Purpose-Built vs General-Purpose Chains for Stablecoin Adoption - Panel

Uh hello, my name is Anton. As has introduced a partner chain security and I guess uh our panel today is uh proposed build versus general proposed chains for stable coin adoption. Uh yeah maybe we can start with uh current situation an overlook of what we have uh like what's your point like first small intro from you Alex and uh and what's you consider current status of adoption of stable coins what's chains are dominant in your opinion

hi everybody I'm Alex um I am the founding general partner at Vera Ventures where we focus on stable coin infrastructure. Um before I fully answer your question, uh went to give it to Study to do an intro and then we can kick it off.

That sounds great. So I'm Stuty. I'm a partner at Triton Capital. We are formerly known as Kraken Ventures. Um and our thesis is that blockchain is better infrastructure for financial services.

So we invest quite a bit in the space of everything talked about today. So what one of our to go to your question which which chains are dominant I we actually think that over the next five years there's going to be an increase in fungeibleization of blockchains. Um and basically meaning that stable coins issued by the likes of Tether Circle will find it easier to go between blockchains. Um and that basically means that value in our view will likely flow up the stack towards uh applicationfacing users. Um towards the userf facing applications.

So we actually think that a lot of the dominance will come at the stable coin issuer level uh rather than just at a particular blockchain. But that fungeibleization we believe um is going to make the infrastructure layer relatively less important.

We also have Bdan joining us so maybe

I was late for dramatic effect. Hi everyone. Sorry I'm late. Capifi is better than Uber. I'm saying this publicly on record now that I had a problem.

Uh Bogdan, one of the co-founders and CTO at Tenderly. Uh if you're a D5 developer, you're probably using Tendul for development or for infrastructure products. That's the TLDDR. I don't want to derail the conversation. Please continue.

I'm going to jump in.

Uh yeah, actually I would say maybe we like do a bit step back and uh go back to definitions like what's uh how would you define general purpose versus proposed build chains? Like what's the actual difference? Like we know mainetum and hopefully it's general purpose, right? But can you have examples or like uh opinion about what's proposed build chains?

Yeah. So, okay. So, general purpose chains, you kind of covered this already. Um, I I think what they're meant for is for multiple kinds of applications, right? And so, stable coins on general purpose chains are tenants there.

You know, they're they're not necessarily meant to be the main star, but on purpose-built chains, stable coins are also the operating system. So that's kind of how I think about the difference between the role of stable coins on general purpose chains versus purpose-built chains. Um, but as an extension to this, like I think sometimes people think about Tron as like a stable coin chain, but it was actually never built to be a stable coin chain. It eventually evolved into that. So I think there's still a gray area and um it's not necessarily black and white because also some chains tend to find product market fit with certain products certain applications done Alex.

Yeah. Uh I have so I have the same view from a different lens. So the [clears throat] way that we at least at least look at this stuff we look at it like as ecosystem chains versus app chains and then we look at stable coins as an application chain type thing. Now when you think about it, it is what you want to incentivize the block space to be used for in a generalized chain. The Black Rockck transaction that is buying like a war plane shares the same block space as me buying like a cryptokitty or whatever.

Now in my head that doesn't make sense for anything high frequency payments that's needed but for important stuff it does make sense. For application specific chains we are talking about usually are most people going to use the block space for transfers etc. But a lot of people and what we're seeing now more and more are starting to write pre-ompiles or actually change the execution environment for it to be better for stable coin payments. A good example is arc uh from circle where they will have private transactions as part of the runtime itself. So it is going to be EV and compatible but it is going to have this change where the transactions can be private because one of their assumptions is for enterprise payments you need confidentiality not just public transactions existing there.

Um so this is how I view it. If you're changing the runtime or most of your block space or like the state is going to stable coin transfers, this would be like the stable coin specific chain. Everything else I would argue is a is an ecosystem chain. And then finally, a feisty comment I don't know if we're going to cover later. I think that we're going to end up with like five to 10 ecosystem chains only, but thousands of app chains.

