The narrative around stablecoins is heating up, so be careful not to short indiscriminately.

As a content expert in the web3 field, I hope to help investors avoid huge risks and losses related to stablecoin assets through this article. This article will discuss the past, present, and future of the stablecoin market.

In the capital markets, cryptocurrency traders need to have a deep understanding of the flow of funds in the global fiat banking system. In contrast, stock investors or forex speculators do not need to understand the settlement and transfer methods, as brokers provide this service in the background.

Buying Bitcoin is not easy, and the best and safest options are not clear. For most people, the first step is to purchase Bitcoin from others through bank wire transfers or cash. Then, trade on exchanges that offer a bilateral market to trade larger amounts of Bitcoin with smaller fees. However, depositing fiat into an exchange is not easy or straightforward. Many exchanges lack solid banking relationships or operate in regulatory gray areas, making it impossible to wire funds directly. Exchanges come up with workarounds, such as directing users to transfer funds to local agents, who then issue cash vouchers at the exchange; or setting up seemingly unrelated businesses to obtain bank accounts.

Scammers use this friction to steal fiat currency. Exchanges may misreport the whereabouts of funds and then disappear. If a third-party intermediary is used to transfer fiat currency, these individuals may vanish with the funds.

Due to the risks associated with transferring fiat currency, traders must have a detailed understanding of and trust in the cash flow operations of their trading counterparts. I have learned how to handle global payments in the Greater China region. This has helped me understand how major Chinese and international exchanges operate. This is important for stablecoins.

The most successful cryptocurrency exchange in the West is Coinbase. However, Coinbase's innovation lies in obtaining and maintaining banking relationships in the United States. Aside from that, Coinbase is just an expensive cryptocurrency brokerage account.

The reason I am writing another long article about stablecoins is due to the tremendous success of Circle's IPO. Circle is significantly overvalued, but the price will continue to rise. This listing marks the beginning of the current craze for stablecoins. After a stablecoin issuer launches on a public market, the bubble will burst, and the issuer will use financial engineering, leverage, and performance skills to extract hundreds of billions in capital from fools. Most people will not understand the history of stablecoins and cryptocurrency payments, why the ecosystem has evolved this way, and what this means for the success of certain issuers.

If you stop reading here, then the only question you need to ask yourself when evaluating an investment in stablecoin issuers is: how will they distribute their products?

To conduct large-scale distribution, issuers must use pipelines from cryptocurrency exchanges, Web2 social media giants, or traditional banks. Without distribution channels, there is no possibility of success. If you cannot easily verify whether the issuer is authorized to push products through these channels, then run fast!

This article will discuss the evolution of stablecoin distribution. First, it will discuss how Tether has grown in the Greater China region, laying the foundation for their conquest of stablecoin payments in the Global South. Then, it will discuss how the ICO boom created product-market fit for Tether. Next, it will discuss how Web2 social media giants first attempted to enter the stablecoin game. Finally, it will briefly mention how traditional banks will participate.

To reiterate, if a stablecoin issuer or technology provider cannot distribute through cryptocurrency exchanges, Web2 social media giants, or traditional banks, they should not be in this business.

Cryptocurrency Banking in Greater China

Currently, successful stablecoin issuers Tether, Circle, and Ethena can distribute their products through large cryptocurrency exchanges. I will focus on the evolution of Tether and briefly mention Circle to illustrate that it is almost impossible for newcomers to replicate their success.

Initially, cryptocurrency trading was overlooked. From 2014 to the end of the 2010s, Bitfinex was the largest non-Chinese global exchange. Bitfinex is owned by a Hong Kong company and has various local bank accounts. This is great for arbitrage traders in Hong Kong, as they can almost instantly wire funds to the exchange. There are many local banks across from my apartment in Sai Ying Pun, allowing me to walk between banks to reduce fees and time. This enables me to rotate capital once every working day.

At the same time, in China, the three major exchanges OKCoin, Huobi, and BTC China all have multiple accounts in large state-owned banks. It takes 45 minutes to open various local bank accounts in Shenzhen. As a trader in the Greater China region, having banking relationships means access to all global liquidity. I am also very confident that fiat currency will not disappear. On the contrary, I am always worried when wiring to certain Eastern European exchanges.

But as the popularity of cryptocurrencies increases, banks are starting to close accounts. Every day, I have to check the operational status of each bank and exchange relationship. This is very detrimental to my trading profits; the slower the funds move between exchanges, the less money I earn through arbitrage. But what if I could transfer electronic dollars on the blockchain instead of through traditional banking channels? Then dollars could move between exchanges almost for free 24/7.

The Tether team collaborated with the founders of Bitfinex to create such a product. In 2015, Bitfinex allowed the use of Tether USD. Tether uses the Omni protocol as a layer on top of the Bitcoin blockchain to send USDT between addresses. This is the original smart contract layer built on Bitcoin.

Tether allows certain entities to wire transfer USD to its bank account in exchange for minting USDT. USDT can be sent to Bitfinex and used to purchase cryptocurrencies. Why is it exciting that a random exchange offers this product?

Stablecoins, like all payment systems, only become valuable when a large number of economically significant participants become nodes in the network. For Tether, in addition to Bitfinex, cryptocurrency traders and other large exchanges need to use USDT to solve real-world problems.

