterparties diversify away from U.S. Treasuries, the U.S. needs new demand sources. As Bessent put it, "I view myself as the United States’ leading bond salesman.”. He sees stablecoins as a technological vehicle for distributing Treasuries to a global audience, estimating as much as $2 trillion in potential demand from the stablecoin ecosystem.

There are two primary demand drivers behind this.

First, retail demand for dollar safety. Stablecoins extend access to dollar-denominated assets to anyone with an internet connection. In a world where governments experiment with restrictive digital currencies or where local currencies are unstable, the appeal of a censorship-resistant dollar proxy is immense. Roughly 80% of stablecoin transactions already occur outside the U.S., a signal of where adoption is heading.

Stablecoins have grown from just over $5 billion in circulation at the start of 2020 to more than $300 billion as of October 2025. Collectively, their Treasury holdings now rank just outside the top ten ten among nation-state holders. Much like the early internet or wireless spectrum markets, clear rulemaking is likely to catalyze another wave of institutional adoption.

Second, the Eurodollar shift. The Eurodollar system, which represents offshore dollar deposits in non-U.S. banks, is estimated at roughly $13.5 trillion, but it is difficult to get a truly accurate estimate of the size. GENIUS-compliant stablecoins represent an attractive alternative because, unlike Eurodollars, they are explicitly backed by U.S. Treasuries and fully redeemable.

To sensitize the analysis a bit, cut the number of estimated deposits in half, to $6.75 trillion, and say that there is about 10% adoption of stablecoins, that would still represent roughly $675 billion in stablecoin demand, or greater than 2x the current stablecoin float. The carrot is clear: insured, on-chain dollars backed by the U.S. government. The stick, as Arthur Hayes has noted (read at your own risk), could be the gradual withdrawal of protection for offshore dollar liabilities.

Together, these forces create a compelling macro backdrop for both Treasury demand and the continued institutionalization of stablecoins. With the policy groundwork laid and macro tailwinds building, aention is now shifting to what comes next: the economic architecture of stablecoins themselves.

The Future of Stablecoins: From Yield to Infrastructure

The traditional stablecoin model of Tether and Circle is coming under immense pressure as rates start to potentially fall and as upstart competitors promise yield-sharing. For the last three and a half years, stablecoin issuers have been able to enjoy all of the non-ZIRP interest from their customer deposits. Tether is likely the most profitable company per employee, in history. The stablecoin issuer reported roughly $13–14 billion in net profit in 2024 with an estimated 150 employees, implying an astonishing $85–95 million in profit per person. By comparison, Nvidia and Meta, two of the most efficient public tech giants, about $2 million and $1 million per employee, respectively. The disparity highlights the unique economics of Tether’s business: a lean team overseeing hundreds of billions in U.S. Treasury holdings that generate yield from rising interest rates. While the company’s numbers are not audited in the same way as public firms, the scale of its profitability shows how the stablecoin model, capital intensive but operationally minimal, has turned Tether into one of the most lucrative entities ever built.

That era is ending. New entrants are competing on yield-sharing, offering users a slice of the underlying Treasury income. This dynamic sets the stage for a “race to zero” in net interest margins, particularly as competition intensifies. The impact will likely be felt most acutely by Circle, whose U.S.-centric user base has easier access to alternative forms of yield and dollars.

At the same time, other business models tangential to USD stablecoin issuance, such as foreign exchange, may ultimately prove to be where the long-term revenue opportunity lies. Crypto is exceptional at liquidity aggregation, and we may soon see global FX “lifted” out of the banks and intermediaries that have long controlled pricing and spreads, and instead flow on-chain. In this framing, stablecoins become not just dollar proxies but core settlement primitives for global currency markets. Our portfolio company, Minteo, exemplifies this emerging thesis, leveraging blockchain rails to enable real-time, low-friction cross-currency settlement while expanding the role of stablecoins beyond mere payment instruments.

In response, incumbents are seeking to build moats through infrastructure. Tether, Circle, Stripe, and others have announced proprietary blockchains designed to lock in users through predictable fees, low latency, and ecosystem incentives. If any one project gets the incentive structure right, the reward could be massive, creating social-network-level network effects and diversified monetization beyond Treasury yield, including transaction fees, SaaS models, compliance partnerships, and embedded financial services.

It is not just crypto-native startups or challenger fintechs like Stripe moving in. More and more, we see Fortune 500 companies and, with the clarity brought by GENIUS, U.S. banks and stalwarts of traditional payments leaning in. Just to name a few: J.P. Morgan, Visa, Mastercard, and many more.

This influx underscores how broad the stablecoin opportunity has become. Yet as venture investors, we have a healthy respect for Clayton Christensen’s Innovator’s Dilemma. We believe that many large companies are like massive maritime vessels that have a chartered course. Because of entrenched revenue models, bureaucracy, technical debt, and a host of other reasons, it becomes extremely difficult for them to change course, and when the iceberg is clearly visible, they are oftentimes too slow in enacting change.

The upstarts, on the other hand, build natively with technology that does not have technical debt, oftentimes have one or two people making the decisions, and do not have entrenched business lines that need to be protected. Thus, these companies are oftentimes much more nimble and able to seize generational opportunities when they come about. There are, of course, notable exceptions on both sides of this; but by and large, the winners of the early internet were not the newspaper companies, and the winners of social media were not the early internet companies, the winners of the internet were not traditional media companies, and so on. We think there will be many winners in the stablecoin space, but that the strong majority of the value accrued as a result of stablecoin disruption will go to companies that embrace blockchain technology as a fundamental building block, instead of trying to retrofit existing systems with blockchain.

Additionally, we think the winners of this category will emulate many of the same winning strategies from technological cycles of the past: using technology in a novel way to unlock previously unused features, have a unique angle on distribution and monetization that scales with clients and is cohesive to their business models.

An archetypal example of this is a new portfolio company that foresaw the sea-change in perception of stablecoins, and applied for a de novo U.S. federal banking charter. To our knowledge, it is the first of its kind to explicitly call out stablecoins as part of its core infrastructure. Co-founded by Palmer Luckey, the company has natural distribution into the technology and defense sectors and recently received its provisional OCC charter. If granted a full charter, this company could become the first true “internet-age” bank, combining the benefits of stablecoins, such as instant selement, global reach, and 24/7 usability, with full access to the Fed, FDIC insurance, and bank-grade compliance.

We are also evaluating businesses that use stablecoins as vehicles for distributing Treasuries into geopolitically important markets like Southeast Asia. While there will be exceptions, our view is that a banking license will likely be a long-term prerequisite for stablecoin issuers seeking legitimacy and durability.

A Platform Shift in Global Finance

Ultimately, our conviction remains constant: exceptional people create enduring outcomes. Exceptional people change the course of history. This is a technological platform shift, and the history of money and payments, and perhaps even the next chapter in dollar dominance or downfall, will be wrien in the years to come.

When it comes to the broad-based tokenization of financial assets, we have much more to say and will expand on our views in future research. For now, we continue to view the U.S. dollar as the world’s “quote currency.” While this shift will not happen automatically and will require investing in the dynamic builders pushing it forward, we believe tokenizing the dollar creates a powerful gravitational pull. Once the global quote currency exists on-chain, the rest of the world’s financial assets will inevitably follow to meet it there.

More to come.

About the Author

Article authored by Sam Hallene, Partner at CMT Digital