How Many Stablecoins Are Enough?

Even many of those who’ve known me for years don’t know I got my undergrad degree in Mechanical Engineering at Cal (Go Bears!). I wasn’t a good engineer. The thoughts of massive equations to calculate the friction that different metals brought to air flows didn’t really grab my imagination. Entropy - yeah, I still couldn’t tell you what it is, although I think I experience it from time to time. It wasn’t until years later when I discovered the worlds of business and revenue that I finally understood what it meant to study something I felt passionate about. But I do remember some of the math jargon of those days. Especially in algebraic proofs, when you used the term “as X goes to infinity”.

X, for this discussion, could stand for the number of stablecoins entering the market since the world started catching on to their utility and, oh yeah, Tether and Circle showing they made billions simply by holding onto other people’s funds. Tether, in particular, was able to produce $13 billion with just 150 people on their team - almost $90M/employee! Every CEO is now facing their board of directors and being told to raise the revenue per employee targets. “Be more Tether-y” (get busy, America).

So the stablecoin race began. In 12 months, from mid-2024 to mid-2025, the number of stablecoins nearly tripled, roughly from 60 to 170+ (source: Bank of International Settlements). There were other motivations to create stablecoins, such as testing new theoretical ways to hold and show value. Coins like Ethena’s USDe were born in the spirit of de-fi (decentralized finance), where dollar values could be established without a central group or currency controlling it. TrueUSD (TUSD) is trying to up the ante on transparency by having its minting/burning continually monitored by third parties.

But make no mistake - Circle’s IPO raised a lot of eyebrows. And venture funds, too, as many new companies were born to go after the big money. The current zeitgeist in our fintech world is that the number of stablecoins will keep exploding. But how long can this Big Buck Bang go on? Will it, like the universe, eventually retract, possibly to one big coin?

At this point in the essay, it’s time to confess: I don’t know. But don't worry, no one does.

But I do see some reasons why some splintering can happen and why some shouldn’t. To start with, the Field of Coin ideology of “build it and they will exchange” looks unlikely to happen simply because people aren’t rushing to go find another place to store their savings in new places that earn below market rates. New players with new coins will mostly be grabbing share away from USDC and USDT from existing use cases or create new utility that will attract funds for other reasons beyond ~3% returns.

The stablecoin pie is growing - over 60% year/year lately - but it’s driven largely by the same use case of crypto exchange houses using stablecoins as a pair in trading for other crypto coins. USD becomes mostly USDC or USDT and can be traded instantly to whatever coin (or now digitized Real World Asset - RWA) instantly. It's fair to think that the exchanges will start to release their own coin to get part of the interest yield action. In fact, Coinbase recently announced it will make its own, despite earning most of the yield from USDC on its site. Kraken is exploring its own in Europe. In short, where people are already holding their money, the owner of the wallet can swap out their coin and earn the returns from treasuries behind them. It’s a simple fix that robs Peter to pay Paul.

When it comes to new use cases, much has been talked about the growth of stablecoins for global payouts and citizens in some of those countries to hold their funds in a USD-backed asset, versus their shaky local currency. I strongly believe in the global mobility use case, although I think the size of the market where people hold funds is much smaller than people think. Stressed economies are not known for their stockpiles of savings. Nonetheless, I’m not sure how this creates a need for more coins. The biggest driver would be creating coins that these countries’ citizens can access that provide some of those yields back to the user, eliminating most US-made stablecoins due to the yield-sharing restrictions of the GENIUS Act (although loopholes are being discussed).

My other favorite use case driving stablecoin expansion is global intra-treasury flows. Here, businesses with global accounts who are constantly shifting money back and forth into prefunded accounts to allow for instant delivery in a non-instant fiat world can leverage a global USD-backed coin to help move their assets wherever needed in seconds. Cost of capital goes down. Similar to the remittance example above, there is a window to create new yield-returning stablecoins so that the CFOs and Treasurers feel even better about the returns from their capital globally.

This may be a good time to bring back my X->∞ jargon to talk about a limit. Will the scramble to become the preferred coin of global holders by providing better returns create infinite coins? No. Because, despite all USD stablecoins having a value of $1, they are not made or interchangeable without a cost. To start, maintaining a stablecoin has a lot of overhead that comes with it to support regulatory requirements, asset management, and constant security. If you don’t get to a critical mass in a crowded market offering essentially a coin of mostly equal values, you’ll sink. If you have to go acquire the assets in the open market, it will be an expensive, risky game. There is also a cost to keep exchanging coins back to your preferred one - the one that is exchanged for fiat regularly. I’m guessing at some point in the future, if you haven’t hit critical mass, people will start rejecting your coin simply to avoid paying the downstream gas fees to return it to their preferred coin.

Which brings me to the last major use case: retail purchases. Many people have predicted that merchants will start minting their own coins for their consumers to use in order to avoid card costs and to make some returns from their consumers’ stored value. This one may be the biggest stretch. Merchants have tried creating their customized wallets to attract consumer balances and provide them with rewards for years. Outside of a limited few, like Starbucks, they found that most consumers don’t want to keep their money in a thousand places. In fact, it irritates them. The same will be true if merchants think consumers want an Amazon coin, a Walmart coin, and a Hobby Lobby coin. This will hold true to other types of coins that involve ideologies or other affiliations like sports teams. People don’t want to spread their money into more places, or else all our low-rated Americant mega banks would be short of customers.

I’ll leave out tokenized deposits and Central Bank Digital Coins (CBDC) for now. These will happen just to make assets in banks and central banks more easily tradeable in the blockchain world. Banks in particular want to offer these so that their customers don’t shift a portion of their assets away to Circle or Tether. But for consumers, they may not even know their bank savings have another identity in the crypto-sphere until they plug into another exchange or blockchain service.

So in short, there are a few areas where stablecoin propagation will happen, mostly by exchanges taking share away from USDC and USDT volumes today, or by consumers and CFOs swapping out USD globally, where it is costly or hard to hold. It is not a strong tool for attracting new volumes simply to hold a stablecoin. And where there is room for more competition, only the strongest will survive, as no one is really looking for variety here - they just want a dollar, perhaps with a yield bump. The rest will drown in operating and regulatory expenses.

Now - wasn’t that more interesting than Thermodynamics 101B?