Delphi Report: Who issues stablecoins is not important; having distribution rights is what holds the future.

Author | Simon

Compiled | Deep Tide TechFlow

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1. The moat of Tether and Circle is narrowing: distribution capability surpasses network effects.

According to the analysis in Delphi's comprehensive report “Apps and Chains, Not Issuers”, Tether and Circle's dominance in the stablecoin market has reached a relative peak, although the overall supply of stablecoins continues to grow. It is expected that by 2027, the total market capitalization of stablecoins will exceed $1 trillion, but this growth is no longer primarily driven by existing giants as it was in the last cycle. Instead, an increasing share of the market will flow to ecosystem-native stablecoins and white-label issuance strategies, as blockchains and applications gradually internalize revenue and distribution capabilities.

Currently, Tether and Circle account for about 85% of the circulating stablecoin supply, totaling approximately $265 billion.

Background data: Tether's valuation reportedly reached $500 billion, seeking to raise $20 billion in financing, with a circulating supply of $185 billion. Circle's valuation is approximately $35 billion, with a circulating supply of $80 billion.

The network effects that once solidified its dominant position are weakening, driven by three main factors behind this shift:

1. Distribution capability takes precedence over network effects

The partnership between Circle and Coinbase clearly indicates this. Coinbase receives 50% of the residual earnings from Circle's USDC reserves and exclusively holds all earnings from USDC held on its platform. In 2024, Circle's reserve income is approximately $1.7 billion, of which about $908 million is paid to Coinbase. This shows that distribution partners can capture a significant portion of the earnings from the stablecoin economy, and thus players with strong distribution capabilities are launching their own stablecoins instead of continuing to create value for issuers.

2. Cross-chain infrastructure makes stablecoins more interchangeable.

The development of cross-chain technology has made the interchange cost between stablecoins nearly zero. The standard bridge upgrades of major L2 networks, the universal messaging protocols of LayerZero and Chainlink, as well as the popularity of smart routing aggregators, have made both on-chain and cross-chain stablecoin exchanges efficient and user-friendly. Users can quickly switch stablecoins based on liquidity needs, which significantly reduces the importance of which stablecoin to use.

3. The clarification of regulations has lowered the entry barrier.

Legislation like the GENIUS Act creates a unified framework for stablecoins in the United States, reducing the risks for infrastructure providers holding stablecoins. Coupled with an increasing number of white-label issuers lowering fixed costs of issuance, and the attractiveness of treasury yields driving the monetization of floating funds, the stablecoin stack is becoming commoditized and more interchangeable.

This commodification undermines the structural advantages of existing giants. Any platform with strong distribution capabilities can now internalize the stablecoin economy without needing to share profits with others. Leaders include fintech wallets, centralized exchanges, and an increasing number of DeFi protocols.

DeFi is the most obvious area of this trend, and its impact is also the most profound.

2. From Loss to Revenue: The Stablecoin Strategy of DeFi

This shift has already begun to take shape in the on-chain economy. Compared to Circle and Tether, certain chains and applications are performing better in terms of product-market fit (PMF), user stickiness, and distribution capabilities. They are adopting white-label stablecoin solutions, leveraging existing user bases and capturing revenues that have historically flowed to giants. For on-chain investors who have long overlooked stablecoins, this dynamic change presents a real opportunity.

1. Hyperliquid: The first major “defection” case

In the DeFi space, this trend was first reflected in Hyperliquid. At that time, about 5.5 billion USDC reserves were tied up in its USDH proposal, which meant that potentially $220 million in additional revenue could flow to Circle and Coinbase each year, rather than remaining internally.

In the upcoming validator voting, Hyperliquid announced plans to launch a native minting, Hyperliquid-centric stablecoin. This decision marks a significant shift in the economic power of stablecoins.

For Circle, being a primary trading pair asset in the Hyperliquid core market has been a highly profitable position. They benefit directly from the explosive growth of Hyperliquid, yet have contributed almost nothing to this growth. For Hyperliquid, this means a significant loss of value to a third party that has made little effort, which is contrary to its “community-first, ecosystem-aligned” philosophy.

