The promise of crypto-based payments has never been louder. We have so much social proof right now outside of just cryptonnative builders that what you're doing is very interesting to the world at large. Walmart and Amazon, for example, are exploring issuing their own stable coin. Circle's IPO has been a resounding success. Moneygram CEO is seeing that the future of remittances might actually be stable coins and bridge is partnering with Visa in order to launch stable coin card payments.
But the vast majority of stable coin usage is actually currently on DeFi. Estimates are between 88 to 90 plus%. But these applications are being treated like islands at the moment. On one island, you have DeFi native applications that use stable coins and on the other island you have real world applications, but they have something in common, stable coins. So stable coins are the bridge between DeFi native applications and the DeFi world as well as real world applications and the real world.
So I want to now pause to consider what are some of these stable coin applications. So first we have real world payment applications. The way I like to conceptualize this is first through the user flow of funds. Money is moving either peer-to-peer or consumer to consumer or consumer to business or business to business. On the other side, we have the geographic flow of funds where money moves domestically or it moves crossborder.
Some examples of these use cases could be peer-to-peer transfers, remittances, freelancing payments. In consumer to business, you have retail purchases, bill payments, you have international e-commerce as well as travel payments. and businessto business. You can imagine supply chain payments, invoice settlement, FX commodities and inter international trade transactions. Then we have DeFi native applications for stable coins.
We have yield applications, trading, lending, borrowing, dexes and savings. Some examples of these applications are here. Athena, Morpho, usual, curve, cap, unis swap, sky. We have a very thriving ecosystem in crypto already. But why do we actually need to build this bridge between these two islands where stable coins are being used?
It's because the waters below the bridge are infested. They're infested with on-ramp fees, off-ramp fees, middlemen timing, T plus 5 to T plus settlement timing. We have card processor fees. We have banking infrastructure. But if we stay on top of the bridge, we don't actually have to deal with any of that.
So on one hand, if you stay on the bridge, you can just seamlessly move between these two worlds and the infrastructure that enables this is right here in the middle. You have the stable coin asset issuers, blockchain networks, the wallets play a very important role in this. Um compliance and regulatory infrastructure, but the s there are very significant benefits to staying on the bridge that aren't just avoiding negative things. There's also a lot of positives here. So you have sorry so payments are being enriched by stable coins being used in DeFi.
For example, DeFi brings this ecosystem liquidity and and efficiency through applications such as curve and unis swap. This results in real world benefits. It results in lower FX costs, seamless currency swaps, reduced slippage, better FX rates. For example, if a payment service provider wanted to instantly swap USDC to Euro C or MXNC, they would be able to use stablecoin infrastructure in DeFi and liquidity pools in DeFi to do this. Also, DeFi brings yield bearing stables such as SDI, Athena, Usual, and you know, soon to be launched CAP.
This gives consumers and merchants an opportunity to actually generate wealth on the stable coins that they're receiving. Instead of just using having lazy dollars in your bank account after you accept stable coins, now you can connect into the DeFi ecosystem and start to earn passive yield at 4% or greater. Finally, you have um enhanced currency infrastructure that's being provided by DeFi. The DeFi ecosystem allows for programmability, smart contracts, and composability in for real world payments. This this can allow for opportunities such as automated escros, um verified settlements, and just simplified remittances flows.
Now, on the other hand, DeFi is also being enriched by stablecoin use in payments, and this is going to continue to be the trajectory since we're just in the first inning for this. The real world payment ecosystem is onboarding new users, which means that it's encouraging broader adoption of onchain applications. So, we're actually bringing net new consumers, merchants, and PSPs into the DeFi ecosystem. For example, the Stripe stablecoin integration could bring millions of new users and merchants on chain, which could then drive liquidity and users into the DeFi ecosystem. Next, legitimacy and trust.
