This was originally composed as a tweet thread, which you can find here.
Many of us in crypto have thought about a stablecoin Venmo app. I wanted to go in depth and understand why, and how this idea has a graveyard of dead startups. Let's break down the idea maze here with a set of questions around this exploration:
Question 1: If you were to build a stablecoin Venmo (or a Venmo powered via crypto), the first question you might ask immediately is: how will your app be better than Venmo today?
Answer: Venmo is already free and instant. If you're building a 1:1 copy of Venmo, just built on Stablecoin rails, you will not be able to reach significant scale. The reason being that both in terms of cost and speed, it's already 0 (i.e. free + instant.)
The alternative argument for how you would reach significant scale would be completely dependent on crypto as a market growing. You would start targeting crypto natives first; and as more people adopt stablecoins across the world, you would need to figure out how to get the behavior and value to accrue to your application.
Note: Venmo today serves as a funnel for Paypal's core product. The end game for profitability for Venmo is the merchant play, which is starting to materialize. But peer-to-peer transfers are not a real revenue generating opportunity. That's why Cash App also transitioned into becoming a bank. Peer-to-peer transfers is a great wedge to get a bunch of high retentive users, but you need adjacent products built on top to capture real value. Debit cards, high APY checking accounts, and stocks are common upsells.
Question 2: So then you might ask what are the missing opportunities, or problems with Venmo that you can solve with stablecoins?
Answer: There's 3 areas that you can look at:
A Global Venmo: Stablecoins are built on global rails, meaning that you can send USD to anybody in the world if they have a way to receive it (AKA a wallet). Venmo is limited geographically, and only available in the US. However, there's several obstacles behind this idea of a global Venmo when you look deeper, which is the following:
Behaviorally, a lot of the payments that occur on Venmo are concentrated within geographically densities - for ex, paying a landlord for rent, paying a friend back for dinner, etc. All of these payments are relevant to an in person physical interaction and in most cases, these people reside in the same country (ie the US) and are legal residents and have SSN's, which allow them to use Venmo.
In other countries, the banks themselves have built functionality that mirror Venmo's functionality - Faster Payments in the UK, M-Pesa, etc. This then goes back to the fact that most of Venmo's payments only need domestic rails -> which then go back to question 1's conclusion. As soon as you think about the types of payments that Venmo typically conducts (i.e. related to friends + family) in a global context, most of us resort to remittances, and USD accounts which are different than the original Venmo use case.
Note: there is a real use case for borderless/cross-border payments with stablecoins for a few reasons - which includes addressing the strict capital controls imposted by countries, FX conversions (sometimes, going from stables -> local currency is cheaper vs USD > local currency in many countries), stablecoins becoming a medium of exchange, etc. But really, people are comfortable with getting paid in stablecoins due to the ability to go from USDC -> local currency without limits, and sometimes with better FX rates than typical USD.
A Yield Bearing/Rewards Venmo: The balance that you hold in Venmo isn't earning you $. There's opportunities for products like your stables to be earning you money (i.e. USDM/USDY), etc where you can earn on your yield passively. Crypto creates an environment where intermediaries and take rates compress to 0, leading to capital efficiency, and ideally, value being passed to users.
An Inter-Operable Venmo: One annoyance is when we all have different payment apps (i.e. you have Zelle, I have Venmo). You could use account abstraction (AA), because AA allows you to provide a wallet + token(s) to any account that can be authenticated on the internet. We already see this today through creating a wallet with a google account, or a twitter account. Potentially doing this for P2P payments apps could be interesting. ZK (i.e. @zkp2p) excites me because it could bypass some of these technical limitations when companies like Venmo shut down their API's.
Question 3. So a global Venmo use case gets messy, and translates into a remittance/USD account use case. Then, you might zoom out and ask: what are the unique properties that stablecoins possess? There are 3 points that interest me here:
Stablecoins provide a larger surface area to provide a stable currency to humanity, as it doesn't require an identity, only a wallet > I believe that a stable currency is a human right. There are over 20 human rights listed here by the UN (https://un.org/en/about-us/universal-declaration-of-human-rights), while it includes economic rights (i.e. article 23: Everyone, without any discrimination, has the right to equal pay for equal work), it does not specifically address the stability of a currency as a human right. If we have the right to work, but the money we get paid in doesn't work and loses value, how is that fair?
Stablecoins are global and universally accessible to anybody with an internet connection > You can go to market faster with a larger TAM, similar to point 1. Hypothetically, if you build products the right way, you can give USD to someone faster/easier with stables.
Stablecoins are programmable > Because stablecoins are built on global ledgers, there are neat opportunities to make stablecoins truly programmable and conditional according to any type of event occuring onchain or offchain. For example, because X happened, send Y. Micropayments could also be interesting.
But, there are primarily 2 challenges with building a stablecoin payment application, including the following:
On & Offramps (AKA the double hop problem) > In most cases, the cost of onramping or offramping stables into FIAT is just as, if not more expensive than traditional payment solutions (especially long tail currencies.) If you were to compare going from USD <> EURO on Wise versus USDC <> EUROC on AVAX, crypto is more expensive today if you include the double hop problem. You can argue that crypto is not meant for highly liquid pairs like EUR vs USD, or you can also argue that liquidity on AVAX for these 2 pairs are not as liquid, but the point goes.
If you were to compare going from USD <> EURO on Wise vs USDC <> EUROC on AVAX, crypto is more expensive today if you include the double hop problem. You can argue that crypto is not meant for highly liquid pairs like EUR vs USD, or you can also argue that liquidity on AVAX for these 2 pairs are not as liquid, but the point goes.
You could use USDC <> EURE (which has a native SEPA integration), where it's actually $5 cheaper and gives your wallet an IBAN. Monerium allows you to move seamlessly between these two solutions, but at that point, is it 10x cheaper? Will you as a builder be able to get over the other hurdles outside of speed / cost? TLDR: Crypto, as a payments network is only faster + cheaper when you don't need to on/offramp every transaction, which means that stablecoins need to be an accepted medium of exchange - it's already a great store of value + unit of account.
Regulatory Uncertainty > This is repeated all the time, but regulatory uncertainty affects "the medium of exchange" component of money mentioned above, as consumers/businesses are less willing to adopt stablecoins as a payment method. If stablecoins were allowed to be a neutral payment method to compete in the overall "payments" marketplace, I'm confident a lot more businesses/individuals would be comfortable to use/hold stables. I think there's a clear opportunity for marketplaces like Uber/AirBnb to use a solution like USDC to execute their payouts.
Keep in mind, the government is the best "distributor" of products. If you can get the government to adopt your product as the law, there's a clear requirement to use the product (i.e. Intuit lobbying to make taxes complicated: https://propublica.org/article/inside-turbotax-20-year-fight-to-stop-americans-from-filing-their-taxes-for-free, etc).
In this case, it's not asking the government to require stablecoins to be a mandatory legal tender everywhere, but giving it the go ahead and "all clear" so merchants are more open towards adoption.
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