The USDH selection process of Hyperliquid attracted bids from nearly all major white-label stablecoin issuers, becoming one of the first large-scale competitive cases in the application layer stablecoin economy.

In the competitive USDH allocation bidding, several major white-label stablecoin issuers, including Native Markets, Paxos, Frax, Agora, MakerDAO (Sky), Curve Finance, and Ethena Labs, submitted proposals. This process highlights the immense value of distribution capability in the stablecoin economy.

In the end, Native Markets emerged victorious with a proposal that better aligns with the incentive mechanisms of the Hyperliquid ecosystem.

The Native model is issuer-neutral and regulated, with its stablecoin supported by off-chain reserves managed by BlackRock, and on-chain infrastructure provided through Superstate. The key point is that 50% of the reserve earnings will directly flow into the Hyperliquid aid fund, while the remaining 50% will be reinvested to expand the liquidity of USDH.

Although USDH will not replace USDC in the short term, this decision reflects a broader trend of power transfer: the moats and leverage effects in DeFi are gradually shifting towards applications and ecosystems that have sticky user bases and strong distribution capabilities, rather than traditional issuers like Circle and Tether.

2. The Rise of White-label Stablecoins: SaaS Model Opens a New Chapter

In recent months, as more ecosystems adopt the white-label stablecoin model, this trend is accelerating. Ethena Labs' “Stablecoin as a Service” solution is at the heart of this transformation, with on-chain players like Sui, MegaETH, and Jupiter already integrating or announcing plans to issue their own stablecoins through Ethena's infrastructure.

The uniqueness of the Ethena model lies in its protocol that directly returns profits to holders. Taking USDe as an example, its returns come from basis trading. Although the yield has compressed to about 5.5% as the supply exceeds 12.5 billion USD, this is still higher than the approximately 4% yield on government bonds, and far better than the zero-yield situation of holding USDT or USDC on-chain.

However, as other issuers enter the market and directly transmit government bond yields, Ethena's comparative advantage is weakening. Stablecoins backed by government bonds offer considerable yields while carrying lower execution risk, making them appear more attractive at present. However, if the future rate cut cycle continues, the basis trading spreads may widen, which will once again enhance the attractiveness of Ethena's yield providing model.

You may be curious about how this model aligns with the GENIUS Act, which technically prohibits stablecoin issuers from directly paying yields to holders. However, the reality might not be as strict as it seems. The GENIUS Act does not explicitly prohibit third-party platforms or intermediaries from distributing rewards to stablecoin holders, and these rewards can be funded by the issuers. This gray area has not been fully clarified, but many believe that this loophole still exists.

Regardless of how regulatory frameworks evolve, DeFi has always operated at the regulatory edge in a permissionless manner and may continue to maintain this trend. The underlying economic realities appear to be more important than the legal details.

3. The “taxation” of stablecoins: The phenomenon of value loss on mainstream chains.

More than $30 billion of USDC and USDT is idle on chains such as Solana, BSC, Arbitrum, Avalanche, and Aptos, contributing about $1.1 billion in annual revenue for Circle and Tether (assuming a reserve yield of 4%). This figure is approximately 40% higher than the total transaction fee revenue of these chains. This imbalance highlights that stablecoins have become the largest under-monetized area in L1, L2, and applications.

On chains like Solana, BSC, Arbitrum, Avalanche, and Aptos, approximately 1.1 billion dollars in revenue flows to Circle and Tether, while the total transaction fee revenue of these ecosystems is only 800 million dollars.

In other words, these ecosystems lose hundreds of millions of dollars each year due to the outflow of stablecoin revenue. If even a small portion of these earnings could be recaptured, it would fundamentally reshape their economic structure and establish a more stable and counter-cyclical revenue base than simply relying on transaction fees.

