Circle and Tether may not be competing with the same species, so the hierarchical model of stablecoin value realization says

Original author: Nathan

Compiled by: Odaily Planet Daily

Editor 's note: Since Circle announced its listing, an invisible boundary in the stablecoin market has been officially drawn out: USDC and USDT have begun to embark on two different development paths. With compliance and transparency as the core, USDC has gradually embedded itself into the US financial system and become a "licensed dollar" for service agency users and financial technology scenarios; while USDT relies on its extensive on-chain liquidity and a deep market foundation to continue to play a key role in global transactions, payments and asset hedging scenarios.

This difference essentially reflects the different priority of "value realization" of stablecoins in different markets. Compliance and programmability are crucial for some users; liquidity, accessibility and a license-free experience are the first priority for others. It is precisely because of this that we need a new cognitive model to understand how different types of users realize value through stablecoins. This is exactly what the "hierarchical system for realizing stablecoin value" is to be discussed.

Although everyone gets different ways of gaining from stablecoins, ultimately, these benefits come from four core value propositions: low cost, high speed, license-free, and programmability.

The original author Nathan once explained in another article " The What and Why of Programmable Money ": Programmable currency is money that can set behavioral logic like code. It is a stablecoin and the fuel for smart contracts. It can be set: when, because, and how to transfer money. All of this no longer depends on banks, no longer on trust, only on the code itself.

These four value propositions correspond to four core usage scenarios: storage value, payment, transfer, and income .

"The Hierarchy of Value Realisation" is a new cognitive model to explain the value points that different types of users value most from stablecoins.

This article will focus on two types of user groups: " people who need stablecoins" and "people who don't need stablecoins so much" , namely: emerging market users and Western market users.

Two major user groups of stablecoins

Simply put, in emerging markets , stablecoins are building a brand new financial infrastructure; in Western markets, stablecoins are more used as supplements and are integrated into existing financial technology (Fintech) and traditional financial systems (TradFi).

Whether it is an emerging stablecoin project or a veteran player, this rule is widely applicable.

Based on this, we can outline different "value realization levels" for two types of users.

1. The value realization level of users in Western markets

The Western market mainly corresponds to the "global northern" countries: politically stable, financial system developed, most people have bank accounts, and save money and can earn interest.

In these markets, " programmability " is the core driving force for stablecoin innovation. This is similar to the explosive development of the Internet, iPhone or smart contracts: Programmability brings new financial innovations, and financial innovation is where the love and advantages of the Western world lies.

The second is " speed ". The settlement speed of cross-border or local payments has long been an important challenge in the Fintech field. Settlement delays consume liquidity and bring opportunity costs, so they rank second in the Western market.

" Cost " ranks third. Although reducing transfer costs is a highlight of stablecoins, transaction fees in Western markets are not high, far less outrageous than the $115 handling fee for remittances of up to $200 in emerging markets.

" No license required " has the lowest importance in Western markets. Because most people have opened bank accounts and can easily use cash or transfer payments, they naturally do not need to rely on stablecoins to obtain financial services.

Therefore, Circle and USDC have more advantages in the Western market. As a company that is essentially fintech-oriented, Circle emphasizes programmability, low cost and efficiency, which are in line with the usage preferences of Western users. Today, more and more Western companies choose to develop based on USDC when building stablecoin solutions.

In addition, " Yield " has gradually become an additional focus for Western users. Since they are used to getting interest from bank deposits, they will question why holding stablecoins cannot earn similar gains.

This is completely different in emerging markets. Emerging market users are more concerned about the stability of the currency brought by stablecoins, especially the ability to obtain US dollars, rather than the returns.

According to the author 's point of view, yields have never been the decisive factor in the success of stablecoins in these markets. As industry analysts pointed out, the reason why USDT has become the world's most liquid stablecoin is precisely because it does not need to distribute Treasury bond returns to users, but can also dominate with its strong accessibility and a deep liquidity foundation. For many users in high inflation or capital-constrained areas, avoiding the risk of depreciation of local currencies is far more practical than annualized interest rates of 3%. What they are more concerned about is whether I can exchange my assets for US dollars safely, whether they can be transferred out at any time, and whether they can be used locally.

Therefore, in these areas where there is truly "product-market matching", the liquidity of stablecoins is far more important than their return capabilities . Liquidity tends to be concentrated, ultimately forming a network effect of the top stablecoins. This is also why stablecoins like USDT can still be widely adopted globally even if they lack a revenue mechanism.

2. The value realization level of users in emerging markets

Compared with the West, the financial foundation of emerging markets (i.e., the "Global South") is relatively weak, local currencies generally have severe inflation, and bank services penetration rate is low.

The emergence of stablecoins has allowed users in these regions to freely obtain, transfer and use stable currencies such as the US dollar for the first time, which was unimaginable in the past.

Therefore, for emerging market users, " license-free " is the most core and transformative value proposition. Regardless of whether you have a bank account or not, users can directly access the US dollar system, thereby unlocking financial freedom.

The second is "low cost". In emerging markets, cross-border remittance fees remain high. For example, when a father sent money home to support his family, the handling fee might have consumed a large part of the transfer amount. Stablecoins greatly reduce this remittance cost.

The third is "speed". The current cross-border transfer system is inefficient, and funds often take days or even weeks to arrive. Stablecoins can achieve second-level transfers, solving the life and economic difficulties caused by delays in funds.

Finally, there is "programmability". Although this value proposition also has a profound impact on emerging markets (such as unlocking insurance, lending, contract payment and other services), compared with the first three, the perceived value in the short term is slightly lower.

Overall, Tether 's USDT shines in emerging markets. Tether provides critical financial services to millions of unbanked people through freely available, widely accepted and highly mobile USDT. Its success is also based on the realization of these basic value points.

Summary and thoughts

• Circle is adapted to the Western market because it is more in line with the needs of fintech companies;

• Tether serves a wider user base, especially those who truly rely on stablecoins.

In other words, Circle wins in "tool attributes", and Tether wins in "survival needs".