Understanding the Business Model of Stablecoins
The value and utility of stablecoins in the financial landscape have been well-documented, however, the business model driving them has not received the same level of attention. Stablecoins, whether issued by traditional banks or innovative fintech companies, are digital tokens backed 1:1 by safe, liquid assets to ensure they hold the value of $1, and they move on blockchains rather than traditional financial rails. The business model behind stablecoins is simple and straightforward: issuers earn revenue from interest on the reserve assets, service fees, and occasionally partnership payments. But what’s often overlooked is the strategic roadmap behind these digital assets, an evolution plan of what they can eventually become. This is particularly crucial for dollar-backed tokens.
Bank vs Nonbank Stablecoins: A Comparative Analysis
In the world of stablecoins, a significant distinction exists between those issued by traditional banks and those issued by nonbank entities such as fintechs and crypto-native firms like Circle, PayPal, Stripe. While both bank and nonbank stablecoins function similarly, their respective roadmaps differ significantly due to the inherent nature of their issuers. Traditional banks operate under heavy regulations, limiting their maneuverability. In contrast, nonbank entities enjoy greater flexibility, allowing them to innovate and adapt swiftly.
Case in Point: Zelle vs Venmo
An illustrative example of this difference can be seen in the divergence between Zelle and Venmo, two of the most popular retail payments platforms in the U.S. Zelle, a platform built by traditional banking giants Bank of America, JPMorgan, and Wells Fargo, views payments as a bank function that could use an efficiency upgrade. Conversely, Venmo, a startup acquired by PayPal, views payments as a feature of relationships and has integrated social elements into its payment processing.
Stablecoins: Diverging Perspectives
This divergence extends to their approach to stablecoins. Venmo, for instance, started to allow crypto asset activity as far back as 2021 and introduced support for PayPal’s PYUSD stablecoin in 2023. In contrast, Zelle’s parent company announced stablecoin plans only last month, with a possible rollout in 2026.
From public statements, it’s evident that banks view stablecoins as a better, faster, and often cheaper payment method. On the other hand, fintech and crypto-native firms see stablecoins as enabling new functions: settlement for crypto assets, collateral for margin trades, access to decentralized lending for additional yield, and a connective tissue for entire networks, among others.
The Convergence of Traditional and Innovative
With the introduction of stablecoins, the line between the traditional and the innovative is blurring. Banks are slowly embracing the need to modernize and adopt new technologies, while fintechs and crypto natives are recognizing that to penetrate mainstream markets, they must play by its rules. The advent of blockchain technology has given both parties an unprecedented level of flexibility, allowing them to iterate on established processes and reshape the concept of money.
The future of stablecoins is likely to see a dual-track evolution. Banks will focus on improving efficiency while adopting more fintech-like practices. Tech-first businesses, on the other hand, will continue to blur the boundaries of established definitions while carving out new ones, shaping the future of finance in the process.
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