The End of Traditional Banking? Haseeb Qureshi on the Stablecoin Revolution at KBW2025

Hello everybody.

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Um, good afternoon soul. Uh, my name is the Bill Chera. I'm the founder of Forbit, the modular stable coin protocol. And it's a real honor to be here at Korea Blockchain Week with all of you and with Hib uh managing partner of Dragonfly Capital and one of the most respected voices in the space. Um today we're going to talk about one of the most interesting things uh going on um stable coins.

So Hib welcome. uh most of us here know you and know your work but uh what's most interesting thing to you right now at Dragonfly.

So crypto industry has been moving a lot over the last year and um at Dragonfly we're just trying to keep a handle on all the ways in which the world is changing especially with regard to stable coins. So we've seen just this year um the passage of the Genius Act. We've seen uh Circle basically go public in the one of the most blockbuster IPOs of the year. Uh in addition to that, we've seen many other countries pass their own stable coin bills. I know Korea currently has like four bills that are currently working its way through the u the Korean uh um legislature.

Uh add to that, you've got things like uh Athena becoming the third largest uh synthetic dollar in existence today, growing like crazy. Uh you've also got things like USDH. You've got USAT, which is Tether's US facing business. Everything is moving right now. You've got Tempo, Stripe.

It's it's a lot to try to digest and as an investor, our um primary mandate is to figure out where is all of this going. So, every day I'm talking to issuers, I'm talking to businesses, working with stable coins, and trying to draw the line out so we can stay one step ahead of it.

Yeah. So I think like you just mentioned it's a it's a it's an ocean um of of of choices of issues uh that are facing uh you know the market. Um and maybe we can break them down. So you know some of the things you mentioned what are your thoughts on regulated versus virtual stable tokens or you know fully pegged versus synthetic dollars given you know your your experience in the space. How would you start um explaining the marketplace to all the folks that are trying to enter it?

So the vast majority of stable coins today are fiatbacked stable coins. These are the types of stable coins that are regulated by the Genius Act and that require all the stuff that we've been talking about. Um so the the largest are obviously Tether and Circle. We talk a lot about RWAs. Uh stable coins are the original RWA, right?

Stable coins, it's a real world asset in that there's real dollars in a real bank and there are one for one tokens issued that correspond to those dollars. That's an RWA, right? So, that's what most stable coins are that exist today. Um, then you have the cryptocolateralized stable coins. Those are the earliest versions of decentralized stable coins like MakerDow.

You've also got Liquidy. There's there's some projects that still exist today that that do this. Um, but they've largely taken a backseat to what's increasingly called these synthetic dollars. And synthetic dollars are things like Athena. So, Athena is not built the same way that something like Makerdow is.

It's built through a basically a derivative.

So, uh the simple way to understand Athena is Athena is like it's like a tokenized cash and carry trade. So, you go long the spot, you short the futures and you collect the interest or the basis that you get paid for for being entered into that position. Um that's Athena. It's grown to be massive because of the fact that it has an uncorrelated source of yield. One of the key features of the Genius Act, which is the the the bill in the US, is that stable coins are not allowed to directly pay yield to holders.

Okay? Now, why does this matter? This matters because all the stable coins today cannot give you what they're getting. They're getting the Fed funds rate. They're getting 4% a year.

Uh they can't give that to you by law. That means that you hold a stable coin, you're getting zero. So there's a lot more interest because of that in getting the interest. That's what Athena gives you. But it gives you an uncorrelated source of yield.

Even as the Fed funds rate goes down, the yield that's you can get on something like Athena goes up. So that's part of the reason why it's been it's grown so much and why these things are so attractive today. So I think you know riffing off of that you know from USDC to Tether to Athena as you mentioned to Hyperlquid you know how do you differentiate from the actual models of the business to the utility they provide to the to the users to kind of how they operate and how does that affect you know kind of the landscape of of stables moving forward.

Yeah. So if you rewind the clock to 2018 2019, uh people largely did not trust stable coins by default, right? Most people in 2018 assumed that Tether was a fraud and that it was going to collapse. I remember when there were huge um bets that people would make and trying to short Tether because they thought it was going to dep. Nobody nobody shorts Tether anymore.