I think there isn't a space for 100 arbitrums basis optimisms but there is a space for thousands of these general purpose chains for specific stuff. I think the future is likely to be some hybrid combination of general purpose chains plus application or stable coin focused chains. And the reason is even if you have your own permission stable coin chain like AR circles arc you don't get the benefits of composability or liquidity that you would find on an Ethereum. Um, at the same time, institutions for compliance reasons do require this permission layer, which you're only going to get by having your own specific uh chain and controlling the entire stack, which is part of the reason Circle is creating a chain like ARC. At the same time, ARC in a silo doesn't fully capture the value of blockchain.

It doesn't capture the composability and interoperability with DeFi. it doesn't capture the liquidity network effects. So our view is that there will be a hybrid interaction uh between these stable coin specific uh blockchains or application specific blockchains as well as general purpose chains um such as Ethereum. Yeah.

Yeah. I don't think there's actually a all-weather answer to whether um stable coin activity is going to be on general purpose chains versus purpose-built chains. The pendulum tends to swing based on whether it's a bare market or a bull market. Whenever we are in a bull market, uh you know, we become this all L1 multi-chain world. And when we are in a bare market, DeFi attention and liquidity tends to reagregate to Ethereum and maybe now Salana or you know one two other L1s.

I think that this this pendulum will swing um you know at first as I said it's like Ethereum and then um you know in the in the bare market and then the all L1s the blue chips in the bull market and then it'll become like maybe Ethereum and a few more L1s and then in the following bull market you might also have some of these app chains specific to stable coins and you know this will tend to vary across multiple cycles but I think it's always going to be based off of where we are in the cycle. Yeah, this is very insightful. Um, maybe I want to develop a bit on a Bogdan's u kind of uh features of purpose-based chains, right? He mentions like there is an arc that has a private transactions. Uh, any any other you see features that purpose-built chains can do better than general purpose that would would uh help with stable coin adoption,

stable prices. say when you say stable prices you mean stable gas prices like as in each transaction will cost the same that that is a thing that in our world I think we became completely okay paying anywhere from a single cent to $75 for unis swap swap to pass um that's one but when you look at it for other stuff it's like if you're in the cosmos ecosystem IBC is a given which is a pre-ompile on the EVM variants of Cosmos Cosmos chains where the superpower is you can move assets around actually not like lock it in some place unlock it on another one from talking to networks so the arcs tempos of the world etc. So far what we're seeing it's mostly the confidential transactions. My assumption is it's because of regulatory pressures why this is happening and the fee stuff. So technically you you can guarantee if I'm transacting USDC it's always going to cost like this and that's it.

So it's always going to be a fraction of a cent or like 1 cent and that's it. Other than that, we still haven't seen any innovation specifically. You could argue given enough time that you can do a native swap as a pre-ompile, that you could do a native perex as a pre-ompile. I don't see why people would do that to be honest, but it it is still generic code that you can ship. But so far, it's like consistency as in price consistency and then the second one is confidentiality.

This is this is the two things that we see so far. anything to add

more tangential point is that for small transactions I think the transaction fees will be negligible so it'll be a fraction of a penny on a base or a seller or another layer two um and then for larger transactions if you're transferring a million dollars you don't mind paying a dollar or $2 on Ethereum mainet for the incremental security so we see a sort of bifurcation happening depending on the value at risk and we don't see it as strictly necessary to have a fixed fee in order to facilitate transactions.

Yeah. So, you know, I I look at this a bit more big picture. So, what do users actually care about when you know they're going to interact with the blockchain? I think there's, you know, there's four highlights. The first is credibility, then efficiency, then cost and then finally utility.

So credibility is the lindy of a chain. How acceptable is the brand? Uh reliability of the chain. Efficiency is the performance. So you know the speed for example, finality, settlement times, etc.

Cost is fees. And then utility is distribution and liquidity. So when we're looking at general purpose chains, I believe that they tend to excel in offering uh good credibility as well as good utility. And then the promise of purpose-built chains is better efficiency and performance um as well as better cost. Uh I think that this latter thesis has yet to be proven and [clears throat] shown out in multiple cycles and also specifically at scale.