Why can't these chains recover this part of the revenue? The answer is: absolutely can!

In fact, these chains have multiple ways to recapture this portion of revenue: negotiating revenue-sharing agreements directly with Circle or Tether, similar to Coinbase's collaboration model; emulating Hyperliquid's approach by initiating competitive bidding through white-label stablecoin issuers; partnering with “Stablecoin-as-a-Service” platforms like Ethena to launch native ecosystem stablecoins.

Each method has its trade-offs: collaborating with existing stablecoin giants allows for the familiarity, liquidity, and trustworthiness that comes from USDC or USDT, which have been tested under market pressures; launching a native stablecoin, on the other hand, offers more control and a higher revenue capture rate, but it requires overcoming challenges during the startup phase, and its infrastructure is relatively less market-validated.

Regardless of the chosen path, the necessary infrastructure is already in place, and different chains will adopt different strategies based on their own priorities.

IV. Reshaping the On-chain Economy: Stablecoins May Become the Income Engine

Stablecoins have the potential to become the largest source of revenue for certain chains and applications. Currently, when the economic structure of a blockchain relies solely on transaction fees, its growth is subject to structural limitations. The network's revenue only increases when users pay more fees, and this misalignment not only suppresses user activity but also limits the ability to build a sustainable, low-cost ecosystem.

MegaETH's strategy clearly demonstrates the current transformation trend. They launched the white-label stablecoin USDm in collaboration with Ethena Labs, which is backed by USDtb. USDtb is primarily supported by the on-chain short-term treasury product BUIDL launched by BlackRock. By internalizing the revenue of USDm, MegaETH is able to operate its blockchain sequencer at cost price and redirect the revenue to “community-oriented projects.”

As a leading decentralized exchange aggregator on Solana, Jupiter is undergoing a similar strategic transformation through its stablecoin JupUSD. JupUSD is deeply integrated into its product ecosystem, including being used as collateral for Jupiter Perps (which is expected to gradually replace the $750 million stablecoin in JLP with JupUSD) and the liquidity pool for Jupiter Lend. In this way, the protocol can reinject stablecoin earnings back into its own ecosystem rather than paying 100% of the earnings to external issuers. These earnings can be used to reward users, buy back tokens, or fund new incentive measures, which is clearly more attractive for enhancing ecosystem value compared to external payments.

The core of this transformation is: the profits that were previously passively flowing to stablecoin issuers are now actively reclaimed by applications and blockchain and kept within the ecosystem.

V. Application vs Blockchain: The Divergence and Restructuring of Valuation

As this trend gradually unfolds, both blockchain and applications have the potential to generate more stable and durable sources of income than at present. This income will no longer depend on the cyclical fluctuations of the “internet capital market,” nor will it be heavily reliant on on-chain speculative behavior. This transformation may even help them achieve an economic foundation that matches their valuation.

The current valuation framework is mostly based on measuring value through total on-chain economic activity. In this model, on-chain fees equal the total cost paid by users, while on-chain revenue is the portion of fees allocated to the protocol or token holders through mechanisms such as burning, funding inflows to the treasury, or similar methods. However, this framework has clear flaws: it assumes that as long as economic activity occurs on-chain, value will naturally be captured by the blockchain, whereas actual economic benefits often flow elsewhere.

This model has begun to change, with applications leading this transformation. Taking the two highlight applications of this cycle, Pumpfun and Hyperliquid, as examples: they use nearly 100% of their revenue (rather than fees) to repurchase their native tokens, while their valuation multiples are far lower than those of mainstream infrastructure layers. These applications generate transparent, real cash flows, rather than implicit earnings.

Currently, the valuation of most mainstream public chains is hundreds or even thousands of times their revenue, while leading applications have achieved higher revenues at a valuation multiple far lower than that of public chains.