Everyone in the Greater China region is in the same situation. Banks are closing the accounts of traders and exchanges. Additionally, Asians want to obtain US dollars because their local currencies are easily affected by sharp devaluation, high inflation, and low domestic bank deposit interest rates. For most Chinese people, accessing US dollars and the US financial markets is very difficult, if not impossible. Therefore, the digital dollar version provided by Tether, which is accessible to anyone with internet access, is extremely attractive.

The Bitfinex/Tether team is riding the wave. Jean-Louis van der Velde, who has served as the CEO of Bitfinex since 2013, previously worked for a Chinese automobile manufacturer. He understands the Greater China region and strives to make USDT the preferred dollar bank account for Chinese people with a cryptocurrency mindset. Although Bitfinex has never had any Chinese executives, it has built tremendous trust between Tether and the Chinese cryptocurrency trading community. Therefore, you can be assured that the Chinese trust Tether. Meanwhile, in the Global South, overseas Chinese are in control, as imperial citizens have discovered in this unfortunate trade war, thus Tether provides banking services to the Global South.

Just because Tether has a large exchange as a founding distributor does not guarantee success. The market structure has changed such that trading altcoins against the US dollar can only be done via USDT. Let's move forward to 2017, at the peak of the ICO craze, when Tether truly solidified its product-market fit.

ICO Baby

August 2015 was a very important month, as the People's Bank of China carried out a shock devaluation of the renminbi against the US dollar, while Ethereum began trading. The macro and micro stages transformed synchronously. This was a legendary event, ultimately driving the bull market from then until December 2017. Bitcoin surged from $135 to $20,000; Ethereum rose from $0.33 to $1,410.

When printing money, the macro environment is always favorable. Since Chinese traders are the marginal buyers of all cryptocurrencies (, which at the time only referred to Bitcoin ). If they feel that the RMB is unstable, Bitcoin will soar. At least that was the claim at the time.

The shocking devaluation by the People's Bank of China intensified capital outflows. By August 2015, Bitcoin had fallen from its historical peak of $1,300 before the bankruptcy of Mt. Gox in February 2014 to a low of $135 earlier that month on Bitfinex, when Zhao Dong, China's largest over-the-counter Bitcoin trader, received the largest margin call in history on Bitfinex, amounting to as much as 6,000 bitcoins. The narrative of capital flight from China fueled the rise; from August to October 2015, BTCUSD more than doubled.

The micro-level has always been the most interesting place. The surge of altcoins truly began with the launch of the Ethereum mainnet and its native currency Ether on July 30, 2015. A certain exchange was the first to allow Ether trading, and it was this foresight that propelled it to a leading position in 2017. Interestingly, Circle bought this exchange almost at the peak of the ICO market and went bankrupt. Years later, they sold the exchange to Sun Yuchen at a huge loss.

Some exchanges and other Chinese exchanges are leveraging the new altcoin market by launching pure cryptocurrency trading platforms. Unlike Bitfinex, there is no need to interface with the fiat banking system. You can only deposit and withdraw cryptocurrencies for trading other cryptocurrencies. However, this is not ideal, as traders instinctively want to trade altcoin/USD pairs. Without the ability to accept fiat deposits and withdrawals, how can exchanges like some exchange and Yunbi (, which used to be the largest ICO platform in China ), provide these trading pairs? USDT has arrived!

After USDT was launched on the Ethereum mainnet, it can be moved on the network using ERC-20 standard smart contracts. Any exchange that supports Ethereum can also easily support USDT. Therefore, pure cryptocurrency trading platforms can offer altcoin/USDT trading pairs to meet market demand. This also means that digital dollars can flow seamlessly between major exchanges ( such as Bitfinex, OKCoin, Huobi, and BTC China )------where capital enters the ecosystem------ and more interesting and speculative places ( such as certain exchanges and Yunbi )------where gamblers play------.

The ICO craze gave rise to what later became a giant trading platform. A few years ago, CZ resigned as the Chief Technology Officer of a certain exchange due to personal disputes with CEO Xu Mingxing. After leaving, CZ founded a certain trading platform with the goal of becoming the largest altcoin exchange in the world. This platform did not have a bank account, and to this day I still don't know if you can deposit fiat directly without going through certain payment processors. The platform uses USDT as its banking channel, quickly becoming the preferred place for trading altcoins, and the rest is history.

From 2015 to 2017, Tether achieved product-market fit and established a moat to fend off future competitors. Due to the trust the Chinese trading community placed in Tether, USDT was accepted across all major exchanges. At this time, it was not used for payments, but it was the most effective way to transfer digital dollars both within and outside of the cryptocurrency capital markets.

By the end of the 2010s, it became difficult for exchanges to maintain bank accounts. Taiwan became the de facto cryptocurrency banking hub for all the largest non-Western exchanges, which controlled a significant portion of the global cryptocurrency trading liquidity. This was because several Taiwanese banks allowed exchanges to open USD accounts and somehow managed to maintain correspondent banking relationships with large US monetary center banks such as Wells Fargo (. However, as correspondent banks required these Taiwanese banks to expel all cryptocurrency clients or risk losing access to the global USD market, this arrangement began to unravel. As a result, by the end of the 2010s, USDT became the only means for large-scale transfers of USD in the cryptocurrency capital markets. This solidified its position as the dominant stablecoin.

Western participants, many of whom raised funds with the narrative of cryptocurrency payments, are rushing to create competitors to Tether. The only large-scale survivor is Circle's USDC. However, Circle is at a clear disadvantage as it is a US-based company headquartered in Boston.