The Future of Stablecoins: Brand Name Stables and FinTech L1s
The stablecoin market is evolving, with two primary players emerging: branded stables that leverage existing consumer trust, and “FinTech L1s” base layers, which are built or closely controlled by regulated fintechs. According to John Devadoss, co-founder of Interwork Alliance, these two entities will dominate the market due to their ability to maximize profits, defense, and distribution while complying with regulatory guidelines.
Brand Name Stables: Winning at Sales and Monetization
Brand name stables have a significant advantage in sales, as they can acquire liquidity faster than crypto-native alternatives. By integrating their stablecoins into existing wallets with millions of KYC’d users, they can reduce the costs associated with acquiring new transaction users. Furthermore, brand name stables can monetize on a scale, investing their reserves in high-quality short-term assets and generating income through payment services, such as cross-border FX spreads, dealer acceptance fees, and treasury services.
Regulatory Advantage and Product Design
The regulatory landscape also favors brand name stables, as they already maintain licenses, banking relationships, audits, and sanction controls. This expertise in compliance transforms political risk into a competitive advantage, making it more likely for brand name stables to thrive in a mature regulatory environment. In terms of product design, brand name stables will likely be checked in multi-storey but centrally, with features such as blacklisting and freezing functions, transparent certificates, and explicit redemption windows.
FinTech L1s: The Rails for Stablecoins
FinTech L1s, on the other hand, are the base layers that provide the infrastructure for stablecoins. By possessing the base layer, FinTechs can bake regulatory guidelines into the protocol, ensuring predictable fees, fast finality, and upgrade paths aligned with regulated applications. FinTech L1s can also generate revenue through transaction fees, internalized MEV, and direct sequencer income, which can subsidize fees and reward validators and partners.
What Doesn’t Win: Algorithmic and Sub-Collateralized Stables
Algorithmic and sub-collateralized stables, however, are unlikely to succeed due to their incorrect orientation with politics and fragility in times of stress. Crypto-collateralized stables may exist, but their capital intensity limits their mainstream use. Generic public L1s are still relevant for open finance, but they lack embedded conformity and property distribution, making them less competitive in the payment space.
Conclusion and Future Outlook
In conclusion, the future of stablecoins belongs to brand name stables and FinTech L1s. As the market continues to evolve, it is essential for regulatory authorities to harmonize reserve, disclosure, and redemption standards, while supporting market experiments with models of public transmission and responsible nodes. Incumbent banks must also adapt to the changing landscape, becoming important service providers or risking obsolescence. For more information on the future of stablecoins, visit https://cryptoslate.com/the-end-game-for-stablecoins-brand-name-stables-and-fintech-l1s/