For example, in the past year, Solana generated approximately $632 million in fees and $1.3 billion in revenue, with a market capitalization of about $105 billion and a fully diluted valuation (FDV) of $118.5 billion. This means that the market capitalization to fee multiple is about 166 times, and the market capitalization to revenue multiple is about 80 times, which is relatively conservative compared to other mainstream L1s. In contrast, many other public chains have FDV multiples that are as high as several thousand times.

In comparison, Hyperliquid's revenue is $667 million, with an FDV of $38 billion, corresponding to a 57 times FDV multiple, or 19 times the market cap. Pump.fun achieved $724 million in revenue, but its FDV multiple is only 5.6 times, and its market cap multiple is just 2 times. This data indicates that applications with strong product-market fit and distribution capabilities are generating considerable revenue at valuations significantly lower than the infrastructure layer.

This phenomenon clearly reveals the power shift that the industry is experiencing: the valuation of applications is increasingly based on the actual revenue they generate and their contributions to the ecosystem, while public chains are still seeking justification for their high valuations. The valuation premium of L1 public chains (L1 Premium) is gradually being eroded, and the future trend is becoming increasingly clear.

If public chains cannot find a way to internalize more of the value flowing within the ecosystem, then these lofty valuations will continue to face the risk of compression. White-labeled Stablecoins may be the true initiative for public chains to attempt to reclaim some value for the first time, offering an opportunity to redefine their economic models by transforming passive “monetary plumbing” into active revenue sources.

Sixth, the Coordination Dilemma of On-Chain Competition: Why Do Some Public Chains Run Faster?

The transformation of stablecoins aligned with the ecosystem is accelerating, but the pace of progress among various public chains varies greatly due to their coordination capabilities and urgency of action.

Taking Sui as an example, although its ecosystem is far less mature and complete than Solana's, Sui's actions are exceptionally swift. Sui has partnered with Ethena to launch sUSDe and USDi, both of which are stablecoins supported by BUIDL similar to those used by Jupiter and MegaETH. This is not a grassroots movement initiated from the application layer, but rather a strategic decision at the chain level, aimed at seizing the initiative in stablecoin economics and changing user behavior before path dependence is established. These products are expected to be launched in the fourth quarter, and although they are not yet online, Sui has become the first major public chain to actively implement this strategy.

In contrast, Solana is facing a more urgent and painful situation. Currently, there are approximately $15 billion in stablecoins on Solana, of which over $10 billion is USDC. These USDC generate about $500 million in interest income for Circle each year, a significant portion of which flows directly to Coinbase through revenue-sharing agreements.

So, where does Coinbase put these profits? The answer is to subsidize Base — one of Solana's most direct competitors. Liquidity incentives, developer funding, ecological investments, a portion of these funds comes from the stablecoins on the Solana chain. In other words, Solana is not only losing revenue but is also indirectly funding its biggest competitor.

This issue has long attracted widespread attention within the Solana ecosystem. Notable voices such as Helius's @0xMert_ have called for Solana to launch an ecosystem-aligned stablecoin and proposed frameworks such as using 50% of the profits for SOL buybacks and burns. The leadership of stablecoin issuer Agora has also suggested similar alignment structure proposals. However, compared to the active promotion by Sui, these proposals have received little response from Solana's leadership.

The logic is very simple: stablecoins have become a “commodity,” especially after regulatory frameworks like the “GENIUS Act” have provided clearer guidance for them. As long as stablecoins maintain their peg and have liquidity, users do not care whether they hold USDC, JupUSD, or other compliant stablecoins. So, why default to a stablecoin that funds competitors?

Solana's hesitation may partly stem from its desire to maintain “trustworthy neutrality.” This is particularly important as the Solana Foundation strives for institutional recognition on par with Bitcoin and Ethereum. Attracting major issuers like BlackRock — such institutional backing can not only drive large-scale capital inflows but also allow traditional finance to view it as a commoditized asset — may require Solana to keep a certain distance in ecological politics. Even supporting a stablecoin that aligns with a certain ecosystem could be perceived as favoring specific ecological participants, complicating its path toward this goal.

