Arthur Hayes, co-founder of BitMEX, has issued a cautious outlook on the stablecoin sector following Circle's highly publicized IPO. In his essay "Assume the Position," Hayes argues that while the stablecoin market is poised for explosive growth, most new entrants will struggle to survive in the face of dominant players like Circle and Tether.
Hayes emphasizes the critical importance of distribution channels for stablecoin issuers. He points out that major companies such as Meta, X (formerly Twitter), and Airbnb are expected to embed stablecoins in their platforms, benefiting from their large-scale distribution capabilities. Conversely, smaller stablecoin issuers without access to major crypto exchanges, social media integrations, or banking partnerships will likely fail.
The reliance of Circle on its partnership with Coinbase further limits its competitive edge compared to Tether. Hayes notes that Circle must share 50% of its interest income with Coinbase in exchange for distribution, reducing its profitability. Tether’s wide-reaching distribution and established presence on major exchanges give it a substantial advantage, enabling it to dominate stablecoin market share.
Despite skepticism about Circle’s valuation and business model sustainability, Hayes advises investors not to short stablecoin stocks just yet, as hype will likely sustain elevated prices in the near term. He foresees a bubble scenario where stablecoin issuers attract billions from investors through financial engineering and marketing theatrics but warns such a bubble is unsustainable long term.
Furthermore, Hayes highlights that new stablecoin issuers face nearly closed distribution channels, as most exchanges align with existing stablecoin firms. With additional competition from social media giants and legacy banks possibly launching their own stablecoins, opportunities for new entrants are limited.
Overall, Hayes’ analysis presents a sobering view on the stablecoin landscape: while the space will grow and generate short-term excitement, investors should be wary of overvaluation and the intense competitive pressures facing new and smaller issuers.