It's just a waste of your time. Um and uh the the same thing is true for emerging stable coins. So if you look at things like True USD, I remember way back in the day there used to be all this FUD that oh True USD is DPEG like this is going to collapse too. People did not trust these things. And if you look of course at the early decentralized stable coins, even things like that were competitors to Makerdo um a lot of them broke.

A lot of them failed. If you remember Fay was a stable coin that deped and failed. Of course the most famous of them is Terra was a a decentralized stable coin that deped and failed. Um now the models for all these are very different but the one thing that you know for certain is that uh more stable coins died than survived. Now look at today.

Okay today you see a new stable coin by default you assume that it's legit. It's it's one of these untold miracles of crypto that we've now entered into a regime that most people think most stable coins are actually fine. Uh and this is because we now have you know Paxos as one of the biggest issuers issuing these white label stable coins for which they have you know New York trusts that custody the actual underlying assets. Same thing is true when you look at stripe and bridge bridge they have their own stable coin. It's fine.

People assume that it's going to be stable and trustworthy. PayPal is a stable coin issuer now uh via paxos. Um so we're now in a regime today where people largely by default trust stable coins as opposed to not trusting them. And that allows you to have these white label stable coins like what Hyperliquid is doing with USDH. With USD, they're not creating their own stable coin from scratch.

Their teams that are potentially doing this from scratch like Native Markets is doing this from scratch, but they're using Bridge or Paxos or Agora or one of these other issuers underneath the hood. We're all regulated, very stable, very high quality collateral, high quality backers, and that's the state of play today. So nobody's worried about stable coins collapsing

per se, but the the race now is more about branding, distribution, and go to market.

So now now that you know, as you said, so it's more mainstream. Stable coins are already processing trillions of dollars, you know, in the crypto markets. Um, do they evolve into a mainstream uh utilization? You know, do they become institutional? Do they become the norm of how everybody transacts globally or are we far away from that?

[sighs and gasps]

So, um, when do stable coins become normal? That's it's it's kind of a deep question and I think in a way in order to understand that question, you have to break down what do people actually use stable coins for. We're in crypto and so we're going to kind of tell this big story. Oh, people are using it for everything. But that's not true.

There are a few things that people really use stable coins for. The first use case for stable coins was always crypto trading. That was the first use case for stable coins, right? And that's when Tyler really grew to be enormous when the default uh uh collateral on BitMX or sorry, BitMX originally was collatered to popularize USCT margin perpetual swaps, right? And that is what really caused the Tether to become really dominant.

Uh well, Tether was always dominant, but that's what ensconed their dominance. Um, and then you add to that all the other venues that that have spot trading against Tether. That has always been the first big use case for crypto. Now, the second use case for crypto has been capital flight.

Capital flight meaning you're in China, you're in Venezuela, you're in, you know, uh, Turkey, you're in Iran, you're in somewhere where you really don't want to hold the local currency. You want to get out of the local currency and get into something more stable. That's the dollar. It's the dollar globally. So those people moving their assets into dollars that started many many years ago.

Um and it's a it's it's a large um amount of capital that wants to find its way into dollars. But that dollars those dollars are not circulating, right? Those are not people trading in and out going and yoloing into perks or buying meme coins or whatever. Those are just people holding dollars in order to get dollar exposure. Okay, that was probably the second use case.

The third use case is now been international payments and it's largely international. It's not really domestic. There's a little bit of stuff like, oh, people in Venezuela are paying each other with Tether, you know, they're buying groceries or whatever. But in absolute terms, because those are really backwards countries that are have, you know, very high bouts of inflation, there's not a lot of money that you need in order to satisfy uh those use cases, right? It's by by percentage.

It's not a lot of the overall demand. So, the much bigger thing is international payments that really started to take off with the Russia sanctions. Russia and China started paying each other uh very significantly in Tether starting in like you know 2022 2023. Um but then it really started to take off last year. 2024 is when we started to see international finance, international payments, import export businesses, uh commodities businesses, uh you know things like uh what what Zebu is doing and uh with respect to telos paying each other.

That kind of stuff really started taking off last year and now it's reached a fever pitch with um the the passage of the Genius Act and the normalization of stable coin payments, but it's still not normal people in the normal economy, right? That's a long ways away. And to be clear, it might never happen that way.