Furthermore, the scale and complexity of Solana's ecosystem make its decision-making much more difficult. With hundreds of protocols, thousands of developers, and billions of dollars in total locked value (TVL), coordinating the transition from USDC is far more challenging than for younger and less dependent chains like Sui. However, this complexity itself is a reflection of the maturity of the Solana network and the depth of its ecosystem, rather than a flaw.

But the problem is that inaction also has a cost, and this cost will continue to grow over time.

The impact of path dependence is intensifying every day. With each new user who defaults to choosing USDC, the switching costs further increase. Every protocol that optimizes liquidity around USDC makes it more difficult for other alternatives to take off. Technically, the existing infrastructure is already capable of supporting such a transition overnight, but the real challenge lies in the coordination effort.

Currently, within the Solana ecosystem, Jupiter is leading this transformation through JupUSD, with a clear commitment to reinvest profits back into the Solana ecosystem and deeply integrate into its product stack. The question is whether other major Solana applications will follow suit. Will applications like Pump(.)fun adopt similar strategies to internalize stablecoin economics? At what point will Solana have to guide from the top down? Or will they choose to let applications within the ecosystem harvest this portion of profits on their own? While from a chain perspective, ceding stablecoin economics to applications may not be the most ideal outcome, it is undoubtedly much better than capital leakage, or worse — being used to fund competitors.

From the perspective of the chain or the broader ecosystem, the key issue currently is collective action: protocols need to shift liquidity towards aligned stablecoins, treasury needs to make conscious allocation decisions, developers need to adjust the default user experience (UX), and users need to vote with their capital. The $500 million that Solana currently subsidizes Base with each year will not disappear at the command of the foundation. This portion of funds will only truly remain within the ecosystem when enough participants decide to stop funding competitors.

VII. Conclusion: A New Direction for Stablecoin Economics

The next wave of stablecoin economics will not be determined by who issues the tokens, but by who controls the distribution rights and who can coordinate actions more quickly.

Circle and Tether have built a large business by being the first to issue and establish liquidity. However, as the stablecoin technology stack becomes commoditized, this moat is weakening. Cross-chain infrastructure has made stablecoins interchangeable, clearer regulation has lowered the entry barrier, and white label services have reduced issuance costs. Most importantly, platforms with the strongest distribution capabilities, sticky users, and mature monetization models are beginning to internalize profits rather than pay third parties.

This transformation has quietly begun. Hyperliquid is capturing $220 million in annual revenue flowing to Circle and Coinbase by switching to USDH. Jupiter is deeply integrating JupUSD into its entire product stack. MegaETH is running its sequencer at cost using stablecoin revenue. Sui has partnered with Ethena to deploy an ecosystem-aligned stablecoin before path dependence forms. These are merely attempts by early movers, and now, every chain that loses hundreds of millions of dollars annually due to capital outflows has a reference action guide.

For investors, this change provides a new perspective to evaluate the on-chain ecosystem. The question is no longer simply “How much on-chain activity is there?” but rather “Can they overcome coordination challenges, realize liquidity monetization, and capture stablecoin yields on a large scale?”

When public chains and applications internalize hundreds of millions of dollars in annualized revenue and redistribute it to token buybacks, ecological incentives, or protocol income, participants in the liquid market can directly price and invest in these revenue flows through the native tokens of these platforms. Those protocols and applications that can internalize this portion of revenue will have more robust economic models, lower user costs, and a closer alignment of interests with their communities. Meanwhile, those that cannot complete the transformation will continue to pay the 'stablecoin tax,' while their valuations will keep shrinking.

The most interesting investment opportunities are no longer about holding equity in Circle, or speculating on tokens from stablecoin issuers with a high FDV (Fully Diluted Valuation), but rather identifying which chains and applications can successfully complete this transformation, turning passive infrastructure into active revenue drivers.

The distribution rights are the real moat. Those who control the flow of capital, rather than just providing the infrastructure, will define the next phase of stablecoin economics.