Stablecoins are disruptive, but who will be the disruptors?

Tech

Stablecoins are disruptive, but who will be the disruptors？

In , Clay Christensen introduced the concept of disruptive innovation — when a product that initially looks like a cheap knockoff ends up rewriting the rules of an entire industry.

These products typically get their start in either low-end or entirely new markets that incumbents have ignored because they were either not profitable enough to serve or didnt seem strategically important.

But that turns out to be a good starting point: “A disruptive technology is initially embraced by the least profitable customers in a market,” Christensen explained.

These customers are often eager to adopt a product that is initially inferior in terms of traditional performance metrics, but cheaper, simpler and more accessible to them.

Christensen cites the example of Toyota, which got its start in the US market by targeting budget-conscious customers that the Big Three US automakers had overlooked.

The incumbents‘ focus on bigger, faster, more feature-rich cars had created “a vacuum underneath them,” in Christensen’s telling, and Toyota filled that vacuum with the slower, smaller, no-frills Corona, which cost just $2,000 when it was introduced in 1965.

Today, Toyota is the second-largest automaker in the US — and its Lexus LX 600 Luxury SUV starts at $115,850.

Toyota used the Corona to wedge its way into the US market and then steadily climbed the value chain, proving Christensens thesis that the best way to the top is to start from the bottom.

Stablecoins may be on a similar trajectory.

Disruption is coming

Christensens disruptors started in niche markets — and stablecoins started in emerging ones.

For people in the United States with access to bank deposits, stablecoins are essentially an inferior kind of dollar — not FDIC insured, not properly audited, not integrated into ACH or SWIFT and (despite the name) not always exchangeable for $1.

For people outside of the United States, however, they are a kind of dollar — unlike $100 bills, you don‘t have to hide them, they won’t get torn or defaced, and you dont have to meet someone face-to-face to exchange them.

This has made US dollar stablecoins wildly popular in countries like Argentina — one-fifth of Argentines are said to use them daily — even as few people in the US could tell you what they are.

Argentina is not the only place stablecoins are used, of course — stables are popular with DeFi traders, anyone who cant pass a KYC check, emigrants sending remittances home, employers paying cross-border freelancers and savers escaping their local hyperinflating currency.

None of these are profitable enough as customers for incumbent banks to bother with, so it didnt matter that stablecoins started out as inferior to bank-issued money.

For a while, people were so desperate for digital dollars that they didn‘t even seem to care whether Tether’s USDT was fully backed.

They are much improved since: Circle offers a regulated alternative to USDT, Tether itself appears to be playing it by the book too, and some stablecoins even offer yield.

But is this innovation truly disruptive？

The Christensen Institute has a six-part test to determine whether an innovation qualifies as disruptive:

Yes — DeFi traders and emerging market savers don‘t need FDIC-backed US bank deposits (they’d be “overserved” by a full US bank account), but they do want digital dollars.

Yes — stablecoins have deviated from their $1 peg, gone to zero (Luna/UST), can be expensive to on- and off-ramp, and can be frozen without recourse.

Yes — sending stablecoins is easier than sending bank deposits, are more convenient for many, and more affordable for some.

Yes — blockchains!

Maybe？ Tether may be the most profitable company in history on a per-employee basis, but if US regulators allow stablecoins to pay interest, issuing them might not provide any profits at all.

No. Incumbents seem alert to the threat and aware of the opportunity.

“Almost always, when low-end disruptions emerge, it creates a situation where the leaders in the industry actually are motivated to flee rather than fight you,” Christensen writes. “That‘s why low-end disruption is such an important tool to create new growth businesses: The competitors don’t want to compete against you; they just walk away.”

Stablecoins may be a rare exception: Instead of walking away from the low-cost innovation of stablecoins, incumbents appear to be racing toward it.

The payment incumbents Visa, Mastercard and Stripe have all announced new stablecoin offerings in recent weeks; BlackRock‘s BUIDL fund (which looks like a yield-paying stablecoin) is rapidly attracting assets; the CEO of Bank of America says it’s likely to issue a stablecoin as soon as regulators allow it.

That might be because finance executives have all read .

Or it might be because stablecoins are so easy to issue.

Christensen frames disruptive innovation as company driven — where startups use low-end beachheads to claw their way into the mainstream before incumbents take them seriously.

And that might be how it works out for stablecoins, too: The Circle Payments Network may be to Circle what Lexus was to Toyota.

But Circle‘s competition isn’t as sleepy and slow moving as Toyota‘s, so it’s entirely possible that stablecoins‘ early innovators will, in an inverse of Christensen’s theory, be killed from above.

The end result could be the same either way: A recent Citi report predicted that stablecoin AUM could hit $3.7 trillion by 2030, largely because of institutional adoption.