But I believe that these are the promises and as a VC when I am evaluating um just L1's or L2s as opposed to purpose-built ones these are some of the factors that I'm looking at. Thank you. Um maybe a bit a question like we now see a lot of uh traction with uh each stable coin makes their own chains to say like there is a tempo from uh stripe right there is a arc and what's not right? So the question is uh like do we really need that many chains? Uh is this is part of this stable coin war where you really need to have your own chain to get an upper hand over the competitor.

I mean I think it's just economic self-interest. They don't want to pay rent to another blockchain. And if you're Stripe, you have the built-in distribution. So they I mean I I if I were them, I'd probably do the same thing. It's like I'm already bringing my own distribution, which by the way covers like 5% of world GDP in terms of process volume.

I I don't know if it's exactly that, but it's on that order of magnitude. Um, and so by controlling the whole stack, they get all of the fees instead of needing to pay a base or another blockchain for those transaction fees. And then they can if you do want to leave their ecosystem you can there will be some kind of interoperability uh protocol or standard that can leave but that'll be a far fewer transactions. So in other words by having an interoperability standard they can get the benefits of you know shared uh liquidity and infrastructure but most of the transactions will happen through their distribution channel and by having their own chain they can capture value at each and every level. So it to me it's economically logical uh and self-interested that they would go pursue this path.

Thank you.

I agree. You told me that I cannot use a specific sentence to explain this phenomenon. But uh I know a lot of people on X were like why is tribe doing this? It doesn't make any sense. It makes complete sense business-wise technologically maybe not.

I mean even technologically with the changes they're doing but business-wise it makes complete sense. And I mean your question was also like the verticalization of these like stable coin issuers and then the the them launching a network. You also have for tet by the way you have both plasma and stable which is interesting that there's even two attempts more or less. Um an interesting way that I started looking at this since few days ago actually is that stable coin isn't a rail where in my head stable coins were rails it is an asset. This might be apparent to anyone.

It was very much not apparent to me two days ago because um where do you get the value? A good analogy that I started thinking about is in the US, my Eastern European mind cannot comprehend this, but in the US you have a credit card for Macy's. This makes no sense to me, but this is a thing. Does it make sense for Macy's to have their own chain or for their own stable coin? Because if you pay at Macy's with your wallet or the third variant would be them having their own wallet, which is like I think the worst one of the three.

But um when you think about it, if Macy's would like to do a point system where you get like cash back or United wants to give you miles for using a credit card, if we live in a future where credit cards die, which I hope they will, um it makes sense for them to have a stable coin, not to have a chain. And then they're going to pick Stripe or Bass or whoever base is doing a huge push for them to be this destination chain. But also when you look at Stripebot Bridge, so I would assume that this is what they're trying to do with the with these stable coin issuance for multiple companies. Uh I think that for the next year or two the meta is going to be chain plus stable and then some chains the rails themselves will die out because the routes are inefficient because there's no liquidity as you mentioned or it's not performant as you mentioned etc. But we're going to be left with much more stable coins which I think will have a place in this world.

Yeah. In the in the general purpose chain world, stable coins are tenants in a shopping mall. So, anytime somebody wants to come use them, they have to deal with the existing Westfield infrastructure, the parking lots, um you know, the buildings, uh the traffic in and out of the mall, right? And there's definitely pros and cons to that that especially relate to, you know, distribution, liquidity, credibility. Um, but then in the other world where you know they decide to be a standalone shop, they now have to be able to bootstrap liquidity on their own.

And I think that part is hard, but it's not the most difficult part. A lot of these stable coin companies right now, they are financial companies with technology features. Once you become an L1 or an L2 even, you have to become a technology company. Now they have to deal with uptime. They have to deal with nodes, node infrastructure, core developer communities, cryptography, and this is a very very different beast than just being a stable coin issuer.

So, you know, if you have the cash, um, if you have the balance sheet to be able to fund an experiment like this, I think it's worth it for the upside, but not everybody does, and that's understandable as well. I so I I think to book 10's point there is a potential for like with bridge and stripe this sort of shared infrastructure where you kind of white label the infrastructure and then the end brand Macy's in this analogy can just basically leverage whatever infrastructure is there sort of like credit cards as a service where you don't do any of the infra you just put your brand on it and then all of the backend is taken care of I think that's a potential outcome especially with the distribution of of stripe and bridge. That's a good point.

