Do Stablecoins Help or Hurt Crypto?

June 16, 2025 | With the financial markets wavering between risk on and risk off, the ethereal realm of crypto tokens is likewise showing an uncharacteristic degree of uncertainty.  YTD, the S&P 500 is up single digits, but bitcoin is up multiples of that gain. Earlier in the year, bitcoin was down even more.

As a veteran crypto investor told The IRA last week: “Bitcoin goes up a lot and goes down a lot.” The chart below from YahooFinance suggests bitcoin outperformed the broad equity market since the election of President Donald Trump, but with outsized volatility, and has since plateaued.

Meanwhile, our earlier prognostication that Amazon (AMZN) would be looking to launch a stablecoin for its users was validated within days. Seems obvious. How much of a discount will AMZN offer users for paying for purchases with coins? Let's call it "ZON" just for fun. What is the lifetime value of an AMZN customer? That will tell you the discount for ZON purchases.

The question of a possible AMZN coin begs a bigger issue: integration with a sales funnel or asset manager to form a moated castle a la JPMorgan (JPM) or other bank and nonbank groups like Rocket Companies (RKT). Maybe over a decade since the idea was announced, AMZN will finally merge with Google parent Alphabet (GOOG) to form GoogleZon and take over the world? 

A stablecoin issued by a retailer is essentially another iteration of the prepaid gift card, an instrument that has made a lot of bank issuers a lot of money. That's a story for another day. What happens if a consumer does not spend a coin? Are coins eternal or just receipts? State law will govern this question in most cases.

May customers of AMZN transfer coins to others? Can we steal coins from a ZON wallet? Or are coins like gift cards and purchased airline miles with a finite life? Again, state law and the fine print will govern stablecoins. That means issuers of stablecoins need a 50-state operating and compliance solution.

So, for example, will Walmart (WMT) take advantage of the advent of coins to finally create a bank? Putting a coin inside a national bank affords the issuer state law preemption. The banking industry has been fighting to keep WMT and other commercial companies out of bank ownership for decades. The FDIC actually imposed an unlawful moratorium on approving industrial bank applications for fear of the reaction from Capitol Hill. But now, does it matter? Is the competitive threat from stablecoins to existing payments systems so dire that banks will be forced to make alliances with giant non-depositories like Walmart? 

Synchrony Financial (SYF), one of the best performers in the WGA Bank Indices, just recaptured the white label credit card business for WMT. OnePay, backed by Walmart and Ribbit Capital, will provide a comprehensive financial management solution alongside the SFY card offering, which will run on Mastercard and will be active in the Fall. Could SYF and OnePay offer a native stablecoin solution for WMT that rode upon the SYF payments rails? Oh yeah. And WMT does not, repeat not, need to own the bank. If the folks at WMT think about it, they should pay SYF to manage this risk and sleep soundly at night.

The intriguing thing about private coin empires is that they are obviously not a positive for existing payment systems, yet neither are they dependent upon crypto. Larger sponsors may be able to create exclusive coin ecosystems without actually touching crypto assets at all. Fiat to AMZN coin, “ZON,” is really all that the sponsor needs. If SYF/OnePay want to facilitate crypto transactions, fine and dandy, but the KYC and other risk overhead of actually touching coins make that a far more expensive conduit for capturing cash and eyeballs. Ask your big bank about managing the risk from Zelle, for example, then multiply that number exponentially for KYC on crypto assets coming from offshore.

The advent of proprietary coins is not necessarily a positive for offshore crypto tokens, which are believed to have a notional value in the trillions today. One sanitized onshore surrogate for bitcoin, iShares Bitcoin Trust ETF (IBIT), is the fastest growing exchange traded fund in history. Owned by Black Rock (BLK), the IBIT had $70 billion in net assets as of the Friday close. The big advantage of onshore offerings like IBIT is that you don’t need to actually touch crypto and the global counterparties that hold and trade these tokens. 

One of the intriguing developments of the past few years is the emergence of stablecoins that are backed by or reference gold. Some proponents of crypto claim that tokens are a substitute for gold because of the ease of use and lack of a need for storage, but the re-socialization of gold ownership that we cover extensively in "Inflated" is accelerating. We featured a discussion on the rising use of gold as a reserve asset ("Interview: Henry Smyth on the Return of Gold as Global Reserve Asset") earlier this year. Of note, gold just surpassed the euro as the number two monetary asset behind the dollar.

