Introduction: 

I have spent the last 25 years professionally trading, investing, and building products. This has been across different organizations, asset classes and economic environments. I experienced the dot.com bubble, the subprime mortgage bubble, the creation and implosion of CDOs, the breaking of the buck, TARP, Brexit, and more than a couple of crypto winters.

Perhaps more importantly, I’ve spent a large portion of the last 25 years meeting and sharing ideas with some of the largest and most influential institutional investors in the world. Over the years I’ve been blessed to build relationships, and learn from these investors. Today, this remains the single most valuable, and enjoyable aspect of my role(s) at Hack VC and I would like to try and “pay it forward.”

Cycle Tested will share the most interesting discussion topics and recurring investor questions surrounding digital assets, FinTech, blockchain technology and AI.  

• Peter Hans, Partner @ Hack VC

The Proliferation of Stable Coins. 

I’ve spent a significant portion of the last quarter in meetings with institutional investors including current and prospective Hack VC LPs. While CryptoTwitter and media headlines gravitate towards near-term price action, the conversations with long-term investors are far different. 

Most recently, conversations have centered around the convergence of traditional finance and blockchain rails, and most specifically surrounding the established product market fit and subsequent explosive growth of stable coins.

Below, I share two of the more common questions along with my thoughts: 

1. "Why do we need so many stablecoins? Doesn't fragmentation hurt the mission of a global digital dollar?"

The reality is that "the dollar" isn't a monolith; it's a legal and functional wrapper. Given the rationales for different functional stables backed by the same assets, and the relative ease associated with launching one, we’re likely to continue moving away from the current duopoly. The major reasons behind this are:

• Jurisdictional Necessity: Under the GENIUS Act (2025), the U.S. has provided a federal framework for payment stablecoins. A key takeaway from that legislation is that it prohibits issuers from paying interest directly to holders. More recently, the OCC has chimed in that this also precludes staking rewards or other points-based compensation. That said, other nations will have different regulatory requirements where the design and features of the stablecoin may vary even if the underlying reference asset is the same.
• The "Sweep" Economy: This is where it gets interesting for firms like my former employer, Fidelity. To an end-user, $50,000 in a digital wallet is just "dollars." But if that user holds USDT, the yield on the underlying reserves goes to Tether. If that same user transfers the stablecoin to a centralized brokerage platform or exchange, Fidelity for example, that same third-party stablecoin could be swapped for FIDD. The individual investor sees no real difference, it’s just the entity capturing the NIM. This is functionally no different than an individual today transferring assets from one financial institution to another. For example, one could transfer funds from a Bank of America checking account to a Fidelity brokerage account and those dollars are then swept into a Fidelity cash account (a money market account). The major difference being that money market funds pay interest and stable coins do not. 
• Apathetic Switching Costs: The real advantage comes in the assumption, which I think is probably correct, that not all entities will be in the NIM game and the switching costs aren’t worth it. In the above example, if the newly minted FIDD then is transferred externally via the customer’s Fidelity BillPay account to a merchant that has no horse in the race then does that recipient really care whether it’s Circle, Fidelity, Tether, or JPM who is pocketing the spread? In this environment, the advantages of funding costs are nomadic. This speaks to the power of owning the customer relationship and mindshare. It also speaks to why banks are so keen on the idea of tokenized deposits. 

For legacy financial institutions, issuing a stablecoin is a defensive play to protect their MMF and sweep businesses, and an offensive play to capture zero cost AUM. Given these advantages and high margin profiles, we’re likely to see more competition and likely market bifurcation. It’s very possible that the existing players, USDT and USDC, dominate in payments and remittances for the foreseeable future while traditional brand name stables serve as more of the internal settlement and B2B asset. 

2. Why hold a tokenized MMF vs a stablecoin?

The second question involves the role of Real-World Assets (RWAs), especially those tokenized securities such as Blackrock’s BUIDL and Fidelity’s FDIT, which could be functionally similar to a dollar-back stablecoin.  

Interestingly, Fidelity has launched both a $1 NAV tokenized money market fund (FDIT) as well as a USD-backed stablecoin, FIDD. The logic here is that we will see a market bifurcation based on the intended use case. If one is paying for goods or services, analogous to how one would use a credit card today, the Fidelity client would use FIDD. However, should the customer be holding the asset, either in an account or as posted margin, then FDIT would be utilized in order to receive the benefit of interest income. 

The tokenized Treasury market has been expanding rapidly over the past year and is currently north of $11B in AUM:

While the use case for stablecoins is clear and now widely accepted, the growth in tokenized treasury products also signifies a strong market use case. 

In Summary:

We are at a key fulcrum of institutional adoption and are starting to see a turnover, or at least substantial expansion, of blockchain market participants and financial use cases. In the coming months and years, I believe that we will continue to see our global financial plumbing move to blockchain rails. 

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