Uh yeah, maybe maybe then a bit u like to disagree a bit with Bogdan to start it. Uh you told like that's consumers want doors, right? Like assets and not really u like asset of stable coin issuer, right? uh maybe to disagree with that it's like quite often the issuers has very different risk profiles and they have very different uh like people who trust them right so is it um something uh you think will actually affect u like distribution of liquidity in the end and the usability of the chains

I think depending [clears throat] on which time scale we are talking about short to mid term I agree with you completely people care about this long-term the Serbian dinar has been pegged to the euro at 118 and the whole country is scared if we get the correct ethics ratio it's going to be 230 and we're going to have a civil war so in that sense people just trust what they tell them what you tell them so in that sense like long-term I think like normal people aren't going to care I think we're hyper financialized ecosystem and we are aware of those things so short to midterm yes I'm not going to take Macy's these points if they're on a if they're on a bad chain. It's similar to I wouldn't transact on a chain. To me, it was interesting like I I saw a p pattern where I wouldn't transact three years ago. I wouldn't transact on a chain unless it had an Etherscan instance because like Ether Scan was social proof I'm not going to get rugged. Very dumb way of thinking, but this is how my brain worked.

I think it's similar thing here. we're going to care about. We're going to see if four tokens from Bridge or four stable coins from bridge end up being bad, none of us are going to use Bridge enabled or bridge powered tokens or stable coins. Uh but I think in the long term people don't particularly care.

I think credibility is a very important topic. um you're not going to get fired, you know, as somebody working at a corporation for launching a stable coin or a product on Ethereum. I think that there's a better chance that you're going to be under fire if you launch on some emerging L1, right? Um or maybe even, you know, build your own chain and it ends up getting hacked um you know, as an alternative. So uh cred credibility matters a lot for a chain and you know in crypto like Lindy is somehow a uh a measure of unhacked TVL uh and the ability for a chain to just you know survive over I mean at this point like something like 5 to 10 years or 3 to 10 years and yeah and and that matters.

To add on that point, I don't think most L1's today can justify being an L1 instead of being an L2 because Ethereum offers better security, better decentralization, uh, and better tooling than any other L1. So, you can I think I think most L1s that exist today would be better off being an L2. Also, as Study mentioned, because of the credibility factor, if you have the security of Ethereum, that's going to give you a lot of wind in your sales. Um, so I would my my hot take is that most L1's today will fail.

Another thing is I I think there's a lot of chat around Tempo and Stripe, you know, also having amazing distribution um and becoming, you know, one of the maybe de facto payment chains moving forward. But if you are a fintech that is interested in crypto, I doubt that you're going to want to um launch what you're building on Tempo. So, there is still very much still an opportunity for a more neutral chain such as an Ethereum or maybe even something else to be the go-to place for stable coins if you're in the fintech or even like Trafi space and looking to launch or um interact with stables. So, I don't think that any of these emerging stable chains have really won the race and is specifically not the ones that have their own branded um stable coin that is aligned to the distribution of a specific tech company or financial services company.

It's going to be a bloodbath for years, I think. But yeah. Yeah. Uh we have uh Momo joining us. Uh Mo, I guess you can do quick intro of yourself.

Yeah, for sure. Hi. Uh my name is Momo. I'm one of the co-founders here at Codex. Codex is an Ethereum aligned stable coin chain.

Um, I heard this topic is quite pertinent for this conversation. Uh, previously I was a product manager at Facebook and I've been a stablecoin and crypto enthusiast since 2017 having invested in various protocols to the likes of Athena, Agora and you know back in the day Basecoin and some of these more exploratory ones as well. Thank you m and I guess uh since you're joining us we your question for you uh in the spirit of what we already discussed but um it's actually what you just uh mentioned from the panel stable coin adoption when we when we say that it happens for like purposeuilt chains where you see it coming from is it uh as Bogna told like private individuals going to use it just to like try to protect from inflation or and uh to facilitate payments between like peer-to-p peers or it's uh also institutions who are interested in those.

Sorry, just I want to make sure I get your question. So your question is who is using these stable coin focused chains? Is that right?