In terms of market performance, coins based upon gold have been a decidedly mixed bag. In fact, Jalan, Matkovskyy and Yarovaya (2021, found that during COVID, “selected gold-backed cryptocurrencies, their volatility, and as a consequence, risks associated with volatility, remained comparable to the Bitcoin. In addition, gold-backed cryptocurrencies did not show safe-haven potential comparable to their underlying precious metal, gold.”

Many investors may feel like schmucks for missing the great upward surge in bitcoin and other crypto tokens, yet there is still big money to be made in various new offerings traded offshore. Insiders reap supernormal returns surfing the back end of the world of crypto, offering turnkey clearing solutions and leverage. Large institutional players such as Tudor and Millennium, for example, reportedly replicated a Treasury basis trade in crypto assets, buying the asset and selling the futures. As the trade has grown more crowded, however, the “risk free” spreads on the crypto basis trade narrowed.

The functionality of crypto and coins will become more ubiquitous, thus the free alpha available will eventually decline and disappear. Of course, the whole point of crypto assets is that there is no basis save human credulity. A stablecoin referencing gold or the dollar is relatively dull compared to the opaque market for bitcoin or tether or sol or hype.

The commentary swirling around the ersatz crypto markets is hyperbolic and completely conflicted since, after all, these tokens and the platforms that host them are private, like the “dark pools” set up decades ago to trade public stocks after hours. Sure the blockchain is public, after the fact, but there is no visibility on the forward market, no order book. The newest markets for crypto are deliberately domiciled offshore and configured so as not to be construed as securities.

Some people play the crypto markets for speculative gain, but others use the facility of coins to move value around the globe outside of the regulated market for fiat dollars. The crypto narrative says that bitcoin and other tokens will grow in value, leaving the failed world of fiat dollars behind. But we suspect that two factors are likely to impede the glorious progression of crypto while stablecoins grow for no particular reason save the novelty and ease of use. 

The first factor is marketing. Various legacy organizations from BLK to AMZN to GOOG to RKT all have an interest in creating stablecoins as a means attracting and retaining customers for other products and services. These coins offer no speculative pazazz, but do offer vast new opportunities for marketing. Think of ZON not just as a currency but also a marketing expense. When GOOG and AMZN and dozens of other large global orgs decide to issue their own stablecoins, the marketing message will be very loud.

The second factor that may weigh against crypto assets is diversification. The big winners in the world of crypto are not just the folks who bought bitcoin in the early days, but those smarties who have set up virtual green felt card tables to attract trading and clearing volumes at near-zero cost. As in the world of investments, the operative model is near-monopoly, like BLK in front-end ETF offerings, payment for order flow (PFOF) leader Citadel Securities in execution, and Bank of New York (BK) in back office and custody.  

Yet as the barons of crypto amass vast piles of notional value, the temptation grows to take the winnings off the table and migrate value back to fiat dollars, hot cars, stocks or perhaps even some tasty real estate. We call it diversification to be polite. With a growing mob of progressive losers looking to put lucky billionaires to the sword in the streets of blue cities, maintaining a low profile is a priority for the crypto kings. Not only is the real action in crypto today offshore, but the final resting place for many crypto kings may need to be in another country as well. We know some great beach towns in South America.

Punta del Este

Of course, diversification is not just something that is relevant to crypto facilitators. Robin Hood (HOOD), which derives most of its revenue from PFOF, is likewise a rent taker, but then pays away much of the rent it takes. Will HOOD eventually capture more of the execution dollar, especially with crypto? Of note, HOOD clients don't actually own coins, but instead have a claim on a comingled pool of tokens owned by the firm.

As the use of stablecoins grows, there will be a strong push by the existing rent takers like BLK, Citadel and Goldman Sachs (GS), to name just a few, to position the proverbial funnel in the world of crypto and stablecoins. When Charles Schwab (SCHW) starts to offer spot trading in crypto native on their platform next year, how will the kings of PFOF get their taste of the gate? 

Like the world of banking, investments and also residential mortgages, the crypto world is consolidating down into large islands of assets and customers, protected by walls of incentives designed to keep the customer -- and their assets -- from ever leaving. Retailers like WMT and AMZN likewise have a monopolistic interest in retaining the attention and cash of the customer via stablecoins, but maybe not trading crypto. In such a world, the seemingly innocent stablecoin may soon become an important part of the anti-competitive defense mechanism of large corporations and financial institutions. But large companies that worry about reputation and OFAC at the US Treasury may stop short of delving in crypto assets directly.

We'll be describing the competitive tension between SCHW, HOOD and some of the other asset gatherers in a future issue of The Institutional Risk Analyst.

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