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How Stablecoins Can Do What Bitcoin and Ethereum Couldn’t

Bitcoin and Ethereum are amazing inventions, but they haven’t lived up to the original vision of crypto, says Jeff Lewis, a product manager at Pantera Capital. In a letter on Tuesday, he explains why stablecoins are the ones to watch.

Bitcoin was supposed to be a new kind of money that could replace fiat currencies. But it’s too slow and expensive to use for everyday transactions. Ethereum was supposed to be a platform for decentralized applications that could run on ether [ETH]. But it’s too volatile to be a reliable store of value.

Stablecoins, however, have the potential to fulfill both roles. They are digital tokens that are pegged to a stable asset, such as the US dollar or gold. They can enable fast and cheap peer-to-peer transfers of value across the world. They can also help people protect their wealth from inflation and avoid trusting intermediaries, says Lewis.

He compares PayPal to a stablecoin, as it lets users send and receive digital dollars to anyone, anywhere. PayPal even launched its own stablecoin, PYUSD, in August. But the biggest stablecoins, tether (USDT) and USDC, don’t earn any interest by themselves.

That’s why Lewis predicts that a new kind of stablecoin will emerge soon: one that is trustless, transparent and yield-bearing. He calls it “PayPal 2.0”. This is not an official plan by PayPal, but a hypothetical scenario based on market forces.

Lewis says that once the regulations are clear, stablecoin providers will have to offer money market yields to stay competitive. He points out that there is already a boom in the stablecoin market of coins that generate yields from underlying investments or tokenize the money market itself.

For example, Franklin Templeton, a giant fund group, launched a money market fund that uses blockchain to record transactions. Each share of the fund is represented by a BENJI token, which acts like a stablecoin with yield. JPMorgan and Citi have also developed blockchain-based solutions for tokenized deposits, payments and trade finance. Ondo Finance and Adapt3r Digital have introduced tokenized US Treasury and bond offerings on decentralized platforms.


Stablecoins are “one of the clearest prospective templates for tokenization today”, according to Coinbase researchers David Duong and David Han. They believe that stablecoin liquidity will be a key driver for the next crypto market cycle.


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