I think it's this moment is more about who you seeing in future who will be using them because at the moment it's

yeah so so stable coin proliferation has been up and to the right over the last couple of years. But if you zoom out and take take things in perspective, right, the the set of all B toc payments and B2B payments across the world is still much much larger, right? Penetration of stable coins today is at the low single digits if if you take that into consideration. So I mean the answer is I think I think over time stable coin is going to be the de facto technology by which money moves in a lot of use cases. the proliferation is going to take years if not decades to come and you know who wins and whether there's one or few or many um protocols and networks on which uh these stable coins move I mean I think I think it's still up for grabs right this is why like you know I've built codecs yeah anybody wants to add on that or

who's going to use it in the future yes

I mean companies I mean we at tenderly use it we have two entities is Serbian and and US entity. We settle in stable coins between them. Not always, but we accept payments from from some of the customers we support in stables. We always pick to settle payments between the entities in stables if possible because it's cheaper. Plus, we don't have to wait like 750 days for the bank to to process the thing.

Yeah. I mean, I pay and across my businesses, I I pay everybody in stable coins. Um, but I would say like most of them all want to be paid on Ethereum or Tron. Uh, so I' I haven't gotten any inbound demand saying I need to be paid on non-Ethereum or non non-tr. Uh, so I we'll see if that changes, but my general view is that a lot of these like unless they have pre-builtin distribution.

So if you're a Stripe, I think honestly you could do whatever you want. You already have your distribution and you'll do well. But if you don't have your own distribution, I think there's a high chance that it's going to be difficult to get that distribution if you're trying to build a permission blockchain. Um I I I'm biased because Tether is one of our LPs. Uh but I think a like USDT in which it's sort of a more permissionless uh type activity will will likely be one of the winners cuz you know if you think about a lot of the actors um receiving and sending money maybe they're afraid of their government maybe they're afraid that afraid that you know you're a Russian citizen and the US government decides to freeze your assets by working with the the chain owner.

Um, I think Tether will likely be one of the big winners as things shake out. And I think the permissioned stable coinon blockchains that do not have their own distribution channel will find it very difficult to get distribution and scale.

What are your thoughts on plasma and stable?

So I I'm so tether actually like they just put in a very small amount to be honest. I'm not sure if that's public information or not, but they they play up Tether's role, but actually the check they put in is like very small. I think from from Tether's perspective, it's like let's just put some money and see how it goes, you know? It's like if it if heads it to win that like I win, tails I don't lose. Um because it's so like immaterial for them.

Um, but I I think it's likely going to be the case that there will be fewer rather than more blockchains in the future that win. Yeah.

And to Bogdan's question, you know, who will be the users of, you know, these stable coins and these stable coin chains potentially. Um, it's going to be everybody eventually. I believe the market size for stable coins is that of currency itself. So over $80 trillion. Right now we are at a few hundred billion at issuance and I don't think that there is anybody that is a winner in that long run when you think about that barely scratching the surface of what the true stable coin market size can be and I also don't think that there will necessarily be one or two or three winners.

Um I believe that there's an opportunity for stable coins to serve different types of people and different purposes. Personally us um you know we've invested in quite a few stable coins. I'll give some examples. We invested in cap money. Uh we invested in Athena.

We invested in Agora and you know a handful of others. And we don't believe that we have portfolio conflict. We think that one person say in Latin America could be holding one stable and transacting on one chain for payments something else else for risk adjusted yield something else for maybe higher risk yield right and so the market has yet to be won and I think there's going to be many winners and many forms that that takes. So this is very interesting and like for example DeFi is like a use case where where you think to follow to the purpose build chains or what do you have a problems with fractured liquidity like and uh crosschain liquidity problems is there's going to be enough liquidity on this purpose build chains to to facilitate good enough DeFi for the users.

I guess you go first Alex. Okay. So as I mentioned earlier, I think there will be an increase in interoperability between blockchains to the so that there will be permissioned capital that can basically uh interact with permissionless DeFi on for example Ethereum where a has the most liquidity by far on Ethereum. Um, so that's kind of the the longer term vision that I see is you have increased fungeability and interoperability between layer 2s but also layer ones um and that they'll be able to basically leverage the infrastructure and liquidity uh and elsewhere and most likely in my opinion Ethereum will continue to have the deepest liquidity. Um, so that's kind of our our world view and and mental framework.