The institutional inflows and and credibility of big names and networks signing up to be a part of the stable coin ecosystem is actually increasing the social trust that DeFi and DeFi applications are receiving as well. And finally, when consumers can use their stable coins in real life for payments, then they don't have to offramp the crypto ecosystem, thus minimizing the pe the fees that they're playing that they're paying and being able to always stay on that bridge that we talked about. So, let's just say Bob is one of 52 million Americans that holds crypto right now. When he needs to pay for goods and services, he usually has to offramp that crypto into fiat. But with stable coins and real world payments, he would be able to just stay on that ecosystem and have to and would be able to avoid these fees.
So linear flows like I've just shown don't actually tell the full story about the opportunity for this stable coin renaissance. When cycles repeat, they build force. And so let's depict these as flywheels instead since I also know that crypto loves flywheels. So first of all, stablecoin usage builds force for the entire ecosystem. What I just demonstrated in the in the previous slides is that real world payment applications help to reinforce the usage of stable coins and defy native uh applications which then in turn also reinforces those real world payment applications.
Therefore growing the pie for all sides and driving this dynamic is a stablecoin flywheel. It's a three-part engine composed of liquidity, utility, and distribution. So, liquidity enables utility of stable coins. And utility drives distribution of stable coins. And distribution of stable coins further deepens liquidity.
So, let's walk through each of these spokes and see how this cycle accelerates over time. First of all, liquidity. This is market depth. This is peg stability. And this is low slippage that is offered by stable coins at scale.
As this increases, it then improves the utility and the ability to actually adopt these stable coins into infrastructure for various applications. These applications can be the real world payment applications that we talked about or they could be also the DeFi native applications such as being used as collateral, margin and trading, trading pairs. And then finally, as utility increases, this drives better distribution. So now you have more people with wallets, you have more merchants coming on chain, you have more PSPs uh accepting stable coins and facilitating these transactions. And as the total number of wallets and users and holders increases, we are now again driving liquidity.
So I'd like to provide a quick VC perspective on this bridge for especially all the founders in the room. I think there are essential elements that link these DeFi native um applications to the real world applications. And what I firmly believe is everyone wins if we build a better bridge. So I'll just go through this quickly. But when it comes to the bridge, we have the onchain elements.
We have self-custodial wallets, blockchain networks, stablecoin and asset issuers. As a VC, this is how I seek to evaluate them. When it comes to stable coins, I look at where I can evaluate edge for the team, regulatory, distribution strategy, cost structure, token equity, value acral. So that's a conversation that we would be having privately when you're still in idea phase. Next, once this is coming towards launch, I think about how a smart consumer might be evaluating your project.
I think they would be looking at composability if you're an issuer. Um, risk profile, redemption mechanisms, use cases, incentive engineering, and peg stability. for L1's, L2s and wallets which enable this ecosystem and this bridge. Some of the things I would be looking at are what is the technology you're using? What is your go to market and distribution plan, interoperability of the ecosystem you're building?
What's your brand positioning? How attractive do I think it's going to be to your consumers? And you know what is your security framework? And finally, as a VC, I also think about if you're going to have a token, how does value acral work there versus the equity of the project? And now there's other elements as well that enable this bridge such as payment processors and gateways, compliance and regulatory infrastructure.
We have centralized exchanges and custodial wallets as well as on and offramp services. When I'm evaluating these, some of the things I look at are what is crypto adoption trend looking like in your target geographies? What do policy trends look like in your target geographies? What is the BD prowess of the team behind you? What is the team behind you?
Um, do you have distribution partnerships since a lot of scaling these things is a very local approach? Um, how do you think about risk management? And what is your licensing and regulatory strategy since now when you're moving just uh offchain and building elements that interact with both worlds, you kind of need to think about that a little harder. And then finally, what is your business model and cost structure? So once again, I want to emphasize that I think that there is a huge opportunity right now as the role of real world payments and stable coin usage is increasing for also those building on the DeFi side.
And there's a big opportunity to further strengthen this bridge that would bring these worlds together. And if you're building in either of these spaces, I'd love to hear from you. So thank you. [Applause]
Automatic transcript — names and jargon may be misspelled.