Okay. So, do you see uh this gap between permissionless innovation and regulation being the barrier or is it is it something different? I I think permissionless innovation so it's it's worth defining what does that mean? It's kind of a buzz word at this point, but permissionless innovation means that a technology is default yes instead of default no.

Okay, default no means you want to build a fintech product. Okay, you need to uh write up a business plan. You need to apply to the CFTC. You need to get a license. You need to get licensed in every single state.

You need to get all these people to say yes to what you're doing and then you can launch your product. Okay, that is a default no uh uh regulatory environment. Okay, default yes is like the internet. The internet is default yes. If you want to create a website, you don't have to ask anyone.

Just go create a website. Who cares? Whatever. You know, you want to create a website to start a business about selling ponies online, great. No one's going to ever ask you a question.

Just go do it, right? That is default yes. What stable coins do is they turn finance and fintech into default yes instead of default no. It means that you don't have to ask anyone. You don't have to talk to anyone.

You just go put up a website, create a a smart contracts, hire some developers, and just go do it. And if it's if it's good enough, then maybe you want to go and get regulated and go try to apply for licenses and blah blah blah. But as long as you're purely operating in stable coin land, then you can just go do it. That is the power of permissionless innovation. It's the reason why the internet has become such a wellspring of innovation and startups and entrepreneurs is because it's default.

Yes. and crypto does that same thing to finance that historically has never operated that way. Um, so that creates some downsides. It's part of the reasons why so many regulators are so skittish about stable coins is they're like, "Yeah, okay, default, yes, sounds good, but it does mean there's going to be blowups, which there have been. There's going to be scams, which there have been.

There's going to be bad actors, which there have been. All of that is part of the the the soup that you decide to drink when you decide to make something permissionless in this way." But with the internet, turns out like, yeah, there's a lot of crappy stuff on the internet, but there's also a lot of great stuff on the internet. The same thing is true for crypto and stable coins, which is why I think the US has been ahead of the game in recognizing the virtue of that, whereas a lot of the other countries that are more riskaverse have been slower to to to embrace it.

So, you know, let's zoom out for a little bit. you know, I think for the everyday user, um, they look at a stable coin just as a dollar, you know, something that at some point they might be able to use, but at the same time, you know, the new zeitgeist is all these digital asset treasuries. So all of a sudden you're seeing all these institutions. I think the last few months alone, you know, $40 billion have been raised into all these DATs and they now become the avenue for retail users to access underlying, you know, stable tokens or or crypto. Um, how do you see that playing out in terms of the adoption or kind of the derailment of uh retail actually benefiting from stable coins?

So DATs themselves in a way DATs are a kind of uh structural arbitrage is the way I would describe a DAT right so a DAT very simply is a company that you put a b it's a it's a bucket that you put a bunch of crypto into and then you take it public right that's what a DAT is and that's a like why would someone do that is a question worth asking the one answer the OG answer for micro strategy is that well you can issue debt and take leverage to go buy more and more of the underlying asset and that's kind The original reason why DATs were created or micro strategy was created was to go do this in the corporate form. Um the reason why DATs fundamentally make sense is when there's a regulatory runaround meaning that there there's it's not possible to create a more efficient version to create a publicly accessible vehicle that retail can invest in. So normally what you'd want is just an ETF. If you can just have an ETF on the underlying then great. It's a very taxefficient, very simple, low fee vehicle that you on the public markets can invest into this asset without having to worry about custody, right?

Same reason why you invest into a bond ETF or a gold ETF. You don't want to actually own gold cuz that's a pain in the ass. But if you can own a gold ETF, great. It's a very liquid, easy to to manage version of the underlying, right? Doing this for crypto makes perfect sense.

Now, for stable coins doesn't make any sense. I don't know why somebody would want to put stable coins in a DAT. Um, I don't think I've ever seen that. That would be bizarre. But uh there have been the underlying uh governance token for a stable coin.

So Athena, we're investors in Athena. We were we were uh we led their seed round. Um Athena has a DAT uh that is called stablecoin X that invests into ENA uh and may also have some USD which is the underlying stable coin as like a cash management position thing. But really the reason why you're doing it is because of getting access to ENA the governance token which is of course you know the more volatile asset that that has a lot of upside potential. Um so that makes perfect sense and it's as a public markets vehicle gives public markets investors access to invest in an asset they couldn't otherwise easily get access to.

But ultimately it's mostly an access story rather than a this is a fundamental innovation and this is going to persist for dec you know decades probably not going to happen. So if we fast forward, you know, 5 years, a decade, who wins? You know, is it USDC? Is it Tether? Is it going to be Athena?

Is it somebody new? You know, is there going to be new tech that comes into the stable coin marketplace? If you put your, you know, future hat on, what what are you thinking is going to happen? Yeah. So, if you had asked me this 5 years ago, I would have guessed 5 years ago is basically when USDC was created.

um or I guess it was six six years ago. Um if you had asked me then I would have assumed that there's going to be one stable coin for each currency.

There's going to be stable coin, a yen stable coin, a euro stable coin and that's not what we see, right? It's been many years now and we see that there's a shitload of US dollar stable coins and there's like you know one or two of any of these other currencies if not zero. Um that's surprising. I was not expecting that. Um, and so one thing that's very clear, stable coins have massive network effects, right?

It's like, why would you have two different assets that both have the exact same price and have the exact same features, right? They're both trying to be a dollar all the time. That's it. So why would you choose one over the other? Well, we now have an answer to that.

Why do you choose circle over tether? The answer depends on where you are, what you're doing, right? If you're in DeFi, you really want to hold USDC because USDC basically has a monopoly in DeFi. It is by far the most used stable coin on chain in protocols. Right now, if you're trading on um you know on Binance or OKX, then you want to hold Tether.

USC has very little liquidity on Binance relative to UST. So, what we've seen is this sort of cleavage of different parts of the market that are almost like submarkets, right? So, it's a little bit like, you know, you might think that um there really should only be one ride share company. There should just be Uber. Why is there more than one?

And the answer is like, well, actually, um, you know, Lyft or um, you know, Cacao T, which I guess the cacao taxi market, like they're they're dominant in different markets. So, maybe in principle it would make sense there for there to be just one. But in practice, there are all these local markets that have their own network effects within those markets. And as a result, there's not just one. And it looks like there's not going to be just one.

There's going to be multiple players and we're learning more and more what are those cleavages in the market. So one of those cleavages very obviously is onchain. There will be one winner most likely on chain and it's hard for there to be two winners on chain. It's hard for there to be like well USDC is big on Ethereum but like this other guy is big on you know base right? uh well base obviously Coinbase is that that's not going to happen but I don't know say some you know optimism or whatever has it own stable coin doesn't really make sense because it's too easy to bridge right the liquidity is going to be shared and it's going to move back and forth from each chain that's why it's true even on Salana even though Salana wanted PayPal USD to be the dominant stable coin USDC is still dominant because so much capital moves back and forth between Ethereum and Salana so the yields migrate instantaneously from Ethereum to Salana because it's all one market it's all conjoined because it's all on chain um so when you have these cleavages that don't allow the markets to interoperate, right?

Like Binance and onchain don't really interoperate so much. So the yields on Binance are just very different from the yields on chain. So I think what you should see is that at equilibrium, if you're an exchange, you can potentially have your own stable coin, right? So Binance and B USD back in the day, they could actually do it. Hyperlid can do it with with USDH.

Um so that's one. If you have captive uh uh capital and and demand that doesn't interoperate that much, you can have your own stable coin. um onchain going to have its own stable coin. Emerging markets, they may potentially have their own stable coins if they are separated enough from the rest of the world. Could be that like you know Venezuela has a different stable coin than that everybody else uses.

Um then you've got payments between companies plausible that you can have intercomp payments use a different stable coin. Maybe they'll use JP Morgan coin, maybe they'll use something else. Who knows? But intercomp payments clearly companies are not using DeFi. companies are not using Binance, but they are paying each other and they are potentially in their own network relative to everybody else.

So, the more that you see these networks be disconnected, the more likely it is that at equilibrium, they can have their own stable coins. But within that network, likely there's going to be just one dominant player for each of those subn networks in the stable coin space.

Thank you so much for your insight. I think it was very educational and um obviously wishing you all the success and thank you guys.

Thanks so much. Thanks everybody.

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