Within the investor community, and crypto at large, there is often an emphasis on how to ‘capture value on-chain.’ We can loosely define value capture as the mechanisms within a blockchain network that allow participants to create, earn, or accumulate value directly within a blockchain ecosystem, contributing to its overall growth.
Peter Thiel refers to value capture as the most important yet least understood part of business. While any company can create value, it’s much more difficult to capture some of the value you create.
Within the Crypto Economy, while value capture is important, the emphasis has removed attention to one important corollary: How to move actual value on-chain.
The ultimate goal of blockchain ecosystems transcends the mere capture of value; it strives to enable the seamless transfer and utilization of that value—real value used for real economic purposes. If more emphasis is placed on moving value on-chain, the subsequent ‘capture of value’ would emerge as a natural consequence.
Value movement and Bitcoin’s Warning
To highlight the importance of actual value transfer, let's briefly delve into Arthur Hayes's recent essay on the impending Bitcoin ETF. Hayes, renowned for insightful macro analyses and accurate predictions, prophetically anticipated the bear market at the end of 2021 amid widespread speculation on a multi-year super cycle. In his latest piece, he speculates on the potential challenges to Bitcoin's future by the success of ETFs managed by TradFi asset managers.
Bitcoin, distinct from prior forms of money, derives its value solely from its transfer alone. Once block rewards hit zero, miners earn through transaction fees, linking the value directly to network usage. Hypothetically, major TradFi players like BlackRock could accumulate the majority of Bitcoin over time, storing them without any active use.
If people opt for investing in ETF derivatives rather than buying Bitcoin directly, it could harm the network as there is no longer any use for the actual Bitcoin blockchain. Consequently, miners may no longer afford the energy required to run their machines, leading to the destruction of the purpose of Bitcoin and rendering it another worthless, state-controlled asset class.
Interesting insight from the crypto OG.
While we work to avoid such a conclusion in the years ahead, it serves as a stark reminder of the pivotal role that value exchange on-chain plays in sustaining blockchain mechanisms.
This leads to a fundamental question: How can we effectively expedite the movement of value on-chain? If the success of blockchain ecosystems is predicated on value movement alone, how do we do it effectively? The answer begins with an exploration of the Stablecoin Market Cap.
Stablecoin Dominance
Many would argue with conviction that stablecoins are crypto’s killer app. While often used as a predictable response when Web3 naysayers question the asset class's utility, stablecoins, in reality, are proving transformative. There are now 5 million+ weekly active addresses sending stablecoins, a trend consistent in both bull and bear markets.
As of November, stablecoin transfer volumes surpassed $914 billion, outpacing both ETH and BTC in propelling on-chain value transfers. Nic Carter, in a Token2049 speech, emphasized that stablecoins account for 70-80% of all settlement activity on public blockchains.
If this data is true, the fundamental role of blockchains is the global movement of digital dollars, with the stablecoin Market Cap serving as the pivotal gauge of on-chain activity.
Catalysts for Value Movement
For this reason, founders and investors should spend much more time thinking about how to expedite the adoption of stablecoins. While they are gaining traction, their potential is far from realized. Multicoin Capital’s essay from a few years ago highlights that the Total Addressable Market (TAM) of stablecoins encompasses the entire global monetary supply, making it the largest conceivable TAM.
More importantly, the catalysts for increasing stablecoin adoption extend beyond the crypto sphere. The dominance of stables is rooted not in some novel token design but in trends beyond the space. Leave it to crypto enthusiasts to allow debates around technical architecture or industry challenges to divert their focus from considering how crypto solves external problems.
Catalysts for increasing stablecoin adoption rely on a few key drivers and use cases: The continued adoption of crypto infrastructure in emerging markets, the rise in digital nomadism and remote work, and the integration of stablecoin infrastructure with e-commerce.
LMI Nations
While most regions globally have suffered crypto adoption during the bear market, there is one exception—the surge in adoption within lower-middle-income (LMI) nations. Despite a general decline in grassroots adoption in 2023, countries like India, Nigeria, and Ukraine have continued to embrace digital money.
These countries, along with other emerging markets, dominate 14 of the top 20 economies in global crypto adoption. A combination of volatile local currencies, seamless remittance payments, and the export of digital dollars via stables, are spearheading this movement. Notably, 40% of the world's population resides in LMI nations, positioning them as a significant force shaping the future of crypto.
The opportunities enabled by adoption in these markets are often overlooked by Western investors. We focus largely on use cases for the developed world, rather than how things will evolve globally. Who would have thought that the infamous 2021 play-to-earn phenomenon would emerge in the Philippines? A stark contrast to previous technological innovations, which largely emerged in Silicon Valley.
Investors who contribute to accelerating stablecoin adoption in emerging markets and pay attention to subsequent use cases will capitalize. A whole new set of applications can be deployed once these users have crypto wallets. Capital allocators, working with local teams in LMI nations who understand the unique payment landscapes of each region, will play a pivotal role in accelerating this adoption. Considering factors such as the individual country, user persona, and local expertise is crucial for investors seeking to capitalize on these largely untapped markets.
Similar to the impact of mobile phones and how they paved the way for the creation of apps like Twitter, Instagram, and more, the introduction of actual crypto wallets in these regions will open up entirely new possibilities and applications.
However, this starts with shifting focus to where the technology is being adopted and understanding their specific needs. Focusing on stablecoin adoption is the foundation.
Remote Work & Digital Nomadism
Beyond the exciting developments within emerging markets, another catalyst for adoption is the growth of remote work and digital nomadism. With 35 million digital nomads worldwide, boasting a collective GDP larger than Germany's, this demographic presents a distinct set of challenges that demand attention.
In an era where companies increasingly operate remotely, relying on a global workforce, the need for efficient payment solutions for freelancers and contributors becomes essential. With a demographic that is largely tech-savvy and open to transitions, stablecoins provide efficient, instant, and globally applicable payment solutions. Fintechs and stables provide an opportunity to pioneer stablecoin infrastructure tailored to the needs of this growing demographic.
Investors, projects, and thinkers aligning their efforts with the global adoption of stablecoins, especially in LMI countries and for remote work use cases, can lay the groundwork for significant progress and subsequent growth in the stablecoin Market Cap.
E-Commerce
Lastly, stablecoin’s role in enabling frictionless, efficient, and digitally native transactions is the last major piece needed to achieve escape velocity in on-chain movement. Beyond just reducing friction at checkouts, this has the potential to reshape the entire e-commerce landscape, resulting in a smoother process for consumers and unlocking billions for companies.
Furthermore, as we prepare for the imminent participation of AI agents in society, the choice of currency they embrace becomes an interesting thought experiment. Digitally native stable assets emerge as a promising solution, particularly if stablecoins establish themselves as a fundamental layer for instantaneous commerce integrating into our global economy.
Charting the Path Forward
Amidst the prevailing discussions around “capturing value on-chain”, it is imperative not to overlook the corollary – the seamless movement of value on-chain. Crypto must transcend the era characterized by speculative casinos, actively engaging in real economic transactions. As we discover the optimal method for value movement lies in the stablecoin Market Cap, there is a necessity to accelerate its growth effectively.
The catalysts for authentic value transference on-chain lie in sustained adoption in Lower Middle-Income countries, harnessing the evolving patterns of digital nomadism and remote work, and acknowledging the pivotal role of crypto in shaping the future landscape of e-commerce. As the crypto community engages in internal dialogue and modular discussions, the intrinsic value of this technology in addressing tangible real-world challenges should persist at the forefront of our collective consciousness. The movement of value on-chain and the stablecoin Market Cap are the foundation.