Stablecoin Success Depends on Distribution Channels Says BitMEX Co-Founder

In the rapidly evolving landscape of digital finance, stablecoins have emerged as a vital link between traditional currencies and the volatile cryptocurrency market. Their ability to maintain price stability makes them indispensable for trading, payments, and savings. However, the success and widespread adoption of a stablecoin hinge on the strength and reach of its distribution channels, according to Arthur Hayes, the co-founder of the prominent cryptocurrency exchange BitMEX.

Hayes recently shared his insights on Substack, emphasizing that creating a stablecoin is just the beginning. The real challenge lies in getting it into the hands of users and integrating it into the financial ecosystem. He likens this to any product—you can build the best widget, but if you can’t get it onto store shelves or delivered to customers, it won’t gain traction. For stablecoins, distribution channels include cryptocurrency exchanges, payment processors, wallets, decentralized finance (DeFi) protocols, and even traditional financial institutions.

Effective distribution builds trust and utility. When a stablecoin is easily accessible, widely accepted, and seamlessly integrated into platforms where users already operate, it naturally becomes the preferred medium of exchange or store of value. Without robust channels, even a technically sound stablecoin with strong reserves will struggle to compete with established players.

Hayes points to Tether (USDT) and Circle (USDC) as prime examples of distribution success. Tether’s strategic advantage came from its close collaboration with Bitfinex, one of the earliest and largest cryptocurrency exchanges. Tether also cultivated significant trust and integration within banking systems in Greater China. This early and deep penetration into key markets, particularly for trading and arbitrage, allowed USDT to become the de facto global stablecoin for many traders, solidifying its massive market share.

Circle’s USDC, while trailing USDT in market capitalization, has also achieved significant success. This is largely thanks to its strong partnership with Coinbase, one of the largest and most regulated cryptocurrency exchanges globally. This partnership provided USDC with immediate access to a vast user base and integrated it deeply into its retail and institutional offerings. This partnership has been a key driver of USDC’s growth, particularly in Western markets and regulated environments.

These examples underscore Hayes’ central thesis: partnerships with major platforms and strategic integration into financial infrastructure are non-negotiable for stablecoin dominance. The path is significantly steeper for new stablecoin issuers entering the market today. The landscape has changed dramatically since Tether and Circle established their footholds. The major distribution channels, particularly the high-volume cryptocurrency exchange platforms, are largely locked up. They are either directly partnered with dominant issuers, owned by companies with their own stablecoin interests, or have deep-seated relationships that make it difficult for newcomers to gain prominent listings or favorable trading pairs.

Adding to this challenge, traditional finance and major technology players are developing their own stablecoin or digital currency solutions. Social media firms and banks, with their immense user bases and existing infrastructure, represent potentially powerful future distribution channels, further crowding the market and increasing the barriers to entry for independent new stablecoin projects.

Given the uphill battle for distribution, how can a new stablecoin issuer hope to attract users and gain a foothold? Arthur Hayes offers a stark assessment and a potential, albeit challenging, solution. He suggests that new stablecoin issuers will need to offer significantly attractive terms to depositors—specifically, high Net Interest Margins (NIM). Essentially, they would need to pay users a compelling yield or return on their stablecoin holdings. This high return would serve as the primary incentive to lure users away from the convenience and trust associated with established stablecoins like Tether and Circle, which benefit from network effects and deep liquidity on major platforms.

While theoretically possible, this strategy presents significant hurdles. Generating high, sustainable NIM requires sophisticated yield-generating strategies, often involving lending or investment in various assets. This introduces complexity and potential risks that issuers must manage carefully while simultaneously trying to build trust and adoption in a competitive market. It’s a high-stakes game where the promise of yield must outweigh the comfort and liquidity of existing options.

Arthur Hayes’ analysis provides a crucial reminder that in the world of stablecoins, technical design and reserve management are only part of the equation. The ability to effectively distribute the stablecoin and integrate it into the platforms and systems where users live and transact is paramount. While Tether and Circle benefited from early mover advantage and strategic partnerships, new issuers face a market dominated by incumbents and the looming presence of banks and tech giants. According to Hayes, offering compelling financial incentives like high NIM might be one of the few viable paths for newcomers, though it comes with its own set of complexities and risks. Ultimately, the battle for stablecoin dominance will continue to be fought not just on the technical or regulatory front, but crucially, on the battlefield of distribution.