I think technologically we're going to figure out pulling liquidity from everywhere. I know 1 in had one of the announcements where you don't need to they announced it like 3 days ago. You don't need to put money somewhere. They can just permissionlessly pull money. It's like proof of I can't remember but it's like technically proof that they can pull the money if if needed.

Um the question there is will we have APRs as high as now if that's the case because if you if you can move money everywhere across all of the chains you need competition for APRs to be high like the the reason why traditional banks give low percentage lower percentage yield. Not because they're it's because they cannot generate more. I mean, I mean, part of it is they're as well, but um they cannot they cannot get more yield from this stuff because it's lower risk things here. And the arbitrage opportunity itself is the risk, at least how I always perceived it for in DeFi. So, I don't know if that answered your question, but I think it's solvable.

I I'm not scared about fragmented liquidity from a technological standpoint, but financially I have no idea if if it makes sense.

That's good. Thank you. Anyone else want to otherwise uh we have like little time left and I guess uh I would like a future prediction round so to say. So right now de facto you have most of TVL I mean I would say no not most of the volume u of the tokens on EU mainet right like it's TVL if you see by stable coins minted it's still dominated by Ethereum actually if we consider to a general purpose chain when the volume can be seen as a dominated by general purpose chains so on scope of let's say two years uh where you think will be TVL and volume. How how will be the t volume distribution between general purpose and uh proposed build chains?

Like I said earlier, if you're moving a billion dollars, you don't mind if it's a little slower and it cost you $2 on Ethereum rather than 1 cent on an L2. And for that reason, we think the larger liquidity will continue to be sticky on Ethereum. Uh because if you're moving $10 like okay you're sensitive to a one cent transaction fee but if you're moving billions like that's just not a concern for you. Security is number one.

So just ballpark you say just TVL going to be mainet as they get it.

I think at least 70% of TVL will stay on Ethereum mainet and that other chains will likely be optimizing for lower transaction fees and faster throughput.

Yeah. [snorts] If we are in a bull market then stable coin liquidity and attention is going to aggregate towards Ethereum and if we're in a bare sorry if and as well as other chains and if we're in a bare market then it's going to be Ethereum.

True markdown.

Um depending on Stripe is a public company and them making this bet is not a small thing. Uh, I would argue that there's going to be a bunch of TVL from all of the major banks that they are connected with on their chain. So, I would argue that I agree with you that most of the liquidity will be on Ethereum, but I think they're going to eat a bunch of liquidity as well from the chains where some of that liquidity is right now. So, I think they're going to aim for the neck for the like chains. I don't know the leaderboard like but chains like 7 to 15 are not going to exist when it comes to to to TVL.

Mhm.

Yeah. I think most of the liquidity will stay on Ethereum, but I think for example, for a lot of flow use cases like payments, there's chains out there like ours and a couple others that are purpose-built for specific use cases and have features like for example, if you're moving money, right, to specific corridors. There's always a risk when you touch fiat banking rails that there's um like an RFI, right? Like a request for information where the money gets stuck. We are building features where you can proactively see whether there will be an RFI ahead of actually sending those funds.

What is the value prop for the end business? It means that the incidence of money getting stuck via crypto transfers on the fiat rails is much lower because we can basically proactively mitigate that. Right? So these are features and iteration like these these types of features are going to take much longer to build and implement on an on like the generalized general purpose um chains than on for example RL2. So what we see this playing out is uh most most of the liquidity and where the money will stay will be on Ethereum but where it moves and and like you know how it moves those new use cases where where you know payments are now moving from fiat to crypto will be more and more on on specific purpose-built chains and we're so we're already seeing that playing out.

Yeah.

Yeah. Thank you. Yeah. V

what's your thought? What's your thought quickly? 10 seconds. You didn't say your thought. Two years from now TVL what's your thought?

Yeah. Let's do it again. [laughter] We need to see how good we predicted that. Yeah, we out of time. Yeah, I just have some uh thank you everybody for participating on the panel and I guess uh if you want uh please us afterwards